What is a 'green lease'?

Oliver Ray of Gotelee & Goldsmith explains.THE term “green lease”has become very popular but what does it mean?With environmental issues at the forefront of people's minds, the idea behind a green lease is to help improve the energy efficiency of buildings.

THE term “green lease”has become very popular but what does it mean?

With environmental issues at the forefront of people's minds, the idea behind a green lease is to help improve the energy efficiency of buildings.

Even if you are not persuaded by the “green” concept, there may be a number of commercial reasons for adopting a “green lease”.

Improving the energy efficiency of a building will not just reduce the energy usage and subsequent bills.


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It could also help with complying with corporate social responsibility policies and even assist in the procurement of government contracts.

In practice there is, at present, no such thing as a green lease.

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It is, rather a term used to cover a variety of clauses and provisions designed to be incorporated into leases with the intention of achieving effects beneficial to the environment.

Green lease provisions can cover anything from an obligation to turn lights off in unused rooms, to using sustainable materials when conducting repairs or alterations to the building.

With the current uncertainty within the commercial property sector, it is possible that the concept of green leases will not catch on quickly.

The main barrier to implementing green improvements to buildings is the cost involved.

A short-term tenant is unlikely to accept any obligation to contribute towards potentially costly works when they will not recoup the benefits during a short-term letting.

Conversely, a landlord is unlikely to foot the bill for energy efficient improvements if the tenant is the one who reaps the rewards through lower fuel bills.

With this in mind, there are still options available for landlords and tenants to incorporate green credentials into their relationship.

However, both landlords and tenants will need to think carefully before adding potentially onerous, environmentally friendly obligations into their lease in case the obligations, for example, put off potential successors in title.

Should landlords or tenants wish to transfer or assign their interest in the property, a memorandum of understanding (or side agreement) could be considered.

This would be separate from the lease and not binding on any successors but it would form the basis of understanding between the original parties.

n Oliver Ray can be contacted to discuss “green leases”, or for advice on any commercial property matter, on 01473 298110 or email oliver.ray@gotelee.co.uk

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