Evidence of green leases in England and Wales

AuthorSusan Bright
PositionNew College, University of Oxford, Oxford, UK
1 Introduction

This paper reports on a research project examining how much “green” there is in a sample of office and retail leases with registered leasehold title in England and Wales. The meaning of “green” is considered more fully later in this paper but for now a green lease might broadly be considered as one which purposively supports and facilitates the adoption of leasehold practices that enable the improvement of the environmental performance of buildings and their use. The aim of the research was to find out if signed leases (as contrasted with precedent leases) ever contain green provisions; and, if so, what form these clauses take.

This research is inevitably backward looking as registered leases reflect deals negotiated in the past – the leases in our sample were signed during the period 2008-2013. Our sample was small and, as explained in the Section 3, the sample chosen is not representative. Table II provides a summary of key aspects of each lease examined, and the material is presented anonymously with each title referred to by an alphabetic descriptor. The expectation was that we would find little green in the sample leases. It is surprising, therefore, to find that two-thirds of the leases examined in this project contain “green” provisions, and that this is not confined to office leases. Although some of these leases had only passing reference to green concepts, several reflected a significant joint commitment by the landlord and tenant to manage and use the space in a sustainable way. As we explain below, we focussed research on green buildings, expecting these to be the most likely to display green leases. The flip-side of our findings is worth commenting on: even in this context – buildings designed for high environmental performance – one-third of leases granted had no provisions aimed at supporting practices leading to better environmental performance. Given that these were long-term leases – of between nine and 25 years – this means that the parties are effectively locked into legal arrangements in which it may be difficult to make environmental upgrades in future years.

2 The adoption of green leases

Although the idea and language of green leases was largely unheard of in England before 2007, there are now a number of toolkits available, giving tips and precedent wording for inclusion in leases, such as the Green Lease Toolkit issued by London's Better Building Partnership (BBP)1. A number of the major landlords have announced the adoption of green leases as standard (for example, Hammerson, Legal & General)2, and Marks & Spencer announced in Spring 2013 that it was introducing green clauses in new leases and for existing leases through memorandum of understandings (MoUs)3.

Nonetheless, little is known about how widespread the use of green leases is in the commercial property market, or how many green clauses survive the negotiation process. Most anecdotal evidence suggests there is strong market resistance to green leases, and that uptake is especially low in the retail sector4. A common perception is that if there is a commitment to pursue environmental goals it is preferred to support this by use of a non-legally binding MoU or by reference to a Tenant Handbook. One advantage of an MoU is that is can be used alongside leases that were entered into prior to the development of the green lease concept, and both handbooks and MoUs provide easier opportunities for adjustment of policies over time. When green leases are announced, there is seldom much detail available to non-parties about what this means, and the precise content of agreed leases is often perceived as commercially confidential. The sensitivity of lease documents is such that some leases, for example Lease D in our sample, contain a provision requiring that the parties treat the lease as confidential to the parties, their professional advisers and bankers.

Nor is much known about the picture internationally. The Federal Government in Australia encourages Green Lease Schedules to be used in all commercial leases of Federal Government-owned property and for leases entered into by the Federal Government as a tenant of privately owned commercial property ( Australian Government, 2013 ). Notwithstanding the lead taken by the Australian Government it does not appear yet that Green Lease Schedules are common place or have had any significant impact in the private sector ( Byrne, 2012 ). Globally, there is scant evidence about the content of agreed leases ( Bright and Roussac, 2012 ).

This research project shows that green leases are being entered into in England and Wales. The project does not provide information on how frequently green leases are used, and neither does it look at the adoption or content of MoUs (these are not public documents). It is, however, the first project to provide empirically based evidence about the content of early green leases in England and Wales.

3 Methodology

The aim of our research was to examine the wording of leases that have been entered into post-2007 in order to see if these leases contained any green provisions, and, if so, to find out what kind of terms were being agreed to.

3. 1 Selecting leasehold titles

Given difficulties in approaching parties directly for copies of agreed leases, and concerns over confidentiality of leases, we relied on leases recorded on the public land register. The sample is not representative. It was intentionally small (we examined 28 leases), in large part because of budget limitations but also because the research was intended to test the methods used. The sample excludes short leases as registration under the Land Registration Act 2002 is only compulsory for leases of more than seven years; as average lease length is now less than seven years this means that only a subset of the market has been examined ( British Property Federation/IPD Ltd, 2012 ). Documents that take effect outside the lease, such as handbooks and MoUs are not available on the register and so we have no information about green arrangements entered into outside of the lease. Further, because the expectation was that little, if any, “green” was likely to be found, titles were selected predominantly from leases of quality green buildings as our assumption was that these are the most likely properties to incorporate green principles into leasing practices.

In selecting properties we sought to use leases from a variety of locations and offering a mix of different landlords and tenants. We therefore used a number of different approaches to identify the leasehold titles that we wished to obtain copies of. Table II shows that whilst the majority of our sample leases are in London, there is a regional spread. The regional descriptors are based on the government offices for the regions that were established across England in 19945.

One method was to identify green buildings by reference to BREEAM rated properties and properties referred to in the BBP Best Practice Case Studies6. the Building Research Establishment Environmental Assessment Method (BREEAM) is a UK-based rating system that was launched in 1990. BREEAM rated properties were found by internet searches using the BREEAM and BBP web sites, together with general media and press searches, with a focus on recently constructed properties. Most of our sample are leases of BREEAM rated new and refurbished buildings (almost two-thirds of our sample have an “excellent” rating). We also selected some titles by starting with the identity of the parties, choosing those with stated policies of negotiating “green” leases, or professing to have “green” credentials, and looking at developments they have recently been involved with. In the event, it proved surprisingly difficult to source information directly from landlords' and tenants' web sites and press releases as to their use of “green” leases.

The Land Registry's public search facility was then used to discover the leasehold titles for our selected properties. Obtaining leases from the Land Registry was by no means straightforward, notwithstanding it being a public record. The public interface of the Land Registry allows properties to be searched by address and postcode only (not by date, or by party). Further, for most properties chosen our search returned numerous leasehold titles, as the properties were usually multi-occupied7. Given that the earliest claimed use of a “green” lease in the UK was in 2007, our search needed to be confined to leases registered in 2008 or later so as to avoid producing (and having to pay for) irrelevant titles. We therefore had to rely on the assistance of a personal contact at the Land Registry to supply us with much of the information we required, and to whom we are extremely grateful. In addition, a major retailer who we had identified as being committed to green leasing practices provided us with seven recent leasehold agreements; these are included in our sample as they are publically registered leases, but as they were supplied direct to us we avoided Land Registry costs.

In total we acquired 28 leasehold titles. Two of these had to be excluded from our analysis: Lease E was not for office or retail use (and we...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT