Can Green Leases Help Fast-track a Sustainable Built Environment?

In recent years there has been a huge push for sustainable real estate with the realisation that buildings contribute to 40% of energy consumption in developed countries. One way in which sustainable real estate is being implemented is through green leases; leases that go above and beyond to incorporate sustainability requirements.

Why Green Leases?

Increased Regulatory Control
Governments are introducing various regulations and controls for both occupiers and owners of buildings with regard to environmental sustainability. How this will work and who pays for it – landlord or tenant – will fundamentally be down to the covenants in the lease. Green Leases seek to address these issues; setting out who is responsible for compliance and performance improvement, and who pays. If you are letting or taking a 25 year lease, covenants that address potential future legislation are key to how the property will be managed, and ultimately its future success and viability.

If you are letting or taking a 25 year lease, covenants that address potential future legislation are key to how the property will be managed, and ultimately its future success and viability.

Clear Financial Benefits
There is a clear business case for sustainable real estate. As sustainable buildings continue to demonstrate financial benefits – for example through lowered operational costs, increased staff productivity, and higher rental and capital values – Green Leases are becoming more attractive to both tenants and investors who are willing to pay premiums to reap long-term benefits, but are dependent on aligned commitments for maximum success.

The Rising Wellness Agenda
As previously discussed on the Green Perspective, the wellness conversation is taking the real estate sector by storm. In recent years, occupiers and owners have tuned in to the building business case for wellness in the built environment. It is acknowledged that occupying sustainable buildings can result in a healthier and more productive work force. For occupiers, staff costs account for approximately 90% of total expenditure. For landlords, design for wellness can be a clear differentiator in attracting top-quality tenants. However, the success of wellness management by either party is highly influenced by the other, perhaps more so than traditional material aspects of sustainability such as energy consumption.

With heightened interest in wellness, leasing teams are now joining the conversation and facilitating aligned commitments between owners and occupiers.

An occupier’s employee wellness programme can ultimately be limited by the design of the core building; visual comfort can be limited by the building envelope, air quality can be limited by central HVAC systems, levels of physical movement by occupants can be limited by the aesthetic appeal of common stairwells. Taking it to the next level, the WELL Building Standard’s owner-focused Core & Shell and occupier-focused New & Existing Interiors Certifications have been designed to work in tandem. With heightened interest in such a standard, leasing teams are now joining the conversation and facilitating aligned commitments between both parties.

As regulatory controls increase, landlords and tenants will need a lease – a green lease – that as a minimum sets out how compliance will be met and where their respective responsibilities lie. As for those ambitious landlords and tenants, the synergies that exist between commitments by each party cannot be ignored. When combined, these efforts produce a total effect that is greater than the sum of the individual actions. Leases that address “green” and wellness issues provide a vehicle for creating a sustainable built environment, whilst enabling futureproofing by owners and occupiers, and delivering a clear economic advantage.

So, is there an increasing desire for Green Leases? We think so, and it will only continue to do in years to come.