Property industry needs to get itself up to speed quickly on 'Green leases'
The standard commercial lease has changed very little in the 30 years I have been looking at them but the 'green revolution' is now seeing leases being redesigned worldwide. With the ever increasing influence of overseas companies locating here, this phenomenon is set to continue and Irish agents need to be well briefed on the topic.
Traditional leases largely ignore environmental issues and indeed, present barriers to making energy efficient upgrades. A 'green lease' contains additional clauses which provide for how a building will be occupied, operated and managed in a sustainable way. The first versions of green leases are now being seen in Ireland and last week I met chartered surveyors Brian Meldon and Eamonn Maguire who are working with Roisin Bennett, partner at Reddy Charlton solicitors and The Irish Green Building Council, in devising the recommended clauses for a standard green lease.
Worldwide, the demand for better-performing buildings has been driven by tenants, particularly in the tech sector, and more recently by retailers. 60pc of new office buildings in Australia are on green leases and in France, legislation requiring green leases has been in place since 2013. In the UK, green leasing is common in the offices sector. In retailing, Marks and Spencer, for example, have taken a leading role and have over 70 stores on green leases and they seek to negotiate a Memorandum of Understanding adopting best practice, for existing leases.
It will be important to adopt a standard green lease for Ireland, if only to save time - and otherwise, leases will develop from a mixture of different landlords and tenants requirements, and legislation. Under EU law, all new commercial buildings are required to have achieved a nearly zero-energy rating by the end of 2020 and government-owned or occupied buildings must reach this standard by December 2018.
Leases around the world are now referred to as either 'dark green' or 'light green' depending on the strength of the green content. In the former, green clauses such as targets on energy consumption are included as traditional covenants in the lease, with formal penalties for non-performance. In the latter, agreements on green issues are contained in a schedule of understanding attached to the back of the lease and with disputes more likely to be handled by arbitration or mediation. The chartered surveyors working group are of the view that this latter system is most likely to be adopted here, but that a hardening towards covenants in the lease will be driven by legislation.
Typical green clauses include agreements between the landlord and tenant not to do anything which would adversely affect the energy rating of the building and that works, eg fit-outs, are carried out to the BREEAM environmental assessment standard. Participation in a 'Building Management Committee' is another common clause, with training for all staff on the importance of reducing energy consumption, separate metering for all utilities and sharing of information between landlord and tenants. An 'Energy Management Plan' is often annexed to the lease with the parties agreeing goals for the reduction of energy usage and waste.
It is important as part of this collaborative process that the tenant is fully engaged, as even the best designed energy efficient building will perform badly if the tenant doesn't play their part. It was interesting to read some recent research where the energy consumption in A-rated buildings was worse than that in B-rated buildings, which is attributed to the occupiers of the poorer-rated building being more aware of the need to save energy.
The benefits from green leases include higher rents for landlords, increased demand and higher prices from institutional purchasers and happier and healthier staff for tenants. Green leases are here to stay.
Dragons At The Docks
Having navigated their way through the choppy waters of the recession, firms in the property business can now take on their competitors in the inaugural 'Dragons at the Docks' charity boat regatta on August 31 next.
Sponsored by major players in the industry, who are bringing in 10 Dragon rowing boats from London, all proceeds are going to homelessness charities. Firms will race against each other by business sector with 10 rowers and one drummer (to keep time) per team.
I am looking forward to acting as the MC/commentator on the evening and with a barbeque and entertainment afterwards, it looks like being the fun night out of the year. See Dragonsatthedocks.ie