Voluntary disclosures to the standard form CLLS Certificate of Title to update investors on environmental and climate disclosures that may affect the long term value of the property.
Why use this?
The City of London Law Society (CLLS) Certificate of Title has become the standard form of title report for the majority of transactions involving real estate finance. These disclosures can be used on a voluntary basis until such time as the Certificate of Title is updated to address and incorporate them.
The disclosures could eventually lead to a uniform standard and would assist lenders when entering into financing arrangements that include environmental, social and governance (ESG) key performance indicators (KPIs) where the lender requires more information on what green provisions the borrower has in its documents with tenants. Where no separate sustainability or environmental report is provided, these disclosures will highlight climate change risks for the lender.
How to use this clause
CLLS Certificate of title climate change disclosures
The City of London Law Society (CLLS) Certificate of title 7th edition (CoT), does not contain specific climate risk statements. Within the framework of the CoT statements, and where climate change searches are unavailable, these climate change disclosures can be added to a CoT to make buyers, borrowers, lenders and their advisers aware of the current and future risks that may affect the property, environmental performance and green lease provisions.
[Drafting note: Tomas’ Disclosure Checklist and draft disclosures should be read in conjunction with TCLP’s Glossary definition ‘Climate Change’ and the City of London Law Society (CLLS) Certificate of title and notes to users (7th edition) (including the definitions in it).]
Disclosures in respect of the main body of and Schedule 1 to CoT
Paragraph 2.1.2(b)(Title)*, [Paragraph 4.3.1 (Confirmation of Statements)**] and Schedule 1, Paragraph 3.3 (Qualifications)
* [Drafting note: 2.1.2(b) is a statement to confirm that the provider of the CoT has carried out the searches/ enquiries in Schedule 6 that are considered to be appropriate/ necessary. A disclosure with reference to 2.1.2(b) may depend on what searches are included.]
** [Drafting note: The disclosure may not be appropriate against 4.3.1, which sets out a list of methods through which the Company’s knowledge has been acquired and is a list of positives rather than identifying what has not been looked at.]
In this Certificate Climate Change means the long-term and material changes in global or regional weather patterns including but not limited to: temperature, humidity, precipitation, and wind.
We have not sought advice in relation to the likely impact of any Climate Change on the value of the Property. We summarise below the possible general and future risks to Property that may arise from Climate Change based on the 2021 Biennial Exploratory Scenario: Financial risks from climate change (8 June 2021) publication issued by the Bank of England but express no opinion or advice as to the likelihood of their occurrence or the investment that may be required to address these risks.
1. Physical Risks: Climate Change is likely to increase the frequency and severity of weather events with the potential to damage property such as flooding, high winds, storms and greater temperature extremes.
2. Transition Risks: The UK Government’s current policy is to reduce the volumes of greenhouse gas emissions in the UK. It is targeting net zero emissions by 2050 with interim targets to be achieved prior to that date. Legislation is already in place to support this policy but we understand that this is unlikely to be sufficient to achieve those targets. We therefore anticipate the possibility of legal changes to require owners and occupiers to make appropriate investments and improvements to the construction and use of buildings.
[Drafting note: Some practitioners will feel more comfortable and equipped than others to include these risks. It will depend on context and to what extent the client is already routinely disclosing climate risks.]
We have not undertaken searches or raised specific enquiries to clarify the risks to the Property from Climate Change.
[Drafting note: Option 2 is a much more limited disclosure for those who take the view that it is not appropriate to mention the risks identified in Option 1 in the CoT. It could be accompanied by a new statement in the Certificate to the effect that climate change is outside the scope of the Certificate except to the extent directly covered by alterations and service charge provisions. This would highlight to recipients that they may want to take further steps to satisfy themselves as to the potential effect of climate change on the Property and its valuation. This statement could be expanded upon as real estate practice and procedure develops in relation to climate change.]
Schedule 2 – Property Details – Disclosures
Part 3, (Incumbrances)
[Drafting note: If there are specific commercial agreements with specialist energy companies that run and maintain renewable or alternative forms of energy systems (outside of national grid connections) there may be relevant disclosures to make in relation to those agreements and connected documents granting certain property rights to the energy companies to access their equipment at the Property. See also the disclosure to Part 4, Paragraph 7 and Schedule 3, Paragraph 26 below.]
[Part 4, (Existing Use)]
[Drafting note: When including the description of the Existing Use, consider if the use gives rise to a Climate Change Risk (as defined above) because it is likely to be carbon intensive (for example, if the Property has a petrol station on it). It is likely the parties will have already noted this, but it may feed into information given in respect of Schedule 3, paragraph 23 of the CoT. Take care with the wording of this disclosure to avoid straying into giving advice or opinions that solicitors are not qualified to give.]
Schedule 3 – Matters affecting the Property – Disclosures
Paragraph 7 (Agreements)
[Drafting note: In making disclosures here, drafters might specifically include details of provisions in agreements which promote sustainability or are aimed at transitioning to net zero. See for example, TCLP’s Rory’s Clause (Net Zero Land Promotion Agreement) and Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations).
Consider if there are renewable or alternative forms of energy provided to the Property (outside of national grid connections), where there may be specific commercial agreements with specialist energy companies which run and maintain such systems. These agreements may need to be disclosed as they are connected to documents granting certain property rights to the energy companies to access their equipment at the Property. See the disclosure to Schedule 3, Paragraph 26 (Fixtures and Fittings).]
Paragraph 15.2 (Unusual or Onerous Conditions) and/or Paragraph 17 (Planning agreements or obligations)
[Drafting note: In setting out unusual or onerous conditions, note where a planning condition includes a requirement to:
(i) connect into a local district heating system for a development or another alternative energy or heat source other than the national grid. This will flag to the recipient that the Property potentially benefits from a renewable source of energy or a lower carbon source of heating;
(ii) install landscaping or a natural space to increase Biodiversity (as defined in Biodiversity: Option 2 in the TCLP Glossary) in the Property (paragraphs 154d and 170d of the National Planning Policy Framework (NPPF) require planning decisions to minimise impacts on and provide net gains for biodiversity. They also encourage opportunities to incorporate biodiversity improvements when determining planning applications);
(iii) achieve a net gain in Biodiversity of a certain level (Section 98 of the UK Environment Act 2021 provides for biodiversity gain to be a condition of planning permission in England); and/or
(iv) other conditions relating to reducing carbon emissions or improving the environment around the Property.
Once any such conditions or obligations in relation to climate change become relatively normal, disclosures will not be required.]
Paragraph 19.2 (Assets of Community Value)
[Drafting note: Where a Property is (or incorporates land which is) an asset of community value (ACV), the restrictions on disposal under the Localism Act 2011 (LA 2011) may have an adverse impact on Property value. From a climate change point of view, the existence of such assets may contribute to the Company’s environmental, social and governance (ESG) and corporate social responsibility (CSR) strategy which might be important for the Company’s obligations under green loans or sustainability linked loans (SLLs) (as defined in TCLP’s Clara’s Clause and detailed in Casper’s Clause). These assets are defined as buildings or other land which are mainly in actual use for the social wellbeing or social interests of the local community (s.88 LA 2011). Case law holds that in determining whether or not land is used for the social wellbeing or social interests of a community, factors such as biodiversity in respect of both flora and fauna, visual amenity and air quality associated with the use of land (e.g. allotments) must be considered (Earl Percy’s Appointed Fund v London Borough of Hounslow  UKFTT CR-2016-0007 (GRC) (30 December 2016)). Recipients of the CoT might highlight any such climate mitigation factors to the Valuers in addition to any ACV listing.]
Paragraph 22 (Statutory compliance) and Paragraph 23 (Environment)
[Drafting note: consider if any specific climate disclosures apply to these sections.]
Paragraph 23.3 (Energy Performance Certificates)
The Company has confirmed that the EPC rating is [insert EPC rating] [Drafting note: The Property may have a number of different EPCs and different ratings]. [The EPC recommendation report includes the following recommendations: [insert recommendations]. The recommendations [have/ have not] been implemented.] [Drafting note: Consider if this goes beyond the scope of the CoT. The EPC is prepared and provided at a much earlier stage than the CoT and it may not be necessary to repeat all the recommendations in the CoT if not proper disclosures to the relevant statements as drafted.]
[The Company has confirmed that notwithstanding the EPC rating of [insert the relevant rating which falls below the prevailing minimum standard, at the time of writing (March 2022) this will be either rating F or G*] in respect of the Premises subject to the Letting Document, it has registered one or more exemptions under Part 3 of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962).] [Such registration was made on [insert date].] [Drafting note: To be included where applicable.]
* [Drafting note: As a step towards achieving the UK’s target of net zero by 2050, the UK Government confirmed (in its Energy White Paper) that non-domestic Private Rented Sector properties will be required to achieve a minimum energy efficiency standard of EPC ‘B’ by 2030. At the time of writing (March 2022), the results of a consultation on how to implement this are pending.]
[Drafting note: It will be useful to purchasers or lenders to know the EPC rating as it could affect their ability to dispose of the Property or grant leases in future. This is due to the requirements to have an EPC rating of E or above under the Minimum Energy Efficiency Standards (MEES) Regulations (being Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962)), Part 3.
It may also be useful to know what steps the recommendation report includes. While there is often criticism of the broad nature of the recommendations, it may provide a starting point for how to improve the energy efficiency of the Property.
Users of this clause can also check any replies to Commercial Property Standard Enquiries (‘CPSE’) CPSE.1 and, specifically, replies to enquiries 14.6 – 14.8. These enquiries require replies that address whether an EPC is available, its rating and if an EPC is not available (for example, if an exemption applies). Replies providing such information can then also be disclosed against this paragraph.
Some properties are excluded from the ambit of the MEES Regulations (generally, properties not required to have an EPC). In addition, for substandard property (with an EPC rating below E) it is possible to register an exemption from the requirement to bring the Property up to a minimum EPC rating of E on the PRS Exemptions Register. Where such exemptions apply, often a disclosure will be required against paragraph 23.2 or 23.3 of Schedule 3 of the CoT. Most facility agreements require the borrower to “carry out any energy efficiency improvements necessary, or take any other steps necessary, to ensure that at all times each part of the Property which is designed to be let can be let or can continue to be let without breaching any applicable laws or regulations in respect of minimum levels of energy efficiency for properties”. (For example, clause 24.4 of the LMA Single Currency Term Facility Agreement For Real Estate Finance Single Property Development Transactions (1 July 2020)).
It may also be useful to know what information was disclosed to enable an exemption to be registered. If an exemption is close to expiry this will be a relevant issue – the landlord will be under an obligation to try again to improve the Property’s EPC rating to meet the minimum level of energy efficiency. If this is not possible the landlord will need to register a further exemption.]
The Company has told us that the energy performance certificate rating for the Property is E or above and it has not registered any exemptions under Part 3 of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.
Paragraph 24 (Construction Works and Warranties)
The Company has confirmed that the following retrofitting works have been carried out to the Property to improve its energy rating: [insert details].
Paragraph 26 (Fixtures and Fittings)
The Company has confirmed there is a [district heating system/ heat pump system] included on the Property which is subject to a concession/ adoption agreement with [insert name of relevant energy company], an energy services company. Please refer to the details of this agreement at paragraph 7 of Schedule 3 of the CoT [or for ease of reference the summary of the contract may be appended in a separate annexure to the CoT].
[Drafting note: Where there are renewable or alternative forms of energy provided to the Property (outside of national grid connections), there may be specific commercial agreements with specialist energy companies which run and maintain such systems. These agreements may need to be disclosed as they are connected to documents granting certain property rights to the energy companies to access their equipment at the Property.]
[Disclose whether smart meters have been installed in the Property as part of the energy improvement works if they are owned by someone other than the Landlord or the Tenant.]
Schedule 4 – The Lease – Part 2 – Disclosures
Paragraph 3 (Payment of rent) C
[Comment on whether the rent is linked to the energy performance of a property. Also, whether the rent is inclusive of certain energy bills.]
Paragraph 4.2 (Rent Review)
[Consider if complying with any green provisions in lease obligations have an impact on a rent review (i.e. disregard works which improve sustainability).]
Paragraph 10 (Service Charge)
[Drafting note: While it would be unusual for a lease to include service charge provisions, it may be that in newer developments there are obligations to work collaboratively to promote the environmental performance of the wider building or estate and contribute to upgrades or improvements which enhance Environmental Performance. See too the drafting and comments at the disclosure to Schedule 4, Paragraph 21 below.]
Paragraph 21 (No other material matters)
[Insert details of green lease obligations or obligations to collaborate on sustainability issues e.g. the BPP Green Lease Toolkit – Memorandum of Understanding.]
[Drafting note: Use this disclosure to set out any ‘green’ lease provisions in the lease. See TCLP definition of Environmental Performance. Increasingly, we can expect leases to include obligations to transition to Net Zero. See, for example TCLP’s Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations), Emma’s Clause (Green Residential Lease), and Toryn’s Clause (Green Assured Shorthold Tenancy (AST)), the industry led Model Commercial Leases (MCL) and the UK Better Building Partnership (BPP) Green Lease Toolkit.]
[Drafting note: At this stage any climate change provisions are likely to be disclosed against this statement as drafted. If further information is required, a new statement should be included along the lines of:
Paragraph 22 (Climate Change)
There are no provisions relating to sustainability or the energy efficiency of the Property.
A statement of this nature would require a full disclosure in relation to any such clauses in the Lease. The statement could become more specific once the drafting of acceptable climate change related provisions in long leases becomes established.]
Schedule 5 Letting documents Part 1B
Licences and other supplemental documents include any agreements entered into by the Landlord and Tenant to improve the sustainability of a property.
Schedule 5 – The Letting Documents Part 2 – Disclosures
Paragraph 5 (Repair and yielding up)
Paragraphs 5.1 and 5.2
[Drafting note: Any provision relating to sustainability would be disclosed against the existing statement. A specific statement might be more relevant once such provisions become widely adopted by the industry.]
The Letting Document requires that the Tenant, when repairing or decorating the Premises to:
[insert provisions relating for example, to:
- the use of Reused Materials, Reclaimed Materials, Recycled Materials, Sustainable Materials and Recyclable Materials as provided for in TCLP’s Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations); or
- promoting and improving the environmental performance of the Property and not doing anything which adversely affects the EPC rating or Environmental Performance of the Property.]
[Drafting note: These disclosures may be considered beyond the scope of the CoT. Any provision relating to sustainability would be disclosed against the existing statement. A specific statement might only be relevant once such provisions become widely adopted by the industry.]
[Drafting note: Any qualifications to an obligation to reinstate would be disclosed against this statement. This would include any requirement for a party to serve notice in relation to reinstatement and any qualification to the Tenant’s reinstatement obligation linked to sustainability.]
The Letting Document does not require the Tenant to reinstate any alterations which is has undertaken:
- [insert provisions of the Letting Document, for example, where the Landlord gives the Tenant notice that it does not require reinstatement of such alterations in accordance with the provisions of the Letting Document]
- [where any such reinstatement would [materially] adversely affect the [Environmental Performance] of the [Premises][Property][and/or Building] and/or the EPC rating of the [Premises][Property][and/or Building]].
[Drafting note: This disclosure may also/ alternatively be made against 7.3. This disclosure is based on lease provisions such as those found in the TCLP’s Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations).]
Paragraph 6 (Restrictions on use)
[Disclose if the Letting Document contains obligations on the Tenant not to use the Property in a way which affects the ESG or the Environmental Performance of the Property.]
Paragraph 7 (Alterations)
[The Tenant is prohibited from carrying out any such alterations where this may adversely affect the energy performance of the Premises.]
In undertaking any alterations, the Letting Document requires the Tenant to:
[Insert provisions relating to, for example, the use of Reused Materials, Reclaimed Materials, Recycled Materials, Sustainable Materials and Recyclable Materials as provided for in TCLP’s Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations)]
and not to carry out additions or alterations which may adversely affect the Environmental Performance of the Property.
[Insert provisions which prohibit the Tenant from carrying out any alterations which would [materially] adversely affect the Environmental Performance of the [Premises] [Property] [and/or Building] or which would result in a lower EPC rating than currently obtained in respect of the [Premises] [Property] [and/or Building]].
[Insert provisions relating to Landlord’s access to carry out works to improve Environmental Performance.]
Paragraph 8 (Alienation)
[Disclosures on whether there are any additional requirements under a green finance agreement which must be complied with before the Letting Document can be assigned/ underlet/ charged.]
Paragraph 10 (Service charge)
The Letting Document requires that the Company, in providing the services:
[Insert provisions relating to, for example, the use of Reused Materials, Reclaimed Materials, Recycled Materials, Sustainable Materials and Recyclable Materials as provided for in TCLP’s Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations).]
Paragraph 10.2.1(b) (Carrying out energy efficiency improvements)
[Drafting note: This is a particularly difficult area as it may be a matter of fact and degree as to whether particular works fall within the Landlord’s repairing obligations. For example, a boiler that is beyond economic repair would need to be replaced.]
The EPC rating of the Premises [Common Parts] [Building] is [insert relevant ratings which fall below the prevailing minimum standard, which at the time of writing (March 2022) is F or G]. The Company has told us that it must carry out any energy efficiency improvements before the Premises can be [let] [or relet] [or continue to be let] without breaching Part 3 of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES Regs 2015), SI 2015/962. [All] [Some of the] costs associated with such improvements are not capable of being recovered by the Company via the service charge provisions of the Letting Document.
Paragraph 30 (No other material matters)
[Insert details of green lease provisions where not otherwise already disclosed for example, in relation to TCLP’s Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations), the mutual obligation of the Company and Tenant to use best or all reasonable endeavours to act at all times in a manner which ‘maximises the prospect of achieving the Efficiency Objective’.* Similar obligations can be found in leases based on the UK Better Buildings Partnership (BPP) Green Lease Toolkit provisions and the Memorandum of Understanding set out in it.**
** [Drafting note: Lenders may take into account that Letting Documents are green leases when determining whether the Property qualifies for green loans or SLLs. They may also consider the ratio of green to standard traditional leases in a particular portfolio or building.]
Use this disclosure to set out any ‘green’ lease provisions in the Letting Document (see TCLP definition of Environmental Performance). Increasingly we can expect leases to include obligations to transition to Net Zero, see for example TCLP clauses: Aatmay’s Clause (Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations), Emma’s Clause (Green Residential Lease), and Toryn’s Clause (Green Assured Shorthold Tenancy (AST)), the industry led Model Commercial Leases (MCL) and the UK Better Buildings Partnership (BPP) Green Lease Toolkit. Particular provisions to look out for include:
- Co-operation obligations
- Data sharing
- Extensions of the Company landlord rights of access to the Premises to collect data and improve environmental performance of the Property or building
- Restrictions on the parties’ ability to undertake works or make alterations which adversely affect the environmental performance of the Premises or Property
- Reinstatement of Tenant’s alterations
- Co-operation in relation to obtaining EPCs for the Premises or Property
- Rent review provisions which take into account the additional green provisions of the Letting Document
- Provisions requiring Tenant fit out works or alterations to be undertaken to a particular industry standard e.g. BREEAM.]
[Disclose if there are:
- any restrictions on the Landlord’s ability to carry out certain works to the Property in order to preserve the energy rating or to improve the Environmental Performance of the Property; and/or
- any Data Management/Data Sharing obligations in the Letting Document to enable the landlord and the managing agents to share the Environmental Performance Data.]
Paragraph 34 (Climate Change)
There are no provisions relating to sustainability or the energy efficiency of the Premises or the Property.
Schedule 6 – Searches and enquiries – Disclosures
[Drafting note: Consider this schedule in conjunction with the disclosures in Paragraph 2.1.2(b) (Title), Paragraph 2.4 (Searches and enquiries), [Paragraph 4.3.1 (Confirmation of Statements)] and Schedule 1, paragraph 3.3 (Qualifications) above. Green real estate loans or SLLs may, notwithstanding the qualification in Schedule 1 paragraph 3.3, need environmental or flood assessments, audits, surveys or other reports on the environmental condition of the Property. These could be listed here. More detailed environmental reports might be required beyond the scope of the CoT.]