The Revamped BBP Green Lease Toolkit - 10 Top Takeaways Part 1
Market Insight 12 February 2024 12 February 2024
UK & Europe
Following the launch of the BBP’s revised green lease toolkit, Kieran Mitchell explores ten key takeaways from the toolkit’s suggested green clauses and concepts for landlords and tenants to consider.
The Better Buildings Partnership has now launched its much anticipated revamp of their Green Lease Toolkit. The Toolkit has been a respected reference point for ‘market standard’ green clauses since its publication in 2013 and has formed the basis of the sustainability provisions incorporated into the Model Commercial Lease (MCL).
The revised Toolkit is focused on flexibility and practicality and claims to reflect changing attitudes towards sustainability issues within the industry. Some developments were expected, but others are much more progressive and would certainly be off market in 2024. In the first of two insights, we explore some of the more predictable developments included in the new Toolkit.
1. What it means to be ‘green’
A clear theme throughout the Toolkit is that the current ‘market standard’ for sustainability provisions (including those in the MCL) is considered the minimum starting point. Obligations that were seen as progressive in the 2013 iteration of the Toolkit now largely fall into the Toolkit’s ‘light green’ category of clauses. The Toolkit’s ‘medium green’ or ‘dark green’ clauses represent a significant ratcheting up of what it means to be ‘green’.
The MCL is intended to avoid unnecessary negotiations and represent a fair starting point for both parties. For this reason, sustainability provisions are frequently negotiated with some reference to the MCL and many stakeholders have grown more comfortable with the concepts the MCL incorporates. They have also developed their green lease policies with these principles in mind. Although a revised suite of MCL leases was published shortly after the release of the new Toolkit, the sustainability provisions in the MCL suite remain largely untouched. The inevitable conclusion is that the market has not yet moved beyond ‘light green’.
The priority for most stakeholders is ensuring that any green obligations are aligned with their statutory obligations and their existing operational capabilities. Adoption of the Toolkit’s more onerous clauses will therefore be determined by the legislative direction of travel and the parties’ practical capacity to comply with them.
2. Shared opportunities should result in shared costs
The new Toolkit acknowledges that the delineation of responsibility on green issues and costs liability often creates a significant barrier to the agreement of productive and fair green clauses in practice. The Toolkit recommends that the issue of costs is centered around two main principles:
(a) where works are carried out by the landlord that result in a net cost saving for the tenant (such as reduced utility costs), tenants should contribute to the costs of those works; and
(b) where works are carried out by the landlord to the premises (where the costs are not recoverable through a service charge), the parties should consider whether (and how) these costs should be recovered by the Landlord.
The principle of tenants contributing to environmental improvement works where an aggregate cost saving is achieved is usually accepted in commercial lease negotiations, so it is unsurprising that the Toolkit endorses this. However, the Toolkit is intentionally light on guidance as to how the costs recovery arrangements should be structured, so it is important that parties are aware of the key principles to consider when negotiating such arrangements. In particular:
(a) Who must demonstrate the cost saving and how robust must the evidence be? Usually this would be the landlord’s responsibility and the tenant will want to be satisfied that the numbers stack up.
(b) What is the extent of the cost saving that must be achieved? Tenants will want to know that the aggregate cost-savings exceed the aggregate cost.
(c) How long will it take to achieve the cost saving? Tenants will obviously want the pay back point to be before their lease expires. Landlords may have their eye on a longer timeframe and it may therefore be appropriate to apportion the costs accordingly.
3. Expanding the definition of Environmental Performance (EP)
The new Toolkit has expanded the definition of EP to include references to the biodiversity present in the premises and the premises’ resilience to actual or anticipated climate change effects. The significance of this expansion lies in the fact that most sustainability obligations require the parties to promote, improve or maintain the EP of the premises, so it is essential that they understand the indicators they are expected to measure.
Whilst the Toolkit’s new definition contains a sweeper category to include other environmental impacts (as was the case in the 2013 iteration), express reference to these new indicators may be resisted by tenants on the basis that they are vague concepts that are difficult to measure, especially in circumstances where tenants are required to carry out environmental assessments prior to carrying out alterations.
4. The importance of data sharing and metering
Data sharing obligations have quickly become commonplace in modern commercial leases and the new Toolkit has reiterated the importance of this practice in achieving common sustainability targets. The Toolkit’s previous suggested drafting is commonly accepted as a fair starting point in lease negotiations and the revised Toolkit has built upon these provisions.
- Parties should share energy, water and waste data they hold relating to the premises, as well as any other EP data agreed between them. The MCL requires all EP data held by the parties to be shared, so the new Toolkit’s refined, more objective list of data requirements should be welcomed by most landlords and tenants.
- Parties should be open to the idea of only sharing what they collect in their usual course of business. This should be welcomed given the administrative burden of collating and sharing data where either party has a large property portfolio. However, the Toolkit remains silent as to the format for the shared data, which can be equally problematic. Parties should consider these practical issues early in their negotiations.
- Parties are allowed to use the shared data for statutory, regulatory or voluntary certification purposes and in connection with any finance arrangements. Currently, data usage is generally limited to the monitoring of EP and measurement against agreed targets. Whilst this development will be welcomed by landlords (especially those who are listed or are signed up to voluntary certification schemes), parties should consider the need to anonymise any data published in the public domain if not subject to confidentiality provisions.
- Landlords can obtain consumption data directly from the tenants’ utility suppliers and tenants must provide a letter of authority if required. Direct data collection is often seen by landlords as a silver bullet as it reduces tenants’ administrative burden of data sharing. However, tenants may be concerned about the loss of control of such data or may not be able to agree to direct access for internal governance reasons.
The new Toolkit also includes expanded provisions relating to metering. The suggested position is now that landlords must install meters where reasonably practicable, although we are aware of some tenants who would resists any ability for the landlord to do so. Early discussion as to the location and nature of those meters is therefore essential to ensure that the parties can accommodate each other’s needs.
5. Expansion of service charge items
In order for buildings to become greener, more sustainable services need to be provided. It is therefore unsurprising that the new Toolkit recommends the expansion of service charge items to include various green services including the provision of waste segregation systems, the installation rain water collection apparatus and the payment of environmental levies.
Services will of course be dictated by the nature of each property. However, early discussion between landlords and tenants on the environmental services being provided can certainly aid the negotiation of service charge provisions. As for the costs of such services, the Toolkit suggests that tenants should not be entitled to challenge service charge costs on the basis that there is a cheaper alternative if the increased costs results from the services being procured in an environmentally friendly manner. Cost sensitive tenants may well feel unable to agree to that principle without significant caveat.
Keep an eye out for part two of this series, where we will consider some of the more surprising developments in the new Toolkit.