Green Service Charge Provisions for Commercial Leases
Allows landlords to include the costs of improving the environmental performance of leased buildings in the service charge costs (where such works are not otherwise required by statute).
What this clause does
This clause helps landlords to: (i) address investor concerns about climate risk and compliance with environmental legislation (e.g. Energy Efficiency Regulations); (ii) respond to tenant demand for efficient, healthy and green buildings; (iii) enjoy increased profitability through higher property values and return on investment; (iv) pass cost savings to tenants; and (v) incentivise tenants to use the property efficiently.
Clauses
[Drafting note: Capitalised terms relate to either a defined term in this clause or a defined term in the lease that this clause is designed to be inserted into.]
Schedule 1: ‘Green’ Additions to the Service Charge Provisions
1. Additions to the "Services"
[Drafting note: The standard elements of a service charge (see e.g. Practical Law’s Standard Service Charge) have been omitted, and the clauses shown are ‘green’ additions or amendments to the usual wording (intended to fit into the standard precedents). Review and amend this section in the context of the existing service charge provisions and take into account the nature of the demised premises, and the building or estate of which they form part. The drafting needs to distinguish between those services that the Landlord is obliged to provide and those which the Landlord is not obliged to provide but may charge for if it does opt to provide them. The services listed at 1.1 are those which the Landlord will typically want to be at their discretion. If the Landlord was specifically obliged to install/ maintain/ improve particular facilities, this should be dealt with in the body of the lease.]
1.1 Implementing such measures, facilities or services as the Landlord considers appropriate to improve Environmental Performance including:
1.1.1 installing separate [[S][s]ervice [M][m]edia,*] metering and other appropriate monitoring equipment** to capture data relating to the use, operation and occupation of the Property and/or the Building by tenants and occupiers for the purpose of assessing Environmental Performance;
1.1.2 installing new or additional motion or daylight controlled sensors and energy efficient bulbs or luminaries in the Retained Parts[ where, in the reasonable opinion of the Landlord, such installation is likely to improve Environmental Performance];
1.1.3 carrying out inspections for the purposes of:
(a) identifying any water leaks at intervals determined by the Landlord acting reasonably; and
(b) taking such steps as the Landlord considers appropriate to reduce water wastage[ (including installing plant and equipment for the purposes of recycling water (including Greywater) and capturing and using rainwater)];
1.1.4 installing [such] facilities in connection with waste management [as the Landlord may from time to time consider appropriate, including for the purposes of compacting, recycling, composing, storing and disposing of refuse with a view to improving Environmental Performance][in accordance with the Waste Management Plan][;][; and]
1.1.5 [performing any of the Services in such a manner or by such methods as the Landlord may from time to time consider reasonably required to:
(a) improve Environmental Performance; or
(b) avoid any adverse effect on the Environmental Performance of the Property and/or the Building or any Adverse Climate Effect][; and
1.1.6 [in relation to any obligation to maintain gardens] where the Landlord considers it appropriate, introducing measures to promote Biodiversity in relation to maintaining gardens at the Premises].***
* [Drafting note: To anticipate the different definitions used in different leases.]
** [Drafting note: Insert cross-reference to the Landlord's reservations so it is clear that the right of entry may be exercised for the purposes of this installation and that the Landlord has the right to receive and use the data. It is assumed that the Lease will already contain appropriate provisions to comply with data protection legislation (e.g. a requirement to anonymise).]
*** [Drafting note: Consider whether to include additional provisions to further clarify the Landlord’s obligations around garden maintenance and avoid disputes with tenants who would prefer neat landscaping in preference to rewilded grounds.]
2. Service Costs
[Additions to the Service Costs] Costs related to the gathering and processing of information relating to Environmental Performance.
3. Excluded Service Costs
The Landlord shall not include in the Service Charge the costs of improving, replacing or upgrading any item, plant or equipment in the Property and/or the Building which is in good working order or is capable of economic repair at reasonable cost unless the Landlord (acting reasonably) considers that such improvement, replacement or upgrade is likely to result in an improvement in Environmental Performance or a reduction of the Service Costs associated with the consumption of energy or other resources.
Service Charge Administration
4. Provision of Services
4.1 [In relation to a provision that the Landlord may add any other measure, facility or service in the interests of good estate management] provided that the Landlord shall have due regard to the effect of any such proposed additional measure, facility or service on Environmental Performance and shall seek to minimise any adverse effect on Environmental Performance where reasonably practicable and where to do so does not impose an undue economic burden on the Landlord.
4.2 [The Landlord shall not be required to provide any Services which would [in its reasonable opinion] [materially] adversely affect the Environmental Performance of the Property and/or the Building.]
4.3 In providing the Services, the Landlord shall have due regard to promoting Environmental Performance. The Tenant acknowledges that, as a consequence, the Service Costs may be higher than if the Landlord procured the Services without due regard to promoting Environmental Performance. The Landlord shall ensure that any difference in costs is economically proportionate.
5. Sustainability
[Drafting note: This Part [5] may sit better in the main body of the lease accompanied by any appropriate reporting requirements on steps taken by either party to improve Environmental Performance, in which case amend the bracketed wording accordingly.]
5.1 Each of the Landlord and Tenant shall cooperate to identify and implement appropriate strategies for improving Environmental Performance. Nothing in this Part [5] is intended to impose an undue economic burden on the parties or require the parties to agree to terms which are commercially unreasonable.
5.2 The Landlord shall have due regard to any sufficiently detailed written proposal by the Tenant [of/ for inclusion within the Service Charge] any measures which are likely to improve Environmental Performance [(where the costs exceed those of normal maintenance, repair or replacement) or additional service or installation that falls within the definition of an Excluded Service Costs], and the Landlord shall respond to the Tenant within a reasonable period of receiving such proposal with reasons for accepting, rejecting or modifying it (bearing in mind the objective of improving Environmental Performance).
Definitions
Adverse Climate Effect means an adverse effect on the climate, including as a result of:
(a) an increase in GHG Emissions from or associated with the Property and/or the Building;
(b) discarding (in a manner adversely affecting Environmental Performance) usable materials or stock that was created using Natural Capital;
(c) wasting materials so that the Embedded Carbon of the Property and/or the Building is increased; or
(d) reduced Air Quality.
Air Quality means the condition of air in and around the Property and/or the Building and, in particular (but not limited to), the extent to which it is clean, clear and free from pollutants including smoke, industrial gases and dust.
Biodiversity means the wide-ranging variety of life forms that inhabit a particular habitat or ecosystem.
Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure to compare the global warming potential of various GHGs over a specified timescale. [Drafting note: For further information on C02e, see TCLP Glossary: Carbon Dioxide Equivalent (CO2e or CO2eq).]
Embedded Carbon means:
(a) (in relation to building materials associated with the Property and/or the Building) the GHG Emissions that occur through extraction, manufacture and transportation of such building materials; or
(b) (in relation to the Property and/or the Building) the GHG Emissions that occur when it is or was built[,/ and] repaired[, fitted out, stripped out, renovated and deconstructed]. [Drafting note: Amend bracketed wording to activities that might take place within (or be influenced by activities taking place within) the Lease term.]
Environmental Performance means the extent to which the [negative] environmental impacts and GHG Emissions of the Property and/or the Building (including its component parts) during manufacture, occupation, operation, use and disposal have been mitigated[ and the positive environmental impacts of the Property and/or the Building promoted]. Such impacts include (but are not limited to) those arising from:
(a) the sources of materials and how such materials are sourced (including materials containing Embedded Carbon and materials sourced using Sustainable Procurement);
(b) the use, recycling and re-use of materials [used in repairs, renewals, fitting out and replacements];
(c) the type and efficiency of energy sources (including the percentage of Renewable Energy Sources as a proportion of all energy sources supplying the Property and/or the Building);
(d) the rate and efficiency of energy consumption;
(e) water sources (including availability of alternative sources of water (including treated water, rainwater and Greywater);
(f) the [quantity/ rate] and efficiency of water consumption [and discharge];
(g) resilience to the impacts of climate change [Drafting note: Consider whether this is too vague and more specificity should be added];
(h) [pollution and] waste processing, including the rate or efficiency of waste recycling or re-use of resources [Drafting note: 'Pollution' may more appropriately sit within the user/ nuisance provisions and also depends on permitted or potential uses];
(i) methods of transport of supplies and people to and from the Property;
(j) Biodiversity and Natural Capital;
(k) deconstruction and disposal; and
(l) any other matter which relates to occupation, operation and use of the Property and/or the Building and the Environment,
in each case taking into account any Adverse Climate Effects resulting from changes in the use or intensity of use of the Property and/or the Building.
[Drafting note: Tenants may resist this definition because of the cost burden it puts upon them. However, on the basis that a tenant agrees to these measures in principle, this definition is drafted deliberately widely as a starting point for negotiation.]
Excluded Service Costs means the costs set out in [Part 3 of Schedule 1].
Finite Power Source means a power source which is reliant on Hydrocarbons.
Green Infrastructure includes trees, hedgerows, open green spaces which thread through or surround the built environment, parks, gardens, green roofs, allotments, woodlands, green corridors, rain gardens, reed beds, wetlands, water meadows and wild spaces which in each case aid (or are designed to aid) Biodiversity.
Greenhouse Gases (GHGs) means the gases 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.
GHG Emissions means emissions of GHGs 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, each expressed as a total in units of CO2e. [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]
Greywater means waste water generated from sources (including sinks, showers, bathtubs and appliances [in domestic or commercial buildings]) without faecal contamination.
Hydrocarbons means a class of organic chemical compounds predominantly consisting of hydrogen and carbon and which includes fossil fuels such as coal, crude oil and natural gas.
Natural Capital means elements of the natural environment which provide valuable goods and services to people, such as stock of forests, water, land, minerals and oceans.
Renewable Energy Sources means naturally replenishing non-fossil sources of energy, including but not limited to hydropower and tidal power, hydrothermal power, aerothermal power and geothermal power, wind and solar. [Drafting note: Consider specifically excluding nuclear and regenerative biomasses (wood, municipal waste, biomass and landfill gas, ethanol, biodiesel) so as to limit to truly naturally replenishing sources and avoid sources generated by incineration which has significant GHG output and contributes to other forms of small particulate air pollution.]
Sustainable Procurement means the purchase of products or materials (including packaging) which are extracted, produced and made:
(a) without depleting non-renewable resources (including without limitation any Finite Power Source);
(b) without disrupting the established steady-state equilibrium of the environment and key natural resource systems; and
(c) which are reusable and recyclable.
Waste Management Plan means any waste management plan relating to the recycling and waste facilities at the Property and/or the Building with a view to improving Environmental Performance. The waste management plan is given to the Tenant writing by or on behalf of the Landlord from time to time.
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