Green leases could spell trouble for tenants

This article is brought to you by Retail Technology Review: Green leases could spell trouble for tenants.

Commercial tenants must check they are not storing up trouble by agreeing to costly green clauses when signing a lease for a new premises.

Thats according to Kathy Toon, retail specialist at leading law firm Clarke Willmott, which has major offices in Bristol, Birmingham, Southampton, London and Taunton, who also warns tenants risk shouldering hefty financial burdens in their eagerness to sign up to leases.

So-called green leases are becoming more popular with landlords, who want to be seen to be promoting improved energy performance in their properties, and tenants, who want to do their bit to help the environment.

Part of the problem is that there is no standard definition what a green lease is, but generally it is considered to be a lease which seeks to promote improved energy performance and sustainability.

The practice is encouraged by the government which has identified commercial premises as being one of the major contributing factors to the UKs output of greenhouse gases and consequently global warming.

However, tenants can often become so caught up in their willingness to agree to green leases that they neglect to run the small print past their professional advisers.

Big mistake, warned Kathy Toon. Leases of new sustainable buildings are of less concern because they usually incorporate the latest equipment to lessen the buildings carbon emissions.

However, tenants must look closely at green clauses for leases of older buildings to check who is actually bearing the cost of any sustainable retro fitting and indeed what that cost might be.

Mrs Toon said few people would argue with the concept of a landlord and tenant sharing the costs of equipping buildings with modern energy-saving kit.

Thats all well and good when a lease has 25 years to run, she said. That gives plenty of time for a tenant to obtain pay back of the cost of the work.

The problem is that the 25 year lease has become increasingly uncommon, while the five year lease is gaining popularity, meaning tenants may be tied to short-term agreements containing major financial commitments to environmental improvements which are of little real benefit to the tenant and could mean they end up paying much more than they expected over the period of the lease and hand the landlord back a more valuable investment with little real benefit to the tenant.

She added: With the governments commitments to reducing greenhouse gases and the spotlight on commercial properties I think we can safely say green leases are here to stay.

In my opinion the best and most effective green leases will be those which are developed between owners and occupiers acting together which address the aims and concerns of all rather than being imposed by one party or another.