By Susan Bright
The following extracted paragraphs are from the Comment section published in the May 2012 issue of the Property Law Review.*
CHALLENGES AND OPPORTUNITIES
In most developed countries, the built environment is a significant contributor to carbon emissions. The commercial sector (non-residential, but including retail and industrial), accounts for something in the region of 10%-20% of total carbon emissions, for example: 18% in the United Kingdom (Carbon Trust, Building the Future, Today, Document No CTC765 (Carbon Trust, London, 2009)); and 10% in Australia (Allen Consulting Group, The Second Plank Update: A Review of the Contribution That Energy Effıciency in the Buildings Sector Can Make to Greenhouse Gas Emissions Abatement (Australian Sustainable Built Environment Council (ASBEC), Sydney, 2010)).
In order to reach international targets for reduction in greenhouse gas emissions it is therefore essential that there is a reduction in carbon emissions from commercial buildings. As a significant proportion of commercial property is let, this means that there is a clear need to identify effective and coherent ways to maximise energy reduction in tenanted commercial space (United Nations Environment Programme, Owner-Tenant Engagement in Responsible Property Investing (UNEP Finance Initiative Property Working Group, Geneva, 2009), http://www.unepfi.org/publications/ property/index.html, viewed 2 April 2012).
The issue is not simply related to energy use, but to sustainability generally. In order to reduce the environmental impact of commercial buildings it is necessary both to provide buildings in which energy efficiency is part of the design and refurbishment process, and to address energy demand. These issues are explored more fully in Axon CJ, Bright SJ, Dixon TJ, Janda KB and Kolokotroni M, “Building Communities: Reducing Energy Use in Tenanted Commercial Property” (forthcoming, 2012) Building Research and Information.
The issues are much more complicated in relation to tenanted space, in comparison to owner-occupied space, for a range of reasons, including: the variety of people using the space; differing commercial objectives and priorities; complex energy supply arrangements; facilities management often being outsourced; different leases; and different lease-end dates.
In relation to the specific relationship between the landlord and tenant there are three broad areas of challenge. The first relates to the structure of traditional leases. Whereas the landlord will usually be responsible for the provision of plant and equipment and the supply of energy, at least in relation to the base building and often in the tenant’s premises, the tenant will be the one paying the bills. The Carbon Trust’s report on the United Kingdom Climate Change Programme identified this “landlord-tenant divide” (often known as the split-incentive) as one of the key barriers to energy efficiency take-up in buildings, and such barriers are also highlighted in other countries, including Australia, New Zealand and the United States (Carbon Trust, The UK Climate Change Programme: Potential Evolution for Business and the Public Sector, Document No CTC518 (Carbon Trust, London, 2005), p 32; Kempener R, Low Energy High Rise: Literature Review (Warren Centre, University of Sydney, 2007)).
The second challenge is to do with attitudes. The landlord-tenant relationship is often adversarial in nature, with little dialogue between the parties during the lease. The landlord is an investor in an asset, the building, rather than a service provider. The tenant regards the premises as a necessary cost item in running its business and seeks to minimise outgoings.
The third problem with leases is one of “environmental silence” in that traditional leases largely ignore environmental issues. Tenants may be allowed to do things without regard to environmental consequences (eg to put up internal partitioning), and there are missed opportunities to require positive environmental steps to be taken.
Each of these challenges can, however, be turned around. Structural issues can be addressed through innovative clauses, such as the energy-aligned lease developed as part of plaNYC. This enables the landlord to pass through the cost of environmental upgrades to tenants, which are paid for from utility bill savings over an extended payback period (see http://www.nyc.gov/html/planyc2030/ downloads/pdf/110517a_energy_aligned_lease_official_packet.pdf, viewed 2 April 2012). Attitudes can change with careful and designed ways of engaging landlords, tenants and facilities managers. Lease wording can be amended to promote clauses that are sensitive to environmental issues. This may be only light green, eg requiring reinstatement of environmental improvements only if reasonably required by the landlord having regard to the future use of the property (as in Better Buildings Partnership, Green Lease Toolkit (London, 2009)), or more deeply green, such as setting specific environmental targets (as in the Australian Government’s Green Lease Schedule). For these things to happen, green conversations need to be introduced at the beginning of negotiations between agents to ensure that the heads of terms reflect these environmental values and that they will then flow through into the lease. For earlier work on drafting environmentally sensitive leases, see Bright S, “Drafting Green Leases” (2008) 72 Conveyancer 498.
* To read the full Comment section, which includes a discussion of other green issues relating to commercial leases, see (2012) 2 Prop L Rev 64.