Green Leases and Sustainable Commercial Property: Small Tweaks, Big Impact
Commercial property is one of the most carbon-intensive sectors, yet much of its environmental impact is baked into legal documents that have not changed in decades. At our panel event 'Your Net Zero Journey and The Team You Need', Karli from law firm Bates Wells explained how the traditional landlord-tenant relationship is holding back sustainability -- and what practical steps can change that.
The Problem With Traditional Leases
The traditional model for commercial property sees landlords granting leases that pass down as many obligations as possible to tenants. Tenants pay the landlord's costs in running the building, take on repair obligations, and face restrictions on what they can do to the space. This model was designed long before sustainability was a concern.
The result is that nobody has clear responsibility for creating sustainable buildings and keeping them that way. Who pays for renewable energy? Who funds retrofitting? Who ensures the building meets evolving environmental standards? These questions are simply not addressed in most existing lease agreements.
Lawyers Are Collaborating on Solutions
The Chancery Lane Project is one of the most promising initiatives in this space. Over 2,600 lawyers are working together to draft precedent clauses that can be bolted into existing legal documents to address environmental provisions. Many of the precedent clauses currently in use derive from a time before climate change was on the agenda, making them completely inadequate for today's challenges.
These new clauses cover everything from energy sourcing and retrofitting costs to end-of-lease obligations. The goal is to ensure that both parties -- landlord and tenant -- are working together to reduce the building's carbon footprint rather than shifting responsibility back and forth.
Small Tweaks That Make a Big Difference
The changes do not have to be wholesale. At the heads of terms stage, parties can start thinking about where energy comes from, whether a green energy supplier can be used, and who pays for retrofitting. Even individual clause tweaks can have significant impact.
One example: traditional leases typically require tenants to use new materials for any alterations, and to strip everything out at the end of the lease term. A simple change from 'new materials' to 'suitable materials' embraces circular economy principles of reuse and recycling without compromising quality. And requiring a tenant to strip out all fit-out at the end of a five or ten year lease -- only for the next tenant to install substantially the same works -- creates enormous unnecessary carbon emissions.
The Cost Barrier
The biggest challenge is financial. Landlords do not want to spend money on green upgrades when they can pass costs to tenants. Tenants will not invest in a building they are only occupying for a short-term lease. This is the classic split-incentive problem in commercial property.
The solution, again, is collaboration. Tenants can lobby landlords collectively for changes like switching from gas heating to heat pumps. Landlords can see the long-term value in green upgrades that attract higher-quality tenants and command premium rents. Both sides benefit from reduced energy costs and improved building performance.
Regulation Is Catching Up -- Slowly
The Minimum Energy Efficiency Standards (MEES) currently require a minimum EPC rating of E for commercial properties, with discussions about raising this to C. Fines for non-compliance can reach up to 150,000 pounds, though enforcement has been minimal so far.
A judicial review in July 2022 successfully challenged the UK Government's Net Zero strategy for lacking substance, forcing a rethink. The Better Business Act, if passed, would change the Companies Act to require directors to consider people and planet alongside shareholder returns.
Why This Matters for Your Business
Whether you are a landlord, tenant, or property professional, the message is clear: do not wait for legislation. The legal framework is too slow to drive the change needed. Consumer pressure, employee expectations, and stakeholder demands are already creating momentum. Start with small, practical changes to your lease terms and build from there.
The Chancery Lane Project provides free, open-source green clauses that any property professional can use. Bringing sustainability into the conversation at the earliest stage of lease negotiation -- when both parties are most willing to collaborate -- is the most effective way to drive change in commercial property.