Partner London
"As businesses face growing pressure to cut carbon emissions and demonstrate environmental responsibility, green lease provisions have emerged as a necessary tool to align landlord and tenant interests."
Sustainability is no longer a buzzword. It is reshaping the way privately rented non-domestic property is leased and managed. As businesses face growing pressure to cut carbon emissions and demonstrate environmental responsibility, green lease provisions have emerged as a necessary tool to align landlord and tenant interests.
Why does this matter? The UK’s ‘net zero by 2050’ target and tightening energy efficiency regulations, such as the Minimum Energy Efficiency Standards (“MEES”), are driving change at pace. With proposals to raise minimum EPC ratings for non-domestic premises to C by 2028 and B by 2030, landlords and tenants must collaborate to improve building performance. At the same time, corporate ESG reporting obligations and investor scrutiny make sustainability a commercial priority, not just a regulatory one.
In this article, we explore what green leases are, why they are gaining traction, and the key issues tenants need to be aware of.
What are Green Leases?
A green lease is a commercial lease that includes provisions designed to improve the environmental performance of a building. These provisions encourage collaboration between landlords and tenants to reduce energy, water, and waste consumption, promote renewable energy and support sustainable fit outs.
The scope of these provisions is often categorised by reference to a ‘green’ spectrum as to the level of commitment required by the parties:
- Light Green: typically aspirational, non-binding commitments;
- Medium Green: typically legally binding practical obligations without imposing unreasonable costs; and
- Dark Green: legally binding requirements with measurable outcomes.
Regulatory Drivers
Although green lease provisions are not yet mandatory, external pressures such as regulatory developments and market trends are encouraging their adoption by both landlords and tenants. It is estimated that 25% of UK emissions are directly attributable to the built environment. This is a major concern and achieving the government’s 2050 net zero target will therefore heavily depend on retrospectively improving the energy efficiency of existing commercial buildings.
MEES
MEES set legal minimum standards of energy efficiency for privately rented non-domestic properties. Since 1 April 2023, landlords could not continue to let non-domestic property with an energy performance rating below E (save where specific exemptions apply).
In 2021, the previous government proposed raising the minimum energy efficiency standard to C by 2027 and B by 2030.¹ However, no further action was taken. It is anticipated that the government will set a new deadline for the B rating after 2030 but before 2035, helping them to achieve their net zero target. Despite the lack of definitive guidance, more stringent standards are expected, and many landlords are seeking to futureproof their assets by addressing energy efficiency upgrades now.
ESG
Key contacts
"There is growing pressure on both occupiers and landlords to meet sustainability targets and increasing corporate Environmental, Social and Governance reporting requirements."
There is growing pressure on both occupiers and landlords to meet sustainability targets and increasing corporate Environmental, Social, and Governance (“ESG”) reporting requirements,² which may include requirements to disclose greenhouse gas emissions, energy consumption and energy efficiency action taken by relevant companies.
Market Drivers
Beyond regulatory compliance, environmental disclosures are increasingly scrutinized by investors, stakeholders and the public, making them closely tied to corporate reputation. Stakeholders expect proactive sustainability efforts; simply claiming to be ‘green’ is no longer enough.
While the green lease movement has typically been led by landlords, corporate tenants are also demonstrating their commitment to ESG principles by embracing green lease provisions. A notable example is UK retailer Marks & Spencer, which has introduced green lease provisions across its portfolio of commercial leases.
Practical Considerations
The 2021 proposal estimated that 85% of rented non-domestic property would have to be upgraded to achieve an EPC B by 2030, which raises the question of who bears the responsibility for the upgrades. The answer often lies in the lease provisions. Under a full repairing and insuring lease, disputes may arise over a) whether energy efficiency improvements fall within the tenant’s repairing obligations; and b) if the landlord is responsible for them, can the landlord recover the costs via the service charge? To avoid any dispute, commercial leases should clearly allocate responsibility for energy efficiency upgrades and other environmental performance obligations.
Key Green Lease Provisions
In January 2024, the Better Buildings Partnership (“BBP”) published its latest version of the Green Lease Toolkit, updating the framework originally introduced in 2008 to incorporate sustainability provisions into commercial leases. The Green Lease Toolkit was developed with contributions from some of the UK’s leading commercial real estate organisations including property investors, charities and property managers and was designed to be incorporated into the Model Commercial Lease (“MCL”) (an industry recognised precedent).
The specific provisions included in a green lease, and where on the scale of “light green” to “dark green” such provisions fall, will vary depending on the parties’ objectives and the property. Typical provisions may include:
- waste management policies: promoting waste reduction and recycling, encouraging tenants to minimise waste and adopt sustainable disposal practices. These measures are typically incorporated as ‘light green’ provisions requiring minimal investment but may go as far as to include ‘dark green’ measurable salvage targets;
- data sharing: enabling monitoring of, and reporting on, environmental performance, allowing landlords and tenants to track progress against sustainability targets. Ideally drafted as ‘light green’ provisions without penalties for non-compliance, these should include confidentiality protections and clarify how data is shared or collected;
- energy efficiency measures: ranging from ‘light green’ provisions requiring the consideration of upgrades to equipment, where economical and practical to do so, to ‘dark green’ provisions mandating implementation of energy-saving initiatives, such as efficient lighting, HVAC systems, or renewable energy procurement. While upgrades may deliver long-term savings, upfront costs can be significant, and leases should clarify cost allocation;
- EPC provisions: these are particularly important to landlords due to proposals to raise the minimum energy efficiency standard. They are generally drafted towards the ‘dark green’ end of the spectrum and address the impact of tenant works on EPC ratings, responsibility for commissioning EPCs and restrictions on tenants commissioning their own EPC;
- sustainable materials: aimed at improving the building’s environmental performance by minimising the carbon impact of fit-out works and construction activities. This involves assessing material choices throughout the design, procurement and construction stages. Provisions typically range from ‘light green’, requiring reasonable efforts to be made to use recycled and/or recyclable and sustainable materials, to ‘medium green’ requiring that such materials must be used where available; and
- achieving minimum certifications: green leases may require tenants to maintain or support sustainability standards such as BREEAM, WELL, NABERS UK, SmartScore or ISO accreditations, often linked to planning conditions for new developments to ensure high environmental performance.
The MCL historically contained limited sustainability provisions but since April 2025 included a fully developed green lease schedule aligned with the Green Lease Toolkit. Whilst neither the MCL nor the Green Lease Toolkit are prescriptive, both are widely used tools across the market and support the trend towards greener leases.
"As regulatory standards tighten and ESG pressures mount, green lease provisions are likely to shift from optional to essential."
Conclusion
Green leases are becoming a cornerstone of sustainable real estate. As regulatory standards tighten and ESG pressures mount, green lease provisions are likely to shift from optional to essential.
Tenants who proactively engage with green lease principles will be better positioned to meet compliance requirements and enhance their corporate reputation.
Understanding landlord’s requirements surrounding green lease provisions will bolster effective collaboration to agree green lease provisions that achieve a balanced outcome to meet both parties’ objectives.
With extensive experience guiding clients through the legal and practical challenges of green leases, our Real Estate team is well placed to provide expert guidance that aligns with your sustainability objectives. For tailored support, please contact our Real Estate team.
London Trainee Kate McMahon also contributed to this article.
[1] The Non-Domestic Private Rented Sector Minimum Energy Efficiency Standards.
[2] s 414C Companies Act 2006, and s 10 The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (2008/410)
