Environmental, Social, and Governance (“ESG”) principles has become a hot topic for corporate leaders over the last few years and the importance, and challenge, of ESG will certainly continue in 2026. The combination of the UK Government’s target to be “net zero by 2050”, establishing environmental policy benchmarks and tightening the energy efficiency regulations, for example, the Minimum Energy Efficiency Standards (“MEES”) with proposals to raise the minimum EPC ratings for non-domestic properties to C by 2028 and B by 2030, has meant that owners and occupiers of commercial buildings will need to collaborate more than ever to not only meet the regulatory requirements but to also achieve their ESG targets.

With the introduction of the Better Buildings Partnership (“BBP”) in January 2024, there has been a notable shift in the attitudes of both landlords and tenants towards the importance of having a well-managed and an energy efficient building. As a result, it is expected that demand for more detailed “Green Leases” will continue to rise. However, it is worth noting that there is no legal requirement for “green leases” and there is not a one size fits all approach when incorporating “green” clauses into Leases. 

Green Leases are a form of commercial lease agreement that includes certain requirements and obligations requiring the landlord and/or the tenant to improve a building’s environmental performance/sustainability. 

What sustainable lease provisions or restrictions are we seeing?

1. Data Sharing – obligations are currently incorporated into most institutional leases. Data sets targets for the building and allows both parties to track progress of their own sustainability targets regarding the use of water, waste and energy. However, care will be needed within multi-let buildings not to breach data guidelines and GDPR.
2. Waste Management Policies – a requirement on both the landlord and the tenant to minimise waste as much as possible.
3. Co-Operation Provisions – documenting both parties shared aim to improve the environmental performance of the building/premises.
4. Fit-Out Works/Alterations – from a landlord perspective, an exercise should be undertaken as to which provisions in the lease are relevant and whether they are legally enforceable , i.e. tenant fit out works and tenant alterations not to adversely affect the EPC rating of the building.
5. Landlord works – if the landlord wants to undertake works to a building to improve its EPC rating and the energy efficiency credentials of the building, the landlord will need to ensure that there is an appropriate reservation within the Lease enabling access to the required parts of the building to carry out the works.
6. Lease events –This may be relevant as part of any rent review negotiations with the tenant. Is the landlord prepared to forego a rent review increase to cover green lease provisions in the lease? The main event when , on lease renewals, there is an ability for the landlord to introduce ESG initiatives. If no lease events are on the horizon, memorandums of understanding can be drawn up setting out what the landlord is seeking to achieve. Whilst the memorandums might not contain any hard binding obligations, it will act as a record as to what green lease provisions have been agreed between both the landlord and the tenant.
7. Costs – landlords and tenants are much more aligned in trying to improve their green credentials; however, when it comes down to which party must incur the cost of implementation, there is not an alignment of interest between the landlord and tenant. Tenants are rejecting and pushing back on clauses which place an obligation on their works to create a positive impact on the EPC rating. This not only has a cost implication on the tenant, but it is also outside of the tenant’s control given that EPC criteria are based on government policy which is constantly evolving. 

A key takeaway for both Landlords and tenants is to involve lawyers at the HOTs stage in order to cover all relevant ESG/green lease provisions. This ensures that there is less negotiation or issues in settling the form of Lease as the relevant issues and terms have already been discussed and negotiated between the parties.