The theme is green - Carbon Reduction Commitment is looming

01/04/2009

By the Commercial Property & Development team.

Commercial buildings account for about 17% of the UK's carbon emissions. As a result, there is an increased awareness of the environmental impact of such buildings and the need for them to become more 'green'.

This is already apparent in the recent compulsory requirement for Energy Performance Certificates to be provided on the sale and letting of commercial buildings.

From April 2010 the Government plans to implement the Carbon Reduction Commitment (CRC). This will require some companies to buy a carbon emission allowance.

The Government is clearly looking at what can be done to reduce the energy output from commercial buildings and, as most buildings are tenanted, this will affect the provisions of leases.

Basic level changes

There are some basic amendments which could be made to leases to make them more 'green'. For example:

  • an obligation on the tenant not to do anything which would adversely affect the building energy performance score or
  • an obligation on the tenant (or the landlord) to use sustainable materials when carrying out repairs or other work.

Mid level changes

Over and above these basic provisions, a lease might require more technical provisions to make it "green". For example:

  • an obligation on the landlord and the tenant to cooperate in sharing information about energy and water use or
  • an obligation on the landlord and tenant to work together on an Energy Management Plan for the building to meet certain pre-agreed energy performance targets.

High level changes

These would require even more cooperation between landlord and tenant. For example:

  • an agreement to meet detailed energy targets for the building; orfinancial penalties on the tenant if the targets are not met.

Carbon Reduction Commitment

The CRC will raise some specific issues of its own. For example:

  • it is not clear whether the landlord will be able to pass on to the tenant, perhaps through the service charge, the cost of buying a CRC allowance
  • if some of the cost of the CRC allowance is met by the tenant then agreement will need to be reached as to whom has the share of some of the Government payments made for recycling waste
  • issues will arise if the landlord is forced into CRC status as a result of the activities of its tenants.

The take up of 'green' leases is currently low and in a poor market no party wants to put any additional obstacles in the path of a deal. However, Energy Performance Certificates are already here and CRC is looming, so this issue will not go away. If you discuss these issues in advance with your lawyer we can ensure documentation is drafted to deal with the issues and protect your position.