Green leases: new standards defined
In autumn 2018, the German Property Federation (ZIA) published a new “Green leases for Germany” guideline. The document is an updated version of an existing guideline. It was drawn up by a project group consisting of experts from the real estate industry and is expected to have an impact both within Germany and beyond.
With more and more companies pursuing sustainability objectives and attaching greater importance to corporate social responsibility (CSR), an increasing number of tenants and property owners are realising that green leases can help them achieve their business goals.
The overall aim of a green lease is relatively simple. It encourages tenants to become sustainable occupiers, and incentivises landlords to manage properties to high sustainability standards. As a result of these shared objectives, more tenants and property owners are engaging with each other and working on improvements. The ZIA’s new green lease guideline comprises recommendations in various areas, thus making it easier to draft the desired agreements. The new document is an updated version of the existing guideline that was published in 2015.
New basic green lease
For tenants and landlords to call a lease “green” in accordance with the ZIA’s new definition, it must contain at least one provision relating to each of the following three key areas:
- Sustainable use and management of the leased property during ongoing operation
- Reduction of waste, consumption and emissions
- Ecologically sound implementation of maintenance, modernisation and other structural works
Sustainable use and management can be achieved in various ways. Examples include environmentally friendly cleaning of a building and responsible waste management. The ZIA also recommends producing a user manual that describes the most efficient way to use building services.
One of the provisions covers the exchange of consumption data between tenants and landlords. Landlords can combine this data with their own knowledge to identify potential areas for improvement, e.g. regarding waste, energy/water consumption or emissions. For their part, tenants can use the data for their own sustainability reporting. Promotion of sustainable energy sources can also be included in a lease as a way of helping to reduce emissions in commercial properties.
Expanded green lease
The ZIA guideline also gives tenants and landlords the opportunity to add more provisions to their green lease and expand it beyond the basic green lease described above. The three key areas in the basic version can be covered in greater depth and detail, for example. Options here include a mutual commitment to continuous energy monitoring or to calculating CO2 emissions. Practical issues are also covered, such as provisions that limit the use of air conditioning systems or stipulations regarding sustainability training for employees.
The three potential ways in which a green lease can be expanded are:
- Additions to the content of the basic green lease
- Certification-related provisions
- Proposals for implementing the provisions
Aspects relating to sustainability certification of a building can thus be incorporated into the green lease. In addition, there is information on implementing sustainability agreements, setting out how experienced market players can make a green lease more prescriptive, e.g. through incentive systems or potential contractual penalties. In all cases, the parties to a green lease need to determine the right balance between a declaration of intent and a binding contractual obligation – including in the basic version.
Green leases create a win-win situation with benefits for tenants and landlords alike:
- Contribution to environmental and climate protection
- Cost savings as a result of lower consumption
- More attractive properties for sale and financing
- Pre-empting future legislative changes around climate protection
- Substantial contribution towards implementing CSR strategies
- Improved working environment for building users
- Greater transparency, efficiency and enhanced cooperation