The built environment contributes around 40% of the UK’s total carbon footprint and as such, decarbonisation in the wider real estate sector is likely to play a large part in the country's efforts to reach Net Zero by 2050.

There are several initiatives already in place that aim to reduce the carbon footprint of the real estate sector such as the introduction of the Minimum Energy Efficiency Standard in 2018 and Better Buildings Partnership's members' Climate Change Commitment entered into by a number of leading commercial landlords. To assist in achieving the goals of these initiatives, however, it is important that the terms of leases and Assured Shorthold Tenancies (ASTs) promote climate resilience and sustainable occupation of the property in question.

It is usually difficult to effect change under a standard worded lease or AST, even where there is a perceived positive environmental impact. Commercial tenants are typically obligated to obtain the landlord’s consent and at times, the terms attached to the consent can prevent change ever taking place. At a residential level, tenants are not incentivised to make positive environmental changes and landlords are often unable to install green solutions due to tenant protections under an AST or lease.

At Clyde & Co LLP we are working to increase awareness around the impacts of climate risks on properties as well as encouraging contracting parties to collaborate to include “green” clauses in real estate documents. Such clauses could, in the landlord and tenant sense, take the form of:

  • An Operating Efficiency clause in a lease or AST requiring a property to be run at close to its maximum energy efficiency;
  • A Rent Rebate clause whereby the landlord agrees to provide the tenant with a rent rebate should certain agreed “green” targets be met by the tenant;
  • Alterations and Yielding-up clauses that require the landlord to act reasonably to “green” proposals by tenant that will not impact the landlord’s investment value; and/or
  • An alternative (or additional) Alterations clause that could permit a landlord to make “green” alterations to the property/building/estate with a capped portion of the costs being claimed back through the service charge.

Beyond the landlord and tenant relationship, a dedicated Climate Change section in a Report on Title will help increase awareness of climate change risks and may encourage buyers and sellers, in the knowledge that such risks may be highlighted in the report on title, to invest in the climate resilience of the property.

This post is part of a series of short updates summarising the precedent clauses drafted in the course of collaborative hackathons organised by The Chancery Lane Project.  Clyde & Co held its own hackathon in partnership with The Chancery Lane Project in July 2020, and has taken a leading role in the Big Hack, another hackathon organised centrally by The Chancery Lane Project throughout autumn 2020.