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Green leases are on the rise

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In 2002, an EC Directive tackled the issue of the energy performance of buildings and how to ensure its improvement. Still today however, the real estate sector is one of the main sectors responsible for climate change. Buildings account for around one-third of global emissions and consume 40% of the world's energy. To mitigate these climate-related impacts, sustainability and energy efficiency have become topics of discussion in the real estate business and made their way into actual contracts in the form of "green leasing".

The term "sustainable" was introduced for the first time in the European Treaty in 1993. Sustainable development is  a development that meets the need of the present without compromising the ability of future generations to meet their own needs. Today, funds and large international players seeking to fulfil all ESG requirements have started to draft green leases, and more and more commercial tenants now show an interest in renting green buildings.

Green leases are lease agreements in which the parties agree upon energy efficiency and environmental standards that must be respected during the lease term. In fact, an agreement between a landlord and a tenant is "green" when it includes environmental issues such as energy efficiency and sustainable use. It goes without saying that such provisions also need to be enforceable.
 

Even without binding regulations, parties can integrate common practices

For the time being, there are no regulations which stipulate what kind of provisions need to be agreed upon by the parties for the lease to be considered green. Some examples of green provisions in rental agreements include:

  • the obtention of a certificate (LEED or similar) for the building and/or the demised premises; in such case, the landlord will have to ensure that tenants do not make any modifications that might endanger the obtention of such certificate;
  • specifications on the construction itself and on the building material to be used by both landlord and tenant;
  • the installation of energy efficient systems and measures, of water economisers, centralised heating, etc;
  • green specifications on the tenant's fit out works;
  • specifications on maintenance, repair and renewal;
  • sustainable use of the energy, water, and other natural resources imposed on tenants;
  • specifications on the tenant's waste management, recycling;
  • specifications on cleaning material to be used;
  • green leases may contain such far-reaching provisions as e.g., green travel options and recommendations for the tenant's employees to use public transportation.

Such provisions need to be clearly drafted and should be enforceable. Further, the clauses need to be in line with the relevant national (leasing) legislation. The amendment of existing lease agreements into green leases will require the tenant's consent.

For further information please contact

Birgit Kraml
Birgit
Kraml
Partner
Austria

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