Working towards net zero

With all attention earlier this month on COP26 in the hope that the world’s governments will work together to address the climate emergency, it is a source of optimism that so many corporates are announcing their own net zero carbon targets. With many corporate occupiers holding significant property portfolios, mostly by way of leasehold premises, retro-fitting for energy efficiencies will need co-operation between landlords and tenants. There are opportunities for cost-saving co-ordination to achieve both landlords’ regulatory duties (by the so-called “MEES” Regulations) and tenants’ net zero carbon aims .

Now, more than ever, is the time to agree “green lease” provisions in negotiations and to take advantage of any green lease provisions that are there already. An acknowledgement from both landlord and tenant that they wish to co-operate to improve the environmental performance of a building can be the starting point for meaningful planning. Data sharing and the careful provision of services can also be the first steps towards improvement. When alterations are required to the tenant’s premises in order to hit net zero, much depends on whether the tenant has a demise of the whole building or is one tenant in a multi-let building. Structural and external alterations, alterations to common parts and sharing of costs through service charges must all be considered as part of achieving the essential common purpose of net zero. Whilst the need is urgent, timing is everything, and landlords and tenants will have to consider existing lease provisions in relation to landlord’s rights of entry.

Every new lease agreed without addressing these issues is an opportunity lost for the tenant and the landlord. The tenant loses its ability to work independently towards reducing its carbon emissions at a particular property, and the landlord loses the chance to combine its efforts with the tenants to achieve its ever increasing regulatory targets. Hopefully, a whole combination of factors (carbon emission reduction targets, the MEES Regulations, corporate social responsibility, and (if all else fails) perhaps the green lending covenants of the landlord's lender), will ensure the landlord's co-operation to support the tenant's ambition to reach its net zero carbon target.

Read more about our commitment to change in our 'Corporate response to climate change: The People Factor report'.