Lawrence Stephens

We are a *knowledge business

What is the Future for Sustainable Commercial Property?

October 2021

Insulate Britain have made themselves a household name within the last few weeks, after staging several protests on the M25 and on other major highways, resulting in swathes of arrests, many disrupted commutes, and numerous disgruntled motorists.

Insulate Britain is calling for the government to insulate homes and properties in the UK and in a bid to tackle climate emissions, reduce fuel poverty, and improve public health.

The increasing demand for sustainable property poses a challenge to the real estate sector, with 55% of commercial property firms recording increased demand for ‘green’ buildings. Current regulations stipulate that a commercial premises must meet minimum energy efficient standards; yet, as the demand for more environmentally friendly property continues to grow, there is speculation that these regulations are going to be tightened and that the minimum standards will be made harder to achieve.

The need to alter existing properties, for example by changing the heating apparatus, could raise potential problems between landlords and tenants as to who should bear the cost of such works. Whilst some commercial tenants may happily incur expenditure to comply with their company’s ethical values, other tenants on short commercial leases may not want to spend money on redevelopment when they receive only short-term benefit. A tenant may also be concerned about facing a double burden of increased rent in a subsequent rent review, resulting from the improvements made to the property.

A tenant may argue that the cost of improvements should lay with the landlord, as the owner of the building. Arguably, a landlord will receive a greater benefit, not only by accommodating the current tenant, but making their building more attractive to future tenants. However, unless there is a significant shift in the market toward eco-friendly buildings, a landlord may not want to spend money on attracting what they may see as a minority of environmentally conscious tenants.

There is a range of legal mechanisms available to resolve these potential disputes. Provisions relating to possible costs can be incorporated in the lease, with both parties able to negotiate accordingly – for example by limiting the cost of renovation to being reasonable and proportionate.  The lease could oblige the parties to meet quarterly to discuss sustainability, and then reflect what has been agreed in a memo of understanding attached to the lease. Alternatively, a landlord could provide a tenant with a handbook on sustainability, to give them flexibility to encourage improvement works without imposition. Whichever method is chosen, a willingness to have an open dialogue between the landlord and tenant about sustainability is essential to a ‘greener’ future.

If you have any questions about a commercial property issue, please feel free to get in touch with a member of our Commercial Real Estate team.