Overriding
Interest
What is a Green Lease?
Reducing the environmental impact of property is very much at the forefront of the
government’s drive to cut the UK’s carbon emissions. Energy Performance Certificates have
already been introduced, and with another deadline for compliance of 1st July looming,
these regulations are clearly here to stay. EPC’s are just one example of the green agenda
impacting on the commercial property sector. The past decade has seen a major change in
Lawyers to the
this agenda and environmentally friendly initiatives, and the issues of sustainability for future
real estate industry
generations, will have an increasing impact. Will one of the environmental initiatives be the
introduction of a green lease and is this a concept which landlords and tenants are likely to
be keen to embrace?
Summer 2008
In this issue:
A green lease is a lease of a commercial or public building which incorporates an agreement
What is a Green Lease? ....................... 1
in a sustainable way, using principles that incorporate ecologically sustainable development policies.
Hot in the City ..................................... 2
These principles help to ensure that any negative impact on the environment is minimised.
Legal Cases ......................................... 3
Green leases were first developed in Australia in the form of a green lease schedule by the Australian
Deals .................................................. 4
Department of the Environmental and Water Resources and the Australian Government Solicitor. This
between the landlord and tenant as to how the building is to be managed, occupied and improved
requirement for a schedule became mandatory from September 2006 and has since expanded to
incorporate the private sector as a voluntary initiative.
Now in the U.K., certain members of the industry are calling for the introduction of a “green
lease”. The green lease would provide incentives to the landlord and the tenant to reduce energy
consumption and adhere to efficient energy management practices, such as increasing recycling,
building with environmentally friendly materials when installing tenant improvements and complying
with other environmentally friendly terms. A major driver to the introduction of a green lease could be
the substantial commitment to sustainability in the Corporate Social Responsibility (CSR) programmes
of many of the UK’s large tenants and landlords. Green leases could enhance a company’s
environmental image and profile. So just what sort of provisions would a green lease contain?
1. benchmarks for environmental performance by both landlord and tenant in the landlord’s and
tenant’s covenants. The rent could be increased or decreased dependent on whether the
benchmarks are achieved;
2. lease terms or separate regulations would govern materials used for repairing or altering the
building together with policies on air quality, air conditioning, recycling etc;
3. clauses dealing with the impact on rent review, service charge recoverability and the tenant’s
ability to assign as a result of “green clauses” would need to be considered.
So, other than a achieving a good CSR rating just what is the benefit for a landlord or tenant in
adopting a green lease? The answer is straightforward. Cost savings over the long term, will be
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achievable for both parties. Tenants should benefit from decreased service charges, whilst landlords
should be able to maximise the long term return on investment obtained from a particular building
with green credentials. At this stage the challenge seems to be raising awareness of green leases.
Understanding the environmental impacts of energy saving initiatives on buildings and committing to
follow sustainable principles seem key to driving change.
Hot in the City
This is the time of year when the British weather (during its rare fine spells) exposes the
Specific performance
limitations of the air-conditioning systems in many office buildings. With multi-tenanted
Specific performance is a Court Order
buildings, it is usual for the landlord to repair and maintain the a/c system with the tenants
compelling a party to comply with its
paying the landlord’s costs through the service charge. All is well when the system works. But
when it fails, tenants can find themselves in the frustrating position of suffering in unbearable
conditions but having no direct control over the remedy. Disputes can arise as to whether
obligations. Here, it would be to compel the
landlord to repair and maintain the a/c system
in accordance with its lease covenants. It is,
however, a discretionary remedy and the tenant
the landlord is performing its lease obligations, and tenants frequently want to know their
would have to establish, amongst other things,
remedies if the landlord is in breach. So what are a tenant’s remedies?
that damages would not be an adequate
remedy and that it would be just and equitable
The main remedies available to a tenant
this remedy. However, if, as is usually the case,
are damages, self-help, set-off and specific
the problem is outside of the demise and within
performance:
the common parts of the building and if, as is
Damages
also usual, there is no express right of entry to
repair the common parts in the tenant’s favour
Conclusion
There are remedies available to tenants who find
themselves sweltering in the middle of summer
with no effective air-conditioning. Problems
A faulty a/c system may severely impact on a
in the lease, then the tenant should be cautious
tenant’s staff and business. If the landlord is in
about undertaking the work itself. It could be
should be brought to the landlord’s attention
breach, the tenant can claim damages to put
committing a trespass if it were to do so.
at an early stage and, if no effective
it in the position it would have been had there
been no breach. Those damages can cover
Set off
inconvenience and discomfort (which is often
Set off is where the tenant makes a deduction
assessed by reference to the rental value of
from the rent or other sums payable to the
the premises), any ill-heath caused to the staff,
landlord under the lease. The tenant may seek
damage to personal belongings or the tenant’s
to recover the damages it has suffered as a
property (through, for example, water leaks)
consequence of the problems with the a/c
and, of course, loss of profits. If the problems
system by making a deduction from its rent or
with the a/c system are so severe that the tenant
service charge payments of an amount which
has to vacate, it can also claim for the cost of
reflect those damages. Similarly, if the tenant has
alternative accommodation, the cost of moving
adopted a self-help remedy and has incurred
and again any loss of profits suffered.
costs through employing experts and contractors,
Self-help
again, it may seek to set-off those sums against
the payments due to the landlord under the
Self-help involves the tenant carrying out repair
lease. However, many leases exclude the right
works itself and then seeking to recover the
of set off, so a tenant should consider its lease
cost from the landlord. If the problem with the
carefully before adopting this remedy.
a/c system is within the tenant’s demise, then
it may well be possible for the tenant to adopt
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in the circumstances to grant such an Order.
Overriding Interest
response from the landlord is received,
further legal advice should be sought on the
most suitable options for proceeding.
Legal Cases
Business Tenancies
Service Charges
Business Tenancies
Where a business tenant used a leased site in
After the end of a service charge year in which
The tenant of business premises had a right
breach of planning and had several enforcement
on-account demands had been served and
contained in a document separate to its lease
notices served on him, it was held that the
paid by a tenant, the landlord made a demand
to park outside the demised premises but, on
landlord was entitled to recover possession on
for an additional payment that was omitted in
renewal, sought to have that right included in
ground 30(1)(c) of the 1954 Act.
error from the final schedule of expenditure. It
its new lease. The Court held that the tenant
was held that the tenant was not liable for the
had no automatic right to have its parking rights
additional sum.
incorporated in the new lease.
Comment: Recovery could still be made by the
Comment: The Court had a discretion under
landlord if a revised final schedule was served.
section 35(1) of the 1954 Act to incorporate the
Comment: The Court refused to sanction the
tenant’s continued illegal use of the site.
Fowles - v- Heathrow Airport, ChD
Leonora Investment Company - v - Mott
Forfeiture
right but refused to exercise it.
Macdonald, QBD
Picture Warehouse - v- Cornhill Investments, QBD
the lease, demanded that the assignor pay
Rent Reviews
Estate Management
the arrears. The assignor failed to pay and
Where a rent review clause in the lease of
A management company that controlled an
the lease was forfeited. It was held that the
a drive-through restaurant required it to be
industrial estate imposed an overnight parking
demand for the arrears had not waived the
assumed that the property was a “modern
levy to pay for the commercial rates charged by
landlord’s right to forfeit.
warehouse”, it was held that the assumed
the local authority on the car park and to relieve
planning use was that of a warehouse, but with
congestion. The Court dismissed the complaints
the potential for retail use.
of the tenant hardest hit by the levy as it could
A landlord, following judgment in its favour
for arrears and an unlawful assignment of
Comment: No unequivocal demand for payment
had been made from the tenant, the assignee.
Greenwood Reservation - v - World Environment
Foundation, CA
Comment: The Court considered the state of the
not establish that the levy was unreasonable.
warehouse and retail warehouse markets at the
Comment: The motive for the scheme
date of the lease in reaching its decision.
was irrelevant.
McDonalds Real Estate - v - Arundel
Shah - v - Colvia Management Company, CA
Corporation, ChD
Summer 2008
3
Deals
Nationwide Commercial
Anglo Irish Bank
Home House
A team comprising lawyers from the London and
We acted for Anglo Irish Bank Corporation plc
We acted for Quintillion UK Limited in relation
Berlin offices has completed its first instruction
in relation to a c£190 million refinancing facility
to the refinancing of £14m of bank debt, which
for Nationwide Commercial in connection
to Revelan Group plc, an Isle of Man based
is secured over (inter alia) the property and
with loans secured against German real estate
company, secured on a portfolio of industrial
assets of the Home House private members club
assets. The €52million senior loan facility to
and commercial properties in the UK. Richard
(Portman Square). Richard Williamson acted on
Luxembourg subsidiaries of Parkwood Europe
Williamson acted on the banking aspects of
the banking aspects of the transaction, assisted
LLP has been used to help fund the purchase
the transaction, assisted by Gareth Lawson.
by Rebecca Bailey. Steven Cox acted in relation
of six properties in Germany. K&L Gates real
Fiona McPhillips acted in relation to the property
to the property aspects of the transaction. Steven
estate finance partners Jonathan Lawrence
aspects of the transaction.
also recently acted for Home House on an
(London) and Georg Foerstner (Berlin) led the
team, assisted by Duncan Batty (London) and
Capital and City
Christiane Feldhaus and Anja Rösch (Berlin).
We acted for Capital & Conduit LLP in relation to
agreement with the Portman Estate for a lease
of additional premises at Portman Square to
expand the club.
the acquisition of, and c£40 million finance of, 2
Properties located in the West End. The deal was
led by Melanie Curtis, a Partner in the real estate
group and Richard Hardwick, a Partner in the
banking department.
For further information contact:
Steven Cox
steven.cox@klgates.com
T: +44 (0)20 7360 8213
Milton McIntosh
milton.mcintosh@klgates.com
T: +44 (0)20 7360 8259
Bonny Hedderly
bonny.hedderly@klgates.com
T: +44 (0)20 7360 8192
K&L Gates comprises approximately 1,500 lawyers in 25 offices located in North America, Europe and Asia, and represents capital markets participants,
entrepreneurs, growth and middle market companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For more information,
visit www.klgates.com.
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offices are located. A list of the partners in each entity is available for inspection at any K&L Gates office.
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Overriding Interest