is the tenant. Tenants are normally companies,
and these can range from very large companies
to very small ones. So, again, let us look at it
from the point of view of the Green Tenant
and the Greenback Tenant.
The Green Tenant cannot force his landlord
to make improvements that are landlord’s
improvements. The Green Tenant could make
his own improvements, but as most companies
have leases that last between five and 15 years
in the current market, there is very little incen-
tive to make improvements to a property,
when the payback period for many green tech-
nologies is in excess of ten years. And, as there
is no mechanism, when a lease ends, for pass-
ing on the cost of improvements to the next
tenant, even the most Green Tenant will hesi-
tate before making improvements off his own
bat that he pays for and others benefit from.
For the Greenback Tenant, he is likely to
object to improvements suggested by a Green
Tenant, particularly if the Green Tenant is try-
ing to get the landlord to spread the costs
amongst all the tenants.
What happens at the end of the lease?
Tenants generally have to pay “dilapidations”
to put the property into a reasonable state of
repair and landlords can use this to make a
tenant take out technology that the next ten-
ant does not want (like making a tenant take
out the partitioning it put in). Would this
apply to green technology? The Green Lease
Toolkit encourages landlords to waive this
right, but a Green Tenant would be well
advised to secure agreement in writing to this.
Finally, if a Green Tenant does want to put
in his own green technology at his own cost,
he will need permission from the landlord, and
a licence for alterations will be required.
Landlords may object to wind turbines on the
roof of a tenanted building and may object to
The Companies Act 2006 was a half-hearted attempt to make directors look beyond profit painting the walls white, for example.
In short, the current, “Victorian” landlord
cost of that improvement can be passed on to environmental improvement clauses. So, the and tenant law, and the way different parties
the tenant through the service charge or a environmentally minded Green Landlord can- have different interests over different
sinking fund. A sinking fund is designed to not completely disregard the tenant’s views. timescales, is not at all conducive to a common
make the tenants pay over a number of years Commercially, over-zealous landlords could effort to reduce carbon emissions from com-
for capital replacements. So there will be a jeopardize the marketability of their properties. mercial property. I cannot see any great
sinking fund gathering up money to replace The Greenback Landlord will not be both- improvements in the commercial property
the lifts when reach they end of their useful ered about putting in place environmental sector, other than from companies with a clear
life, for example. Could a sinking fund be a improvements, because, even if he can charge green strategy. So, I do not really think there
way of paying for solar panels on the roof, it on to the tenant, he does not want the hassle will be a lot of improvement in the vast bulk
rainwater collectors, algae collectors, wind of doing it, or the arguments with those ten- of the commercial property sector.
turbines, etc? Or will tenants argue that envi- ants who do not want the improvements. And If government is serious about reducing
ronmental improvements go beyond the he may fear losing tenants who are worried commercial property emissions, the issues
“landlord’s discretion” or are nothing to do about higher service charges. So, the outlined need to be thought through and a fair
with “good estate management”? Greenback Landlord probably will not bother balance between the interests of all parties
Limited service charge/sinking fund provi- unless he believes that enhanced rentals and worked out and a binding legislative
sions in existing leases may not allow the land- market attractiveness of green buildings to framework for sharing the costs of improve-
lord to impose improvements on unwilling Green Tenants make the capital expenditure ments put in place.
tenants. New leases are beginning to address worthwhile in terms of rental yield and
this, but existing leases arguably do not. And attracting Green Tenants. Adrian Phillips is a Partner at Moorcrofts LLP
tenants may resist new leases with open-ended The third stakeholder in the property game > www.moorcrofts.com
Sustainable Business ❘ November/December 2009 33
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