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Green leases impacting on retailers

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For the last few years the property industry has been bombarded with articles and predictions in relation to “Green Leases’. Predictions were made with increasing frequency that retail and commercial leases containing clauses requiring tenants and landlords to comply with new standards in relation to energy use, recycling, emissions and the like would become the norm.

Until recently, the reality has been far from the hype. With the exception of various state and federal governments and certain green leaning councils and other organisations subject to political pressure, green leases have been few and far between and have made little impact.

However, recent legislation covering renewable energy and other environmental issues has imposed new obligations and resultant costs on landlords in relation to retail centres. It is therefore not surprising that in the last few weeks, the major landlords have started to insert green type clauses in standard retail and commercial leases in an attempt to transfer some of these costs and obligations onto retailers.

In particular, retail leases in major shopping centres have recently imposed the following green obligations and restrictions on retail tenants:

  • A requirement to use 100% renewable /green electricity and gas in the premises
  • An obligation to assist the landlord at the tenant’s cost to compile any environmental report which the landlord is required to prepare
  • An obligation to use recycled materials in packaging and to recycle a minimum percentage of waste
  • An obligation to comply with “Green Standards” which consisted of 8 pages of criteria in a separate schedule attached to the Lease and were noted as “not negotiable” during lease negotiations

All of these obligations, but particularly the renewable energy requirement,  have the potential to impose substantially increased costs on tenants.

It is also likely that landlords will insert new categories into outgoings under general catch all headings in an attempt to recover these costs.

Large retailers need to amend their letters of offer and standard lease terms so that landlords are aware of their position in relation to these issues at an early stage in lease negotiations. All retailers need to ensure that they stay alert for these types of clauses and consider both the cost consequences on their business and the landlord’s legal entitlement to recover green costs before agreeing to these obligations.

If you require advice on the above issues, or any leasing matters, our Commercial Property lawyers have extensive experience in all aspects of leasing in all jurisdictions of Australia.

Author:  Mark Kemp