Green Leasing

Green Lease Principles This document constitutes a summary of the discussions on this topic that have taken place between Landlord and Tenant AR members during 2023/24 and also includes some further conclusions we understand Tenant members have consequently drawn. This note is intended as guidance and as a framework to show what participating AR members consider is a balanced approach to Green Lease Provisions to support a fair, collaborative approach on sustainability. It is acknowledged that different Tenants and Landlords may take a more robust or relaxed position on some of the points below. It is fair to say that a consensus was not reached on all points between the Landlord and the Tenant members, including for situations where the nature of a specific property or status of the parties may support an alternative approach, and this note seeks to also identify those. All parties acknowledge that this agreement is principally based on UK law existing as at November 2024 and agree to continue to closely collaborate on all associated matters in accordance with all applicable changes in law General Principles In our opinion, green lease provisions fall into six general themes: 1. Sustainability and data sharing. 2. Landlord's rights of entry including to carry out work/install meters. 3. Control over Tenant's Works/Alterations. 4. Obtaining EPC's. 5. Reinstatement obligations. 6. Service charges and the costs of energy improvement works. Sustainability and data sharing 1. There is a willingness to share the data that the Tenants and Landlords hold re: energy and water consumption once every 12 months. If meters are fitted (AMRs) which permit the supply of data at more frequent intervals without additional cost or administrative time on the part of the tenant, then the Tenant agrees to the provision of such data by such meters more frequently. If the Landlord is obliged by statute to capture such data more frequently than every 12 months, then the Tenant should be willing to provide that data in line with such statutory obligations at the Landlord’s reasonable cost . 2. The Tenant should not be obliged to comply with any targets except to satisfy any obligatory statutory requirements on the Tenant. Any wider duties imposed on the Tenant to pursue a reduction in emissions and other energy efficiency targets are not obligatory. 3 Asset/Sustainability plan – Except to satisfy any obligatory statutory requirements on the Tenant, the Tenant shall not be obliged to enter into and comply with any proposed Asset/Sustainability plan. If and the Tenant agrees to enter into any proposed Asset/Sustainability plan the Tenant thereafter agrees to comply with those agreed provisions 4 In addition: - 1. The Tenant should not be obliged to permit the installation of any meters/equipment which could be used/adapted in any way to facilitate any IT ‘data breach’ from the Tenant’s business: i.e. any illegal access to any sensitive/confidential data such as bank account/security/customer information etc under the Tenant’s control (Data Breach); and 2. Except to the extent needed to satisfy any statutory requirements, any data shared should be used without reference to the Tenant’s name and in a way that is otherwise non-attributable to the Tenant, its business and/or the Premises. Landlord's rights of entry including to carry out energy improvements/install meters Landlords should be entitled to enter the Premisesto review or measure the Environmental Performance of the Premises upon prior notice/appointment and subject to usual Tenant’s entry safeguards. Landlord shall not be entitled to review Tenant’s utility meters without prior approval of Tenant (such approval not to be unreasonably withheld or delayed). Landlords should be entitled to enter the Premises with the consent of the Tenant, (not to be unreasonably withheld and delayed), to install equipment to measure the supply of gas, electricity or other energy or utility supplied to the Premises at the landlord’s cost. In addition, as per ‘sustainability and data sharing’ above, Tenant should not be obliged to permit the installation of any meters/equipment and/or to permit the review or measurement of the Environmental Performance of the Premises in any way which risks the facilitation of any Data Breach. Landlords’ rights of entry to carry out other energy improvements should only be permitted at the absolute discretion of the Tenant. This is because under current law, Landlords can submit an exemption if the Tenant refuses consent to carry out improvements resulting in the Premises remaining “sub-standard” for the purposes of the MEES regulations. Some Landlords still want to retain an absolute right of entry and not rely on the exemption in circumstances where under the MEES regulations, (or future equivalent), it would be illegal to continue to let the Premises without carrying out the relevant works. This may need to be agreed on a case by case basis depending on the nature and age of the asset in question. Controls on Tenant's Works/Alterations The Tenant should be allowed to carry out alterations as long as they don’t affect the EPC rating of the Premises to take it below the “Base EPC Rating”. The Base EPC Rating should be agreed when entering into the lease but will usually be the existing EPC rating. For the avoidance of doubt, the Base EPC Rating will be based on what is handed over to the Tenant, not the position post Tenant fit out. The parties to the lease agree that ideally the Base EPC Rating should be pre-agreed and referenced in any Heads of Terms. Tenants consider reference to "adverse impact" needs to be a more objective measurement and must be by reference to a change/reduction in the EPC rating of the Premises. For a Tenant to be in breach, any reduction in the EPC rating must be as a consequence of an act on the part of the Tenant and not due to any change in the way the way the EPC rating is calculated from time to time. Tenants also consider that all positive effects on the “Environmental Performance” of the Premises resulting from the Tenant’s use, occupation, adaptation, management and efficient resource consumption at the Premises should be taken into account for the purposes of considering whether (on balance), the Tenant’s relevant action/activity has any adverse impact on the EPC rating of the Premises. The Tenant should agree to reinstate the Premises upon term expiry back to the EPC rating it had when the Tenant accepted the Premises from the Landlord. The Landlord should not be left in any worse position when handing the unit back. However, it is unfair for the Landlord to insist that the Tenant must hand back the Premises with the EPC rating to the extent that any reinstatement works insisted on by the Landlord, any change in the way the EPC rating is calculated and/or any statutory compliance works the Tenant is obliged to carry out would reduce the EPC rating. The Tenant should not be obliged to carry out works to improve the EPC rating at the date of the start of the Lease. Obligations to use sustainable materials for fit out costs should be accepted by the Tenant but only where they do not increase the proposed fit out costs or make the fit out uneconomically viable and only where they are readily and reasonably available in the UK market at the relevant time. Obtaining EPCs 1. Tenant should not register an EPC unless legally obliged to do so. However, Tenant should have the right to produce a draft EPC of the Premises at any time, (including in connection with any rent review associated with the lease of the Premises), as evidence of the likely true EPC rating of the Premises, including as any indicator of the corresponding true rental value of the Premises. 2. Landlord should be entitled to elect to either let the Tenant use its own EPC assessor or to use a reputable one put forward by the Landlord but in so doing the costs of the Landlord's EPC assessor must be reasonable and proper. 3. Both Landlord and Tenant should be willing to provide to the other any EPC and supporting documentation to the other upon reasonable request. Reinstatement obligations 1. Tenant should accept the position that it should return the Premises back to the Landlord with no lower EPC rating than when it took the Premises. 2. However it should be agreed that it is unfair for the Landlord to insist that the Tenant must hand back the Premises with the EPC rating to the extent that any reinstatement works insisted on by the Landlord, any change in the way the EPC rating is calculated and/or any statutory compliance works the Tenant is obliged to carry out would reduce the EPC rating. 3. Tenant should be entitled upon the term expiry, to leave behind any alterations which improve the environmental rating of the premises. Landlords are entitled to insist on maintaining a reinstatement obligation on the Tenant but the Landlord will have due regard to the adverse impact on the environmental rating of the Premises except where the removal is required due to the Landlord’s intentions in respect of the use or re-letting of the Premises. Service Charge: 1. It is agreed by all parties that all works and other compliance required by the MEES Regulations in respect of the Premises are the responsibility of the Landlord at the Landlord’s cost. The parties also agree that understanding and applying Environmental Performance and associated data in respect of Estate Common Parts which are subject to service charge would be useful for future efficient estate management purposes. The parties agree that associated cost efficient sustainability (‘Cost Efficient Sustainability’) is an important matter for both Landlords and Tenants. 2. Landlords and Tenants would like to reach and adopt mutual agreement in respect of the application of Cost Efficient Sustainability for future leasing practice. However, it is clear that Landlords and Tenants are not fully agreed as to the extent to which Landlords should be entitled and/or legally required to run the cost of achieving Cost Efficient Sustainability through the service charge. 3. Possible mutually acceptable compromises are as follows (although it is acknowledged that not all parties to the Lease may adopt these compromises and the position may vary on a case by case basis depending on the parties, premises, deal etc): a. Monitoring/auditing Environmental Performance of Estate Common Parts should be a shared cost between Landlords and Tenants (i.e. shared 50% each) and run through service charge subject to appropriate cap protection in favour of Tenants. In consideration of Tenants accepting this service charge liability and as a condition of agreed annual service charge reconciliation procedures, Landlords should be obliged to release full details of all associated findings/reports to Tenants. b. The cost of replacement should be excluded from Tenants’ service charge cost liabilities unless the relevant item is (i) beyond repair or (ii) necessary (at that time) to comply with any mandatory statutory obligation binding Landlords; and Costs relating to enhancing the Environmental Performance of the Estate should be excluded from Tenants’ service charge cost liabilities unless either (i) there is a clear and proportionate cost benefit for Tenants during the remainder of their lease term or (ii) the associated costs have otherwise been approved by Tenants and provided that such costs are reasonable and proper for the Tenants.