01/01/2013

With recent dire warnings about the impacts of climate change and global warming, we mere mortals may wonder what we can do about such matters.

If you are someone charged with entering a new lease for your company or organisation, you may be interested to learn about green leases. A green lease helps both the landlord and tenant to achieve and maintain energy efficiency and other sustainability goals throughout the term of the lease and enables better environmental and economic performance of a building.

Some examples of green provisions in leases are:

• Outgoings - a green lease will generally provide separate metering for individual tenants rather than having the tenant pay a fixed proportion of the building’s total costs
• Rent review - the parties may require market reviews to take into account the energy performance rating for the relevant review period
• Materials and repairs - green materials may be required in the lease’s fitout, repair, maintenance and make good provisions
• Landlord’s right of access - the lease may allow environmental auditors to enter the premises to do environmental audits and work to be done for energy efficiency purposes
• Removal of fixtures - the lease may enable more recycling or reuse of materials when appropriate
• Landlord’s consent to alterations- the lease may allow the landlord to refuse consent to alterations that would have a detrimental effect on the energy efficiency of the building
• Communication - traditional leases generally have no requirement for information sharing or landlord-tenant communications. In green leases, an environment management committee may be set up with shared goals for each party on environmental efficiency measures
• Waste disposal - these provisions may specify recycling of certain materials, placement of different types of waste in separate bins and the like    

There will be benefits for both landlords and tenants with green leases. For a tenant, there can be cost savings from lower energy bills as well as improved reputation by way of intangibles such as greater social responsibility and doing the right thing for the environment, employees and the community. For a landlord, there may be cost savings with more efficient buildings and also happier tenants, meaning longer-term leases and fewer disputes with tenants.

An Australian Government initiative called the Green Lease Schedule (“GLS”) is also relevant here.

The GLS is a formal commitment (though not currently by way of legislation) to energy efficiency and sets a minimum building energy performance standard measured by the National Australian Built Environment Rating Scheme (“NABERS”). NABERS ratings measure and rate the energy and other resource consumption of a building annually, based on actual data covering the building’s performance in relation to energy, water, waste and the indoor environment. The NABERS ratings are a number of stars from 0 to 6 in half star increments. The higher the number of stars, the better is the rating of the building. Most city buildings, when being advertised for sale or lease, now specify the NABERS ratings. While the GLS may currently apply to Australian Government leases, it is a timely model for green provisions in all leases. 

Green lease terms under the GLS take the form of a schedule to an ordinary lease (rather than making amendments in the body of the lease or having a separate side arrangement). Using a schedule means that the green provisions can “stand alone”, be easily read and understood and minimise costs by eliminating the need for painstaking reviews of, and tiresome amendments to, the rest of the lease. 

Under the GLS, the Australian Government has made schedules publicly available. Currently, there are 8 different schedules for different leases, depending on whether the lease is a gross or net lease and how much of the building the tenant occupies. 

This is a very brief summary of green leases. We can assist you if you are interested in Green Leases and want to know more or you wish to have “green lease” provisions in your next lease.

If you need assistance or have any questions in relation to this article, please contactTOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.