A green lease is a regular form lease with additional provisions that allow both the landlord and the tenant to maintain and enhance a building's environmental performance. In the event that such clauses are included in a commercial property lease, they are enforceable and will be in effect for the remainder of the lease's term.

Green leases can also cover a building's wider environmental impacts and sustainability, such as water management, efficiency and fittings, waste management, and recycling facilities. Green leases are frequently discussed in the context of improving a building's energy efficiency. Such clauses will impact several lease elements, such as service charge clauses, permission for alterations, and reinstatement of alterations at the end of the lease term.

"Light green" and "dark green," green leases are available. Light green lease provisions, such as an agreement to discuss environmental issues, place less duty on the parties. Dark green clauses have more detailed provisions that are enforceable and demand a greater level of commitment to environmental matters, such as requiring the parties to meet set environmental goals.

Green leasing provisions can be included in existing leases as well. When a lease is already in place, the parties may sign a Memorandum of Understanding ("MoU") that lays out a plan for their cooperation in enhancing the property's environmental performance. Clauses in a lease may not be as flexible as those in an MoU. It is not legally binding but is voluntary. A new landlord, tenant, or subtenant may require the parties to engage in a new MoU because an MoU often does not run with the lease.

Why go Green?

1. Energy Efficiency 

A focus on energy efficiency has generally increased in recent years due to worries about climate change and the substantial role that buildings play in greenhouse gas emissions. A bill establishing energy efficiency standards for new and existing buildings has been introduced. Lower operating expenses will result from increasing energy efficiency, particularly when energy prices are unstable.

2. Future proofing

By having greener structures and green leases to control the occupancy of those facilities, landlords and tenants may find protection from many future commercial and physical dangers. These dangers could include the following: 

• Lack of landfill space and water supply.
• The effects of climate change on buildings physically.

3. Environmental, social and governance policies

Occupiers increasingly believe that their buildings embody everything that their company stands for. Reducing the occupier's environmental effect and carbon emissions is likely to be a commitment to sound environmental, social, and governance policies. One way a company can show its stakeholders and staff that it is committed to environmental change is by entering into green leases.

Barriers to Green Leases

1. Cost

The question of who should pay for any environmental upgrades or work necessary under the green lease and why that party should be obliged to pay for it can be a hurdle to adopting green leases.

2. Valuing green buildings

The challenge of assessing a building's greenness is crucial to the debate over who should foot the bill for environmental renovations. It can be challenging to determine whether a building's value shift results from market conditions or the structure's unsustainable or excessively green features.

3. Understanding

There may be onerous and expensive duties under a green lease. Tenants may worry that landlords that want to enact green lease terms are merely aiming to increase their costs.

Green leasing offers an efficient framework for landlords and tenants to collaborate toward the shared goal of minimising their environmental impact and conforming to upcoming statutory requirements. For landlords and tenants, a sustainable structure with fewer operating expenses appeals more to renters.