This clause requires landlords to act reasonably when tenants propose alterations to their premises (and changes of use) or improvements to common areas, which have a positive climate impact.
Why use this?
To help tenants negotiate for the rights to carry out environmental improvements knowing that landlords must act reasonably in approving these. The clause also encourages more efficient use of land and buildings and more collaboration between landlords and tenants to achieve climate goals.
How to use this clause
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(A) The Landlord and Tenant [have signed up to the Race to Zero and] acknowledge their common intention to:
(i) Achieve their respective organizational net zero targets; and
(ii) Align with the objectives of the Paris Agreement (in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels and achieving net zero or net negative emissions by 2050 or sooner).
(B) The Landlord and Tenant agree to pursue (A) in a manner that promotes a just transition to a low carbon economy and results in at least a 7%* reduction of greenhouse gas emissions year on year.
Environmental Improvements means alterations proposed or made by Tenant that [ Tenant can demonstrate by the provision of an [energy efficiency report/ ecology report/ other report]] will improve the Environmental Performance of the Premises, Building or Real Property and will help to achieve Tenant’s [or Landlord’s] Net Zero Target.
Environmental Performance means all or any of the following:
(a) The consumption of energy and associated generation of GHG Emissions;
(b) The consumption of water;
(c) Waste generation and management; and
(d) Any other environmental impact arising from the use or operation of the Premises, the Building, or the Real Property.
GHG Emissions means the Landlord’s [and Tenant’s] emissions of GHGs from all sources related to this Lease, classified as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting, Standard Revised Edition 2015 as updated periodically.
Greenhouse Gases (GHGs) means the gasses that trap thermal radiation in the Earth’s atmosphere. They are specified by the United Nations Framework Convention on Climate Change (UNFCCC) in Annex A to the Kyoto Protocol and may be updated periodically.
Net Zero Target means a target to reduce and remove GHG Emissions, including by Offsetting Residual Emissions, to achieve a balance between the [Landlord and Tenant]’s respective sources and sinks of GHGs. This must be achieved by [2050/ insert earlier date] and align with the goals of the Paris Agreement.
Offset or Offsetting means buying carbon credits from a project:
(a) That has been verified by [insert name of voluntary standard] or the UNFCCC clean development mechanism (CDM) [or successor UNFCCC mechanism];*
(b) Where the emissions of GHGs avoided, reduced or removed by the project are additional;**
(c) [That prioritizes removing GHGs from the atmosphere rather than avoiding or reducing third party emissions of GHGs;]***
(d) That, for GHGs removals, uses storage methods with a low risk of reversal over millennia; and
(e) That takes account of a just transition and addresses wider social and environmental goals.
Residual Emissions means the GHG Emissions that are emitted after all reasonable efforts have been made by the [Landlord] [and Tenant] to reduce them.
* [Drafting note: Article 6.4 of the Paris Agreement replaces the CDM by 2026. New rules implementing this were agreed at COP26. More detailed guidance will be released.]
** [Drafting note: The reference to ’emissions of GHGs’ here is to GHG emissions generally. We don’t use the defined term GHG Emissions because this term is defined in this lease to mean the emissions of the Landlord [and Tenant]’s emissions of GHGs from all sources related to the lease.]
*** [Drafting note: The Oxford Principles for Net Zero Aligned Carbon Offsetting 2020 state that ‘an immediate transition to 100% carbon removals is not necessary, nor is it currently feasible, but organizations must commit to gradually increase the percentage of carbon removal offsets they procure with a view to exclusively sourcing carbon removals by mid-century. Most offsets available today are emission reductions, which are necessary but not sufficient to maintain net zero in the long run. Carbon removals scrub carbon directly from the atmosphere. This counteracts ongoing emissions after net zero is achieved and creates the possibility of net removal for actors choosing to remove more carbon than they emit.’]
[Drafting note: Capitalized terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]
For Tenant’s Alterations section
Notwithstanding the provisions of Section [●] of the Lease relating to Alterations to the Premises, Tenant may, with Landlord’s consent, not to be unreasonably withheld, conditioned, or delayed, carry out [structural and] non-structural Environmental Improvements to the Premises [or to unbuilt parts of the Real Property]. Landlord can refuse consent to any proposed Environmental Improvements that in Landlord’s reasonable opinion would have a [material] detrimental impact on the investment value of Landlord’s reversionary interest in the Premises, Building or the Real Property.
For Tenant’s End of Term section
By the Expiration Date, Tenant shall have removed [INSERT DETAILS] and restored the Premises in accordance with Section [●] of the Lease, provided, however, that Tenant shall not be required to remove any Environmental Improvements [unless Landlord has given Tenant at least [●] months’ notice that it requires Tenant to remove all or part of any Environmental Improvements on the basis that those works remaining after the Expiration Date would have a [material] detrimental impact on the investment value of Landlord’s reversionary interest in the Premises, Building or the Real Property].