Environmental clauses are heating up leases

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Article

31 October, 2019

The increasing global environmental socio-economic awareness means that there is now a wealth of environmental laws and issues in practice which overlap with some areas of property law, in particular leases.

What do Landlords want?

As landlords will be keen to make sure that the tenant will be responsible for the clean-up of any contamination contemporary to the term of the lease, especially where it is caused or knowingly permitted or disturbed by the tenant, they often make use of 'sweeping-up' clauses wide enough to embrace any work, even that not covered by the tenant's general repairing covenant. This is why most modern commercial leases deal expressly with environmental issues; for example, either party may negotiate a clause protecting them from liability for existing contamination, or apportion liability to the landlord for existing contamination, and to the tenant for the new contamination.

How does this effect the Tenant?

Conversely, the tenant might be required to provide energy savings (for example by not partitioning is a way which would make the air-conditioning system less efficient or observe and perform the landlord's green management plan).

Environmental clauses in leases will be used by landlords to shift the onus towards the tenant in regards to compliance with all Environmental Laws. For example, a clause stating that the tenant shall comply with all Environmental Laws relating to any works carried out at the property and all materials kept or disposed from the property might mean that in the case of pollution or contamination the tenant might find themselves liable for the clean-up works, even when this does not fall within their general repairing covenant.

Similarly, an environmental clause stipulating that the tenant shall act in compliance with all Environmental Law in relation to the use and operation of all service media and machinery and equipment might mean that the tenant will have to replace and convert such service media so that it is capable of lawful use or operation.

Striking a balance:

Additionally, under the current trend of increased environmental awareness, landlords and tenants are keen to enter into 'green leases' which are actively aiming to reduce the building's impact on the environment and will both enter into obligations to achieve this. For example, some clauses will covenant the landlord to achieve a specific energy rating throughout the term, instigate a green management plan setting out targets, ensure that all plant and equipment operates efficiently, meter the water and electricity consumption of each tenant separately or obtain an annual independent audit of the building's performance level.

It is therefore clear that in order to strike the correct balance between the need to improve and enhance our environment and that of avoiding clauses which might be too 'strong', tenants should be seeking legal guidance with regards to the effect environmental law is having on leases. For example, a solicitor acting for the tenant might be able to recommend an environmental survey in order for their client not to be stuck with things too onerous as a result of clauses that the landlord might have wanted to include in the contract. Similarly, as in a recent case of First Tower Trustees v CDS they will be able to help the tenant avoid the consequences of entering into a lease where the landlord has included a non-reliance clause.

If you would like further information or advice on the impact of environmental clauses in property transactions, please contact the Commercial Property team at Forbes.

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