Clarity and collaboration are the real enablers for unlocking greener NHS leased property

Last week, NHS England unveiled a new Green Leases framework, designed to act as guidance for health organisations in improving the green credentials of leased estate.

The framework is focused on landlord and tenant relationships in the context of traditional commercial leases and sets out three core sections:

1. Memorandum of Understanding (MOU) - a non-binding document that can be used for landlord and tenant discussions about the provisions for adopting greener principles

2. Suite of Provisions – these include ‘light green’ and ‘dark green’ options for implementing within both existing and new leases. These provide a range of entry level interventions to help move towards carbon reduction targets, through to more robust interventions which allow for more significant changes to be made but require a more significant level of investment.

3. Clauses - the provisions drafted out in a model form lease. This is intended to comprise a ‘standalone’ schedule of sustainability provisions which can be bolted on to a new lease, together with an appropriate obligation which should be included in the main body of the lease for the parties to comply with the provisions of the schedule.

While it is aimed predominantly at the NHS as tenants in multi-occupied commercial buildings, the framework will also be key for health organisations with freehold owned estate that are landlords to third party tenants.

It is important to note that green leasing itself is not a new concept and has been in circulation for many years. The publication of the NHS framework sits within a recent flurry of news and press releases centred around the Greener NHS agenda, perhaps suggesting a gathering of pace in the race towards a net zero health service, with strategy now more clearly translating into action.

Contributing towards long term targets

The UK has a national statutory target which requires the country to bring all greenhouse gas emissions to net zero by 2050. There are already key pieces of legislation in place including the Climate Change Act 2008 and Public Services (Social Value) Act 2012. The Minimum Energy Efficiency Standard also prevents the leasing of buildings with an EPC rating below E.

Furthermore, the NHS has set its own target to become a net zero emitter of carbon emissions by 2045, with the NHS Long Term Plan setting out several deliverables for environmental sustainability.

NHS organisations occupy many buildings across the country which differ vastly in size, age and tenure. Building fabric has a huge impact upon the amount of energy that is used to run these buildings. Whether it’s the energy and water consumed, or the waste produced, the use of the estate results in carbon emissions which are under direct control of the occupier and need to be addressed as part of the wider direction of travel towards net zero. Of course, encouraging the adoption of greener provisions will also have a multiplier effect, benefitting co-occupiers in multi-let buildings.

Most NHS organisations will have, or be working on, long term green plans which focus on the implementation and delivery of relevant net zero carbon commitments, embedding sustainability agendas across the organisation and encompassing topics around estate optimisation and governance.

The application of the new green leases framework, combined with localised green plans, will assist organisations in meeting both legal obligations and NHS targets. Accordingly, it sits well within the context of the action planning by NHS estate teams and their advisors, encouraging discussions which drive more sustainable landlord and tenant relationships to create greener results from leased buildings.

Know the duties and responsibilities of both the landlord and the tenant before negotiating the terms of your green lease

Is there a risk of financial impact on tenants if landlords are reluctant to invest into greener building infrastructure? There have been cases appearing in court where the landlord has attempted to obligate the tenant to comply with sustainability conditions such as minimum EPC standards. In Clipper Logistics PLC V Scottish Equitable Plc, the court could see no reasonable need for all the additional sustainability clauses proposed by the landlord in the lease renewal and went on further to add that most of the EPC legislation expressly places obligations on the landlord and not the tenant.

The key lesson to be learned here, is that it is crucial to properly understand the existing statutory obligations and responsibilities of each party when negotiating the terms of a green lease. Tenants must be careful not to allow the proposal of clauses that unfairly and unreasonably impose duties on the them when they are already the Landlord’s responsibility by law, ensuring that the NHS is not taking on liabilities that statutorily belong to the other side.

There are provisions set out in the framework that would enable NHS tenants to avoid the reinstatement of any alterations they make which positively affect the environmental performance of the building, along with the potential for waived claims for dilapidations for plant/equipment which is scheduled for replacement under the landlord’s own energy efficiency plan, which is also part of their compliance with legislation. Property teams must ensure that green improvements paid for by the NHS are disregarded at rent reviews or lease renewals, and that alterations which have improved the energy efficiency of buildings are carved out of any reinstatement provisions.

Transparency, fairness and collaboration is the key to unlocking greener leased buildings

Outside of statutory obligations, both parties must ensure there is absolute clarity on other key terms from the outset so that these can be properly called upon throughout the term. For example, there are some ‘dark green’ provisions that allow for rental increases and decreases based on meeting or failing to meet energy targets. The practicalities of how this would be reflected in open market rent review clauses or new lease negotiations is unclear and must be thoroughly discussed and determined in advance.

Ultimately, making existing buildings energy efficient is a significant task and one which the whole industry is grappling for the most cost effective and efficient solution. The landscape is shifting as advancements in construction methods and technology are evolving. Cost effective retrofitting of existing buildings remains a difficult challenge but one we all must accept if we are to create the greener buildings needed for future generations.

If you need help with implementing any aspect of your property strategy, including green lease provisions, please get in touch with James Brenner.

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