Amid efforts to reduce energy costs and improve their sustainability credentials, a number of corporate tenants are seeking to improve the environmental performance of premises which they occupy.
Whilst this is happening partly through rating systems such as NABERS and Green Star, a number of organisations are going further and embedding clauses relating to the sustainability of buildings into their leasing contracts. Such arrangements, known as ‘green leases’, essentially represent standard contracts for the leasing of corporate real estate but include specific measures relating to the environmental performance of the building’s operation.
In particular, clauses included under a green lease can include the attainment of energy performance measures (i.e. NABERS, Green Star), separate metering to enable the tenant to monitor their own energy usage, a committee to monitor the building’s environmental performance or new practices which will deliver improved outcomes in terms of sustainability measures.
Ricky Raad, a commercial property lawyer at Coleman Grieg Lawyers, said green leases are not a separate phenomenon but rather a natural extension of an ordinary commercial lease.
“I don’t like to classify ‘green leasing’ and ‘commercial leasing’ as separate contracts,” Raad said. “I prefer to see a green lease as the new, improved version of a commercial lease or an extension of a commercial lease.
“What makes a lease ‘green’ is the addition of obligations which ensure that the parties – both lessor and lessee – are responsible for environmentally friendly and energy efficient practices.”
From a tenant perspective, Raad says the most obvious advantage of a green lease revolves around cost savings delivered through lower energy consumption. Beyond that, having specific environmental measures written into the leasing contract provides a further angle (in addition to Green Star and NABERS ratings) for the company in question to promote itself as a forward-thinking organisation with strong credentials in terms of corporate social responsibility.
In a similar vein, landlords benefit through improvements driven through the green lease process in terms of operating costs and profit margins within their own operations. Also, the ability to market their building’s occupancy cost savings to tenants allows landlords to position their asset as more of a premium offering within the marketplace, thus lifting occupancy and the amount of rent they are able to charge. Finally, a building which operates more efficiently from an environmental perspective typically has less strain placed upon it in terms of features such as HVAC. This helps the landlord to minimise long-run costs in terms of repairs and maintenance and to extend the life cycle and operating performance of their asset.
Around Australia, the push toward green leases has gradually gained momentum.
In the public sector, for example, the National Green Leasing Policy encourages government agencies to include sustainability ratings, separate metering and environmentally friendly power sources in leases in respect of premises which they occupy.
In terms of green lease strategies, Raad encourages any party going down this path to first audit their existing system and determine where they are at currently in respect of energy consumption. This, he said, will provide a baseline from which outcomes through the green lease process can be measured.
In addition, he says neither landlords nor tenants should presume that current practices in terms of building energy consumption are as effective as possible. Whether we are referring to something as small as changing a light bulb or as large as investment in high-end machinery, he says there are usually ways in which even well-managed operations can be improved.
With the lease itself, Raad says obligations of both parties must be clearly outlined and understood. It is also important for each party to be clear about why they are doing a green lease and what they are trying to achieve, he said.
Raad says green leasing is the next evolution in corporate real estate.
“The way of green leasing is the way forward for industry,” Raad said. “It’s not just for the benefit of the tenant, nor the Landlord, but for the wider community and the environment.
“Companies now are responding to public concern and public interest. That’s why they are taking this (green leasing) into account.
“I think that’s phenomenal.”