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In the Netherlands, demand for sustainable buildings is increasing rapidly. With ESG requirements becoming a key consideration in operational decisions of users, the sustainability score of a building has become a significant factor in determining its value. Green leases are agreements that incorporate environmental or social performance requirements and goals for both landlords and tenants. In this third blog in our series on sustainable real estate we discuss the benefits of green leases for both parties, the topics that can be included in a green lease, and the difference between light green and dark green clauses.
Benefits
The benefits of green leases are manifold. For landlords, green leases can enhance the value and marketability of their properties, as they attract more tenants who are looking for energy-efficient and environmentally friendly spaces. They can also reduce the operating and maintenance costs of the buildings, as well as the risk of obsolescence and depreciation. Moreover, green leases can improve the reputation and image of the landlords, as they demonstrate their commitment to sustainability and social responsibility. For tenants, green leases can lower their energy bills and service charges, as they benefit from the improved efficiency and performance of the buildings. They can also improve their productivity and well-being, as green buildings offer better indoor environmental quality and comfort. Furthermore, green leases can help tenants meet their own environmental targets and obligations, as well as enhance their brand and reputation among their customers, investors, and employees.
Topics of a green lease
To achieve these benefits, green leases need to include specific clauses that address the environmental aspects of the buildings and their use. In addition, green leases can include clauses that address social aspects. Some of the topics that can be included in a green lease are:
Energy and water consumption: the parties can agree on targets, benchmarks, and monitoring systems for reducing the energy and water use of the buildings, as well as the sources and types of energy and water that are used.
Waste management and recycling: the parties can agree on measures and procedures for minimizing the generation of waste and maximizing the recycling and reuse of materials, as well as the disposal and treatment of waste.
Materials and fit-out: the parties can agree on the standards and criteria for the selection and use of materials and equipment for the construction, renovation, and maintenance of the buildings, as well as the fit-out and furnishing of the premises.
Sustainability ratings and certifications: the parties can agree on the level and type of sustainability ratings and certifications that the buildings should achieve and maintain, such as BREEAM or WELL, and the responsibilities and costs for obtaining and retaining them.
Data sharing and reporting: the parties can agree on the collection, sharing, and reporting of data and information related to the environmental performance of the buildings and their use, as well as the verification and auditing of such data and information.
Cooperation and communication: the parties can agree on the establishment and functioning of a joint sustainability committee or platform, where they can discuss, review, and implement the environmental goals and actions of the green lease, as well as communicate and collaborate with other stakeholders, such as contractors, suppliers, and regulators.
The Dutch model lease agreements
In the Netherlands, most lease agreements are based on one of the model agreements created by the Council for Real Estate (Raad voor Onroerende Zaken), a platform for real estate professions. The model starts with a set of key provisions and then allows parties to add provisions based on their specific requirements or to include deviations from the applicable general terms and conditions. Over the years, updates to the models have been made to cater for green lease provisions. Currently, the 2015 model for office and general business spaces only contains a provision stating that the parties recognize the importance of sustainability and will support each other in achieving a jointly formulated objective. However, the 2022 model for retail spaces already contains more exacting obligations on this subject. In this latter model, parties are nudged to agree the sustainability measures in advance and to include these in the lease. Secondly minimum requirements on energy efficiency performance are included as part of the set of key provisions, as well as arrangements for the allocation of costs in the event investments are to be made to meet these requirements.
Light green versus dark green leases
Depending on the nature and extent of the environmental obligations and incentives in the green lease, the clauses can be classified as light green or dark green. Light green clauses are those that encourage or recommend the parties to adopt sustainable practices, but do not impose strict or binding requirements or sanctions. They are usually based on reasonable efforts or best endeavours undertakings and rely on the goodwill and cooperation of the parties. Dark green clauses are those that require or oblige the parties to comply with specific and measurable environmental standards or targets and provide for clear and enforceable consequences or rewards. They are usually based on performance or outcome-based undertakings and create stronger incentives and accountability for the parties.
The enforcement of green leases depends on the type and content of the clauses, as well as the legal framework and context. In general, the parties can use various mechanisms to ensure the compliance and performance of the green lease, such as:
Monitoring and auditing: the parties can use the monitoring and auditing systems established in the green lease, such as meters, sensors, or third-party verifiers, to measure and verify the environmental performance and impact of the buildings and their use, or to provide evidence and feedback for the green lease.
Incentives and penalties: the parties can use the incentives and penalties provided for in the green lease, such as rent adjustments, service charge reductions, or fines, to reward or sanction the parties for their compliance or non-compliance with the environmental standards or targets of the green lease, or to share the costs and benefits of the green lease.
Contractual remedies: the parties can use the contractual remedies available under the lease agreement, such as termination, damages, injunctions, or specific performance, to enforce their rights and obligations under the green lease, or to seek compensation or redress for any breach or default.
Conclusion
Green leases are a valuable tool for landlords and tenants who want to improve the sustainability and efficiency of their buildings and businesses. They offer multiple advantages for both parties, as well as for the environment and society. However, they also require careful planning, negotiation, and drafting, as well as ongoing communication and cooperation, to ensure their success and effectiveness. If you are interested in entering into a green lease, or want to learn more about the topic, please contact our real estate team for expert advice and guidance.
