The bold proclamations by some tenants on sustainable practice are not always matched by their approach in real life. This frustrates the landlord-tenant engagement process, says Keith Bugden
‘Climate change is a far greater threat to the world than international terrorism', according to the UK government chief scientific adviser, Sir David King. Powerful words indeed and clearly not said or intended to be taken lightly. It's clear, however, that climate change is for many not taken as seriously or feared as much as terrorism and a significant reason for this is what I believe to be ‘smoker's attitude' - will it harm me?, well maybe but I don't need to worry about it too much for now do I?..
We are faced with scenes of terrorism on our TV screens most days of the week and it impacts our lives on a daily basis in various forms - security screening at airports and even entrance lobbies of high profile buildings, concrete barriers protecting airports and other public buildings - all a constant reminder of potential risk. Climate change on the other hand is not overtly a daily threat or an instant killer and it is therefore all too easy to adopt a "maybe it will harm us, maybe it won't" attitude… and perhaps this is why it can be so difficult to get across the message that energy saving and carbon reduction initiatives are so absolutely essential if we as a property industry are going to stand a realistic chance of making significant inroads into the estimated 40-50% of CO2 emissions the industry contributes to the problem.
As a fund manager with responsibility for some £12bn (€15bn) of real estate assets, Hermes has for over 10 years now been developing and implementing our Responsible Property Investment (RPI) programme, a comprehensive range of initiatives covering all management and development activity.
It is clear, however, that we, along with most of our peers, have only a limited direct influence on energy use and CO2 emissions across our portfolios, the majority of assets being under the direct control of our tenants. The proportion of respective control clearly varies from building to building but at a whole portfolio level it can be estimated that tenants are responsible for some 75% of total energy consumption. So, how then to engage with these tenants in a meaningful way and try to encourage a joint approach to effectively address the threat of climate change?
Some six months ago Hermes took the decision to work with City lawyers Maxwell Winward to come up with a number of ‘green' clauses to incorporate in a standard lease. It was relatively easy to come up with the idea but rather more stretching to draft clauses that set just the right ‘tone' to promote engagement on the subject and establish common goals, but which could not be considered onerous, with resulting
potential negative impacts.
Hermes' new standard lease with its ‘green' clauses was duly produced and has already been used in a number of cases where leases were being renegotiated. Provisions in the lease include:
Tenant not to do anything that adversely affects the Energy Performance Certificate (EPC) rating of the property or the energy efficiency, environmental performance or sustainability characteristics of the property.
The right for the landlord to install photovoltaic cells or panels or any other sustainable energy equipment at the property.
Landlord and tenant to provide whatever information is reasonably required by the other relating to the energy and water consumption and waste management statistics for the property.
Landlord and tenant to each co-operate with the other in a reasonable manner in respect of any energy saving or carbon reduction initiative that the landlord may choose to implement.
We are not being draconian or overly prescriptive; we believe that these clauses are appropriate and provide an opportunity for landlord and tenant to work together in a joint approach to reduce energy consumption, carbon emissions and other adverse impacts on the built environment.
Responses have been interesting. Many organisations, such as M&S, Asda, Costa Coffee, which already have a high profile in the arena, have agreed to the provisions, but others have been extremely resistant and in some cases initially rejected the initiative out of hand, with responses including "it's our policy not to agree to such provisions". What is particularly interesting is the contrast between the very adamant rejections of green lease clauses with the often extremely positive and very bold statements made in company literature and on company websites. Corporate statements such as "Each store has its own Energy Champion, whose role it is to encourage energy saving" and "step by step we strive to cut energy costs and lessen our carbon footprint" are absolutely aligned with what we are trying to achieve. At property level, however, the message sometimes doesn't seem to be getting through.
"The Group's new stores are fitted with the latest energy saving technology, including air conditioning, energy efficient lighting etc. which minimises energy consumption when the store is closed" is a statement to be applauded, however sadly less meaningful when simple provisions aimed at facilitating a joint, and therefore far more effective and robust approach to energy saving are rejected on the basis that "we really don't have the time".
Responses from lawyers acting for tenants, including "your client's moral imperative has nothing to do with the landlord and tenant relationship" and "socially aspirational!" suggest that there really is some way to go before we can say that the property industry is acting in concert to tackle the very real threat of climate change.
It is, I believe, inevitable that the government will, in the not too distant future, introduce fiscal measures of both ‘carrot and stick' variety to encourage a more proactive approach to energy saving and carbon reduction. EPCs and Display Energy Certificates (DECs) provide an ideal platform from which to launch such measures.
Perhaps it is only through government intervention in this way, by the introduction of such incentives and penalties, that the gap between corporate policy and property-level practice will close. We will, however, continue to engage with occupiers at every opportunity and believe that it is possible that real joint effort progress can be made to tackle an issue which really is an imminent threat to us all.
Keith Bugden is director of development at Hermes Real Estate