Green Lease Agreements: Why They’re Important for Landlords, Tenants and the Environment

green lease agreements - hard green lease - soft green lease

Green Leasing / Green Lease Agreements, in addition to NABERS ratings, are becoming an important driver in Australia’s transition to a sustainable future. Green Leasing  incentivises commercial building developers and owners to ensure their properties are energy efficient and have the smallest possible impact on the environment.

Given the Federal government’s target of achieving Net Zero by 2050, demand and public interest in both Green Leasing and NABERS has grown significantly over the last several years.

In this article, we outline the following

  • What a Green Lease is
  • Two types of Green Lease Agreements
  • Benefits to Landlords and Tenants; and
  • Why Green Leasing is so important to the industry and in the broader context of Australia’s Net Zero ambitions.

What is a Green Lease?

  • A Green Lease or green lease agreement include sustainable development fundamentals which ensures that a site or building has minimal impact on its environment.
  • A Green Lease is also designed to encourage both a building’s operator and tenants to adapt energy-saving measures for sustainability. As a lease, it ensures that government-mandated environmental practices are met by both parties.

Types of Green Leases

Since Green Lease agreements don’t fall under certain categories, they usually fall under two types and are subject to the provisions discussed between the landlord and their tenants. Below are some of the types of Green Leases:

Hard Green Lease

  • Hard Green Leases are stricter and may include penalties in their agreements. If a particular party, either the landlord or tenant, fail to meet their targets, stiff sanctions are applied. The penalties are quite like breach of lease agreements but this type of Green Lease in less common.

Soft Green Lease

  • Soft Green leases encourage collaboration between the landlords and tenants to achieve their sustainability goals. Compared to hard Green Leases, both parties work together to find solutions to issues which may affect meeting their targets.

Since these types of leases don’t fall under certain categories, both tenants and landlords can discuss the provisions they want on their lease. Some may prefer a stricter approach while others want a collaborative approach. In most cases, both parties may reach an agreement, which falls between a “hard” or “soft” Green Lease agreement.

Information Included in a Green Lease

Green Lease terms can lay out a framework for tenants and building operators to work from. Some of the information which are include in these lease terms are:

  • Penalties involved if sustainability targets aren’t met
  • Types of measures to be included in the lease term agreement
  • Which party is responsible for monitoring compliance measures
  • How can both parties achieve the goals or targets included in the Green Lease Agreements

Although, there are no set ground rules when creating these agreements, different components from various Green Leases can be included to suit the requirements of both parties. There is no one-size-fits-all solution to any Green Lease.

Clauses included in Green Lease Agreements help address different environmental issues. One example of a clause would be building landlords and tenants may be required to strictly follow energy efficiency measures. Another clause could be how tenants and landlords will collaborate to achieve said measures. Sometimes, there may be conflicts between tenants and building administrators, but clauses under such agreements can mitigate these instances.

What are the Benefits of Green Leasing/Green Lease Agreements?

Green Leasing is new territory for most tenants and their commercial building owners. It’s a unique building management model which promotes sustainable practices. NABERS ratings also play a crucial role in changing how buildings are managed, maintained, and how Green Leasing arrangements are made.

This type of agreement is an ideal tool for both landlords and tenants to create joint environmental actions between themselves. In a shared premises, it nurtures cooperation between organisations to reach their sustainability goals. With or without help from the government, it stimulates cooperation between tenants and landlords to work together for a greener future.

Benefits of Green Leases to Building Owners / Property Managers

  • One of the main benefits of having a Green Lease Agreement is having happy tenants. Happy tenants mean less disputes and longer leasing agreements. Another benefit is money saved from energy efficient operations.
  • Since building owners and operators can save on operational costs, green building management leads to tax deductible expenses.
  • It may be expenditure, per se, but maximising natural light, renovating a building’s façade to better regulate temperature, or upgrading the HVAC system would also lead to higher rent charges.
  • Most tenants don’t mind paying premium, especially if it’s based on green ratings as it often means they are generally paying lower utility costs and/or it’s a strategic part of their ESG strategy.
  • Another benefit would be a more productive and healthier workspace for tenants. They would be less likely to complain and seek relocation as their leased office space is both lean and green.

Benefits of Green Leases for Tenants

  • As mentioned earlier, Green Leasing promotes enhanced work environments with fewer health risks. A safe, working environment encourages better learning for tenants, especially during times of global pandemics, etc.
  • Tenants are also set to benefit from lower utility bills. A green building also means less equipment outages and an efficient waste management system. Cost-effective operating costs means more savings for building tenants.
  • Building tenants are also set to benefit from fewer absenteeism in the workforce, as the quality of their office is both healthy and comfortable. It’s a form of Corporate Social Responsibility (CSR) which increases the good reputation of an office. Higher staff retention also helps a company save money on hiring and training new people to work with them.

Measuring and managing a building’s energy efficiency and obtaining certified sustainability ratings can help increase a property’s commercial value for landlords. For tenants, it can be a bargaining chip when negotiating lease agreements. It’s a win-win situation for both parties as it shows commitment in ensuring that their carbon footprints are minimised.

Why is Green Leasing Important?

  • Green Lease Agreements are becoming increasingly important because it fosters collaboration between site operators and their tenants. They both become accountable for their actions against the environment and are willing to find the best opportunities to stick to their agreements.
  • In addition to the aforementioned benefits of Green Leasing to landlords and tenants respectively, Green Leasing has become critically important in a time given the impacts of climate change are changing society. Green Lease Agreements are paving the way to help mitigate climate change as it promotes the design and use of sustainable built environments and helps drive the transition to Net Zero by 2050.
  • Green Leasing also indirectly fosters demand and jobs growth for the energy efficiency and sustainability industry as more and more building owners are upgrading their buildings to meet growing market demand for ‘green buildings’ with high energy efficiency and environmental ratings – this in turn creates opportunities for companies that specialise in delivering end-to-end solutions to ‘greenovate’ or upgrade buildings to be more energy efficient and have a smaller carbon footprint.

To realise the benefits of Green Leasing and improve returns in your property portfolio, connect with the experts at 3E Groupto assess and upgrade your building stock with end-to-end sustainability / net zero solutions.


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