Legal & General rolls out green leases across portfolio (UK)

Legal & General Property ('LGP') has announced that it has amended its standard lease format to include 'green' clauses, in a decision that demonstrates the company's ongoing commitment to sustainability.

Notifying its full panel of lawyers, LGP has issued a memorandum of green lease principles that must be considered in the drafting of all standard leases going forward, including clauses relating to the use of environmental contractors and upholding Energy Performance Certificates (EPCs).

As one of the UK's largest institutional property fund managers, with £10.3 billion of property assets under management, LGP recognizes its responsibility to minimize the impact of the built environment, and understands the need to engage with occupiers to ensure properties are managed in the most efficient and sustainable manner possible. With a sustainability strategy centered on maximizing the efficiency and sustainability of its portfolio, it recognizes the fundamental importance of working with tenants to take these changes to the next level.

Additional conditions set out in the lease include the implementation of a recycling strategy, and the agreement by both parties to meet regularly to discuss such issues as energy consumption and the use of grey water. The lease also sets out amendments to tenants' handbooks, to include incorporating information regarding energy and environmental management in relation to the estate, including EPC ratings and recommendations. Furthermore, leases may include energy reduction targets, monitoring data and other green initiatives in relation to the estate.

LGP considers it of the upmost importance that tenants understand the benefits of green policies, especially where they reduce energy costs and therefore the running costs for their premises. Its decision to adopt green leases follows a number of comprehensive initiatives undertaken by the company to engage with occupiers, including the 'Office, Retail and Leisure Occupiers' Guides to Sustainability', which seek to equip tenants with a thorough understanding of the environmental impact of property and the necessary toolkit to implement change.

Additionally, the company broke new ground by being the first investment management firm to provide an intensive, six-month training course on sustainable property investment, which was made compulsory for all property fund managers within the business and rolled out to the rest of the industry through its partners and agents.

Commenting on this initiative, Bill Hughes, Managing Director of Legal & General Property, said: "The decision to implement green lease clauses further demonstrates LGP's ongoing efforts to reduce the environmental and social footprint across its portfolio, working from the grass roots up to implement change.

"As one of the UK's largest property fund managers, we recognize our responsibility to minimize the environmental impacts of our assets, and believe that by working closely with our occupiers, we can take these changes to the next level. The move to incorporate green lease clauses represents just one element of LGP's wider sustainability strategy which we look forward to continuing to develop going forward."

Katherine Laurenson, Senior Solicitor at Legal & General Property, added: "This memorandum seeks to provide full, clear guidelines to our lawyers as to the issues that we consider key, so that they can effectively liaise with our tenant's representatives to find a lease structure that accommodates both parties' needs and responds to the fundamentals of the building.

"We work from a principle that encouragement and flexibility is the most effective way to deal with green issues in leases, rather than enforcement provisions with penalties for tenants who fail to comply. If tenants can see that these procedures enhance their CSR profile, reduce their energy costs and are less harmful to the planet, it is more likely that they will implement them."

Source: FTI Consulting

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