Green lease agreements are becoming a key tool for businesses looking to meet sustainability goals and reduce environmental impact. By aligning landlords and tenants on energy efficiency, waste reduction, and sustainable practices, green leases help future-proof commercial properties and can even lead to long-term cost savings.
This guide is for landlords, tenants, and property managers who want to understand what a green lease is, why they’re gaining traction, and how to negotiate terms that benefit both parties. You’ll learn the typical clauses included, the commercial advantages, and how green leases can support ESG commitments.
Want to explore a green lease for your next commercial property deal? Our commercial property solicitors can help you draft or negotiate sustainable lease terms that align with your business goals.
Contents:
- What is a green lease?
- How will the new environmental regulations on commercial properties impact the relationship between business tenants and landlords?
- What kind of additional clauses may business tenants see in their commercial contracts? What obligations may they have to fulfil moving forward?
- If there is a recession on the horizon, will businesses have to prepare for rent prices to increase? How did commercial landlords react during the last recession?
- What have the government/banks done to support small business owners in preparing for greener regulations and managing rising costs
- Are businesses going to be more motivated to prepare for green leases because of the environmental factors or the potential for cost savings on energy?
- How has the energy crisis impacted the commercial property sector, and are leases becoming more expensive as a result?
- Have you any tips for businesses to help them keep energy costs down?
- How we can help
What is a green lease?
With rising energy costs, tightening environmental regulations, and growing demand for sustainable office spaces, green lease agreements are increasingly important for commercial landlords and tenants. These agreements go beyond traditional leases by promoting collaboration between both parties to improve and maintain the environmental performance of buildings.
Since 2023, the UK's Minimum Energy Efficiency Standards (MEES) have tightened, making it unlawful to let most commercial properties with an EPC rating below 'E'. With further changes anticipated, raising the minimum standard to 'C' by 2027, and ‘B’ by 2030, landlords need to act now to avoid legal and financial risks.
At the same time, post-pandemic hybrid work models are driving tenants to prioritise modern, efficient, and green office spaces. In major UK cities, high-performing green buildings are increasingly letting at a premium and showing lower vacancy rates, making sustainability not just a legal or ethical concern, but a commercial imperative.
How will the new environmental regulations on commercial properties impact the relationship between business tenants and landlords?
With a growing concern that recession is on the horizon, it may not feel realistic to prioritise sustainability in a commercial lease setting. The government, however, are doing just that. Under the UK's strengthened Minimum Energy Efficiency Standards (MEES), it is now unlawful for landlords to let most commercial properties with an EPC rating below 'E', unless a valid exemption is in place. Looking ahead, the government is proposing that all non-domestic rented buildings will need to achieve a minimum rating of 'B' by 2030, a significant leap that will demand long-term planning and investment.
These evolving standards are placing greater pressure, and greater opportunity, on the landlord-tenant relationship. Landlords may seek to include green lease clauses that comply with tightening regulations (like MEES) and support future-proofing of assets (including through improving asset resilience and value), while tenants, particularly those with strong ESG commitments, lean towards initiatives that reduce operational costs and improve environmental impact.
Either way, green leases promote a collaborative approach to environmental performance between the landlord and tenant, including data sharing to track and improve sustainability performance. Forward-thinking landlords and tenants are already treating green performance as a core part of their commercial relationship.
What kind of additional clauses may business tenants see in their commercial contracts? What obligations may they have to fulfil moving forward?
Adopting green lease clauses can impact several different areas of the lease, including provisions relating to:
- service charge - landlords can include the costs of improving the environmental performance of leased buildings in the service charge
- alterations – the tenant is not to carry out alterations which may have an adverse impact on the EPC rating or environmental performance of the building
- reinstatement at the end of the term – the tenant is not required to reinstate alterations at the end of lease term where this would adversely affect the environmental performance of the building
- remedies for breach – forfeiture for breach of green lease clauses could be seen as draconian and unfair.
Obligations may include:
- A landlord might require a tenant to operate building management systems correctly, or some other technology, such as the installation and maintenance of smart meters or energy dashboards
- The parties may agree to share their relevant data about the utilities consumption and waste generated by the occupation of the property. Without this, it is impossible to plan strategies for improvement in environmental performance
- Restrictions on activities that harm EPC ratings
In 2023, the Better Buildings Partnership (BBP) - a collaboration of leading UK commercial property owners - updated its Green Lease Toolkit, reflecting developments in market expectations, regulatory standards (such as MEES), and net-zero carbon commitments across the property sector. The toolkit provides practical resources to help landlords and tenants integrate sustainability into lease agreements and has become a widely respected industry benchmark, helping bridge the gap between sustainability commitments and day-to-day lease management.
The toolkit provides a comprehensive set of model clauses covering a range of sustainability-related lease terms. These clauses can be adopted or adapted depending on the level of ambition of the parties and the nature of the property. Topics include:
- Energy efficiency and carbon emissions – Clauses that promote or require energy audits, implementation of energy-saving measures, and operational performance targets.
- Sustainable fit-outs and alterations – Clauses for sustainable alterations and fit-out works, including obligations to select materials with low environmental impact (e.g., recycled content, low VOC emissions) and considerations aligned with BREEAM and circular economy principles.
- Data sharing on energy, water, and waste usage – Provisions requiring tenants and landlords to share metered data to support environmental performance tracking, energy efficiency planning, and compliance with sustainability goals.
- Waste management and circular economy – Encouragement or requirements to reduce waste, promote reuse and recycling, and adopt circular economy principles. Furniture reuse is a specific example provided.
- Green building certifications and standards – Clauses referring to BREEAM, NABERS UK, or other environmental performance benchmarks.
If there is a recession on the horizon, will businesses have to prepare for rent prices to increase? How did commercial landlords react during the last recession?
In times of economic uncertainty, it’s natural for both landlords and tenants to be cautious about new investment and long-term commitments. However, when it comes to green leases and sustainability upgrades, short-term cost sensitivity needs to be balanced against longer-term value and compliance considerations.
While energy-efficient improvements may require upfront capital, they can also deliver meaningful returns over time through reduced operational costs, improved tenant retention, and protection against regulatory penalties. In fact, with energy prices remaining volatile and Minimum Energy Efficiency Standards (MEES) tightening, the cost of not upgrading could be significantly higher.
Some industry commentators have noted the emergence of a two-tier market:
- Green-certified, energy-efficient buildings are letting at a premium, attracting ESG-conscious occupiers and investors.
- Outdated or inefficient stock, especially in urban centres, is at risk of being left behind, facing higher vacancy rates, rent discounting, or even becoming 'stranded assets' if they can’t meet legal energy performance thresholds.
That said, not all tenants are in a position to absorb green improvement costs, especially SMEs facing inflationary pressures. Flexibility and creative structuring might be needed - for example, using green leases that share costs and benefits fairly, or applying for sustainability-linked financing.
During the last recession, we saw landlords offer shorter leases, rent-free periods, and concessions to maintain occupancy. Today, the equivalent response might involve offering greener premises with demonstrable operational savings.
Ultimately, green leases should not be viewed as an economic burden, but as a strategic tool for reducing risk, improving resilience, and aligning landlord and tenant goals, even in challenging markets.
Either way, it pays dividends to take legal advice when entering into a commercial property agreement to ensure you understand the details, commitments and potential risks.
What have the government/banks done to support small business owners in preparing for greener regulations and managing rising costs
While there are some environmental taxes, reliefs and schemes available to businesses and some government funding for small businesses, there’s no single government package dedicated specifically for funding green causes.
The green energy technologies exemption allows businesses situated in England to claim relief on business rates for certain plant and machinery used for onsite renewable energy generation and storage.
Enhanced Capital Allowances (ECA) has been operating for some time, allowing businesses to claim 100% of the capital costs of certain energy-saving technologies against their taxable profits in the year of investment. Although the scheme has now closed, there may be other incentives along these lines available in the future as the government strives to achieve its net-zero target by 2050.
Several national and local programmes also offer financial support for building improvements, renewable installations, and energy audits, but sometimes these can be difficult to pin down or may only have windows of availability. They can help small businesses that own property or indirectly benefit smaller enterprises renting commercial property. Examples include the UK Government’s Boiler Upgrade Scheme and the Industrial Energy Transformation Fund.
Common opinion amongst SMEs is that not enough has been or is being done to support them directly, in terms of injecting real, measurable cash. However, banks and lenders are increasingly offering green loans or sustainability-linked finance to SMEs, often with lower interest rates or improved terms. This includes supporting SMEs investing in eligible green or sustainable assets, vehicles, and infrastructure.
The Financial Conduct Authority (FCA) also continues to remind lenders of their duty to treat small businesses fairly, particularly during financial difficulty. This includes being flexible with repayment plans or offering forbearance where justified—important safeguards in a high-interest-rate environment.
Are businesses going to be more motivated to prepare for green leases because of the environmental factors or the potential for cost savings on energy?
As well as helping compliance with legislative requirements for improved energy efficiency in buildings, achieving greater energy efficiency will help a business with:
- Lower running costs for buildings, especially when energy prices are volatile
- Security of supply. If energy is in short supply, it will be easier and cheaper to meet the energy needs of a building if it requires less energy to run
- Future-proofing against changes to legislative requirements
- Comply with corporate social responsibility policies
How has the energy crisis impacted the commercial property sector, and are leases becoming more expensive as a result?
Although the UK’s energy crisis peaked in 2022 following the war in Ukraine and global supply disruptions, the situation has now stabilised. Wholesale energy prices fell significantly in 2023 and early 2024, easing the immediate pressure on businesses. However, energy costs remain above pre-crisis levels, and long-term volatility is still a concern, especially for commercial tenants with energy-intensive operations.
For the commercial property sector, the energy crisis acted as a wake-up call. It accelerated awareness of:
- The financial risks of poor energy performance
- The value of energy-efficient buildings
- The urgency of investing in future-proof infrastructure
While lease prices are influenced by many factors, including location, demand, interest rates, and build quality. Green-certified and energy-efficient buildings are increasingly commanding a premium, particularly in prime office markets. These properties offer lower running costs, better EPC ratings, and improved alignment with occupier ESG targets, making them more attractive and defensible in a softening market.
Conversely, landlords of inefficient buildings may face rising vacancy rates or pressure to offer incentives to secure tenants.
So, while we’re no longer in the height of an energy crisis, its legacy is being felt in how leases are structured, priced, and negotiated. Green leases are increasingly used to help manage energy-related risks for both parties.
Have you any tips for businesses to help them keep energy costs down?
Energy prices remain higher than historical averages, post the energy crisis, and sustainability remains a priority. Here are some ways businesses can continue to keep their energy use efficient and affordable:
- Audit your energy use: Use smart metering, sub-metering, or energy dashboards to identify patterns and inefficiencies across equipment and operations.
- Maintain and upgrade equipment: Regular maintenance reduces energy waste. Consider investing in newer systems with high-efficiency ratings or smart automation features.
- Optimise building use: Review heating, cooling, and lighting schedules, especially with hybrid working patterns. Using buildings only when needed helps reduce baseline energy loads.
- Encourage staff engagement: A culture of energy awareness—switching off equipment, avoiding unnecessary heating/cooling—still delivers real savings.
- Review your energy contract: Choosing suppliers with green tariffs or carbon tracking tools can support your sustainability goals. Bespoke procurement of supply contracts may also assist businesses to find the best deals.
- Access funding and support: Look into local authority grants, government-backed or business finance schemes for green improvements. Carbon Trust tools and UK Business Climate Hub are useful resources. You can also find helpful information in the Ofgem energy advice for businesses section of their website.
If affordability is an issue, speak to your supplier early - Ofgem has previously suggested payment plans may be an option.
How we can help
As a property developer or commercial landlord under growing pressure to meet ESG targets, you know that sustainability isn't just a buzzword; it’s fast becoming a business imperative. Green leases can help you balance environmental commitments with commercial goals, but only if they're drafted carefully. Our experienced commercial property solicitors work with developers, landlords, and tenants to negotiate clear, future-proof green lease clauses that protect your investment and support your sustainability ambitions.
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