Green Leases

Gabriella Borda

Green leases are agreements that aim to ensure the sustainable construction or retrofit, usage, operation and maintenance of a property. In several countries uniform standards that can serve as a reference framework for green leases already exist, however, as there is no common European standard or definition of a ‘green lease’, relevant clauses will to a certain extent depend on the purpose of the lease and the circumstances of each individual case.

Both tenant and landlord can initiate the process to engage in a green lease agreement through a Request for Proposal (RFP), to obtain more information on the possibility of the integration of sustainable practices, that can benefit both parties.

Clauses that might be incorporated in these agreements include the use, supply and management of the property. Examples of such provisions include the separation of waste collection by the tenant in specific facilties provided by the landlord. For properties still under construction, the owner would be expected to engage with sustainability professionals to plan and foresee for the sustainable use of the property. Storage rooms for bikes/e-bikes, scooters and other sustainable mobility vehicles can be planned, in addition, to car park spaces with e-supplies facilities. The design of such properties should prioritize the exploitation of renewable energy, battery storage and any other requirements to accommodate other equipment that is classified as energy efficient.

Financial institutions can incentivize their corporate clients to engage in such leases by offering advantageous rates of interest, extended grace periods and insurance products including green discounts. These are just few features of a financial product that can be designed to support corporate clients during their sustainability journey.

Common commercial leasing practices often suffer from what is known as the principal-agent problem. In many commercial lease structures, the party expending capital may not necessarily benefit from all the value added features attributed to a green building and this is where financial institutions have an important role to play.

To incentivize investments in green buildings, a green lease can be a powerful tool for reducing operating costs, increasing property values, and achieving sustainability goals for both sides of the equation. In the next feature, I will explain in more detail the design of such agreements and the role that financial institutions can play to reaching sustainability goals.