GREEN LEASE WORKSHOP OUTCOMES PAPER

Document Sample
GREEN LEASE WORKSHOP OUTCOMES PAPER Powered By Docstoc
					GREEN LEASE WORKSHOP OUTCOMES PAPER


Introduction


This document briefly summarises the outcomes of the discussion at the Green Leases
Workshop held at the City Marketing Suite, City of London Corporation, on 14th of
November 2007.
The workshop was part of the Building Market Transformation (BMT) programme based at
the University of Oxford's Environmental Change Institute (ECI) and of the Better Building
Partnership Programme developed by the London Climate Change Agency (LCCA). The
Building Market Transformation programme is sponsored by the Carbon Trust and the
Engineering and Physical Science Research Council (EPSRC). The results of the workshop
will be fed into the London Climate Change Agency's consultation in respect of the Better
Building Partnership. They are also feeding into the ECI’s ongoing policy development work
in the context of BMT.


The intention of the workshop was:

   1. To familiarise UK stakeholders with the green lease concept as practiced in
      Australia;

   2. To consider its applicability to the UK;

   3. To identify key issues that need to be addressed to encourage the development and
      adaptation of green leases in the UK.


The questions addressed in the workshop were as follows:

   1. What are the barriers and drivers to achieving acceptance of green leases in the UK?

   2. What would make green leases:

           a. Effective in the UK market;

           b. Attractive to tenants and landlords.
Background

What is a Green Lease?

A ‘green lease’ is a lease of a commercial or public building which incorporates an
agreement between the landlord and tenant as to how the building is to be improved,
managed and occupied in a sustainable way. Green leases include a schedule containing
specific provisions for monitoring and improving energy performance, achieving efficiency
targets (e.g. energy, water, waste) and minimising the environmental impacts of the
building. The provisions represent an agreement between the landlord and the tenant to
adopt procedures to ensure that that a building operates at an agreed level through regular
monitoring and addressing issues as they arise.


At the workshop, Lloyd Woodford of the Australian Government Department of
Environment and Water Resources, presented the Australian Green Leases scheme.

 Box.1 Australian Green Lease Schedule
 Green Leases were first developed in the form of the Green Lease Schedule by the Australian
 Department of the Environmental and Water Resources and the Australian Government Solicitor
 (AGS) for Australian government agencies. The requirement for such a schedule became mandatory
 from September 2006 and has since expanded to incorporate the private sector as a voluntary
 initiative. There are 8 Green Lease Schedules (GLS) designed to be used in a variety of cases (e.g.
 internal demises and full demises) and serve a dual purpose. First, to establish a mechanism for
 achieving energy efficiency objectives by imposing legal objectives in line with the Australian Building
 Greenhouse Rating (ABGR), and secondly as a support tool to achieve, maintain and prevent failure
 of the ABGR targets. The Australian Energy Efficiency in Governments Operations (EEGO) policy
 strategy requires that every time a new building lease is signed the GLS should be included to form
 part of the lease, where feasible. This applies to all buildings over 2000m2 and with leases over 2
 years.



The ‘Good Practice Guide for Incorporating Environmental Best Practice into Commercial
Tenant Lease Agreements’ by Centre for Research in the Built Environment, (Cardiff
University) was distributed at the workshop, highlighting the most substantial work done by
academia in the UK on this area to date.


 Box.2 Centre for Research in the Built Environment (CRiBE)
 The CRiBE at Cardiff University have developed a ‘Good Practice Guide’ for Incorporating
 Environmental Best Practice into Commercial Tenant Lease Agreements. This is designed to help
 landlords and tenants of commercial buildings to incorporate a sustainable method of meeting the
 requirements of environmental legislation. The guide is divided into two parts: Part 1 provides model
 lease clauses and recommendations while Part 2 provides notes about the environmental legislation
 relating to the operation and management of a building. The guide provides a simple yet informative
 step-by-step guide in how to best negotiate and manage and green leases.




                                                                                                            2
Outcomes of the Workshop

Question 1 – What are the Barriers and Drivers for Green Leases?

Barriers
Lack of awareness and understanding of green leases
One of the crucial barriers identified was the lack of awareness and how green lease
schedules could operate within the UK commercial property market.


Lack of suitable metric
Within the UK there is currently no rating system such as the Australian Building
Greenhouse Rating (ABGR) or American Energy Star rating which sets a standard
measure/benchmark of a building’s environmental performance/energy efficiency. The EU
Energy Performance of Buildings Directive (EPBD) may provide some standards with the
introduction of Display Energy Certificates (DEC) for operation and Energy Performance
Certificates (EPCs) for building design. These are envisaged to come into force between
April and September 2008. However, the initiative will take time to establish itself and have
an impact on the market. In any event, these measures do not impose the same landlords
and tenants joint commitment to improve energy and other efficiencies as are covered by
the green lease schedule as adopted in Australia.


Risk adverseness
While some organisations are starting to develop or consider the possibility of introducing
green leases there is an increased risk of entering an untested market and currently only
limited willingness to take on a leadership role to drive the development of green leases.
Furthermore, it must be acknowledged that the status quo is ‘comfortable’ as regards the
current state of building resource efficiency. It is apparent that there is a strong feeling that
energy prices are still a relatively small percentage of business expenditure and therefore do
not feature highly in the minds of landlords or tenants as priority for action or additional
expenditure.


Cost of retrofitting
A key barrier brought up during the workshop was cost of retrofitting a commercial
property and particularly how returns are achieved by both landlord and tenant. This is a
delicate issue which will need much negotiation between tenant and landlord. A key lesson
learnt from the Australian Green Lease Schedule is that the cost of retrofitting may not be
as significant as originally thought, and can be economically viable for both parties. The
RICS study has shown that significant improvements can be achieved at limited cost.


Multi-letting
Multi-letting is common place within the UK and can heavily increase the complexity of
establishing a green lease for a building. However, the technological increase of digital


                                                                                               3
metering allows each tenant to have control over its energy/resource consumption which
can be accurately measured.


Listed buildings
Specific considerations will apply to listed buildings and buildings situated within a
conservation area. Uncertainty in this area could act as a barrier to adoption of green lease
schedules for these buildings. It was noted that as the issue of the sustainability of
buildings becomes greater a change within the planning system will be needed.


Drivers
Corporate Social Responsibility
A major driver towards the adoption of green lease schedules is the substantial commitment
to sustainability in the Corporate Social Responsibility (CSR) programmes of many of the
UK’s large tenants and landlords. However, this driver was questioned by some participants
as only applicable for large FTSE 500 organisations. Green leases can be an avenue to
enhance a company’s social/environmental image, as well as avoiding a negative reputation
from owning/leasing energy poor buildings.


Rise of the climate change/green agenda
The commercial property market has seen clear evidence of environmentally concerned
tenants persuading landlords to improve the sustainability of their buildings, and from
environmentally concerned landlords persuading tenants to adopt more sustainable
behaviours in the occupation of buildings.


Future proofing
‘Future proofing’ is an important driver for green leases. While there are currently no legal
implications for poor energy performance buildings, there may well be in the future with
the introduction of new legislation. Similarly while valuation of buildings does not currently
take account of sustainability parameters it is perceived that this may well change in the
future. The cost of insurance and the insurability of buildings in the future could also act as
a driver. The adoption of green leases could reduce the risk of incurring possible taxation or
financial penalties which derive from excessive energy and resource consumption. Evidence
that legislation is moving towards increased building sustainability is seen with the EU
EPBD which will require EPCs for large buildings from April 2008 and public buildings to
display DECs from September 2008. DEC’s may eventually be rolled out across the private
sector. This will inform the public how energy efficient companies’ buildings are. This can
be seen as positive if owners and tenants use energy efficient buildings, however, there is a
possibility that organisations could be ‘named and shamed’ for the use and ownership of
energy poor properties.




                                                                                             4
An opportunity for tenants to meet the landlord
With the requirement of regular meetings green leases provide an opportunity for the
landlord and tenant to work together and enhance relations, particularly in a situation
where a tenant rarely sees the landlord.


High future energy costs
While the cost of energy is currently not high enough to be a particularly significant factor
in the way buildings are selected or occupied, rising energy prices may drive cost high
enough to force organisations to consider reducing their energy/ resource consumption as
a higher priority.


Transparency of responsibility for building environmental performance
Another driver is the transparency of green leases. They provide accountability to both
parties for the building’s environmental performance and establish who is responsible for
any improvements.


Opportunities for being a market leader for innovative sustainability initiatives
Organisations who view green leases as an integral part to future commercial leases will
benefit from early entry into the market and will have an opportunity to influence how the
market develops. It is an opportunity to develop innovative sustainability initiatives which
can be replicated on a national scale.


Question 2a – What Would Make Green Leases Effective?
Keep it simple
It was largely agreed through discussions that a green lease schedule needs to be a
relatively simple, standardised document. It must be used and endorsed by recognised and
relevant industry bodies in order to become the market norm.


Cost effectiveness/needs of tenants and the landlord/incentives
The energy reduction and sustainability commitments must be cost-effective and reflect
the needs of both the landlord and the tenant. They must provide incentives (e.g. fiscal –
lower insurance rates, stamp duty, business rates) if organisations are to commit and
benefits and savings should be shared between both parties and therefore not solely at the
expense of only one.


Accurate and effective data handling
Accurate and effective data handling and reporting is needed to provide accountability and
ensure the continued improvement of the buildings environmental performance.



                                                                                           5
Sustainability metric/benchmarking
An agreed method of reflecting the sustainability of buildings (along the lines of the
Australian AGBR and American Energy Star system) would greatly assist the UK to create a
benchmark which will allow for the assessment and comparison of building efficiencies.
DECs could provide this missing link as far as energy is concerned.


Legislation
The introduction of legislation could provide direction for many organisations that are in
the process or considering implementing a green lease schedules and also address much of
the confusion surrounding the implementation of a green lease and the details of what to
include. Ultimately legislation which obligates the adoption of green leases would be the
most effective instrument in ensuring mass uptake into the market. However, statutory
compulsion has not been the approach in Australia and is likely to be resisted by landlords
and tenants in the UK.


Question 2b – What Would Make Green Leases More Attractive?

From the tenants perspective

   •   Reduced costs/ financial advantage would make green leases more attractive, either
       through reduced rent, energy costs or service charges.

   •   Working closely with landlords and building a closer relationship, and establishing
       platforms to share information

   •   Potential of green leases to comply with CSR commitments

   •   Continued increase in energy prices

   •   Leadership from the government to develop and test the market and show
       commitment to reducing the environmental impacts of the countries existing
       commercial building stock.

   •   The introduction of carbon emission trading schemes, such as DEFRA’s Carbon
       Reduction Commitment (CRC) for medium size energy users, could act as a driver
       for tenants to work with landlords in limiting both parties financial liabilities, and
       gaining financial value from trading carbon credits.

 From the landlords perspective

   •   If the benefits of green leases are recognised in property valuations or the property
       becomes more saleable due to a higher demand for a building with low
       environmental impacts from tenants.



                                                                                           6
   •   Continued increase in energy prices

   •   Leadership form the government or leading commercial organisations to develop
       and test the market and show commitment to reducing the environmental impacts
       of the country’s existing commercial building stock.

   •   Potential of green leases to comply with CSR commitments

   •   Working closely with tenants and building a closer relationship

   •   In a similar way as for tenants, the introduction of carbon emission trading schemes,
       such as DEFRA’s Carbon Reduction Commitment (CRC) for medium size energy
       users, could act as a driver for landlords to work with tenants in limiting both parties
       financial liabilities, and gaining financial value from trading carbon credits.


General analysis
Leadership within the market may lead to answers and solutions to the issues raised. If the
UK Government or leading commercial property organisations commit to driving the process
forward, laying down standardised tools and codes and testing the market, this would
incentivise many organisations to follow suit. This would allow a market and expertise to
develop and establish best practises.
A key aspect of green leases is to allow for continued improvements in performance with
monitoring and auditing, complementing an environmental management system.
An awareness raising programme would benefit the rate of uptake of green leases. This will
allow organisations to have a greater understanding of the environmental impacts and
consequences of their buildings, general building performance and where losses are most
apparent.



The organisers would like to express their gratitude to the following persons and
organisations who made this event a success:
   •   All of the participants
   •   Lloyd Woodford, Australian Government Department of Environment and Water
       Resources, for his lively and challenging presentation
   •   City of London Corporation, for lending the City Marketing suite for the event
   •   Helena Poldervaart, for her excellent workshop facilitation
   •   Graham Lust, Nabarro, for his advice on the workshop development
   •   Angela Langley, Cardiff University




                                                                                             7
Tatiana Bosteels & Christopher Botten
London Climate Change Agency

Dr Pernille Schiellerup
Environmental Change Institute, University of Oxford

30 November 2007




                                                       8