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Green leases: Signing up for sustainability

Green leases are slowly finding favour among tenants and landlords in the UK. With increasing energy costs and new legislation encouraging sustainable building practices, some market participants believe these contracts will become the norm. Rachel Wolcott reports.

The concept of the green lease in many ways epitomizes the radical shift in thinking in real estate. What might have seemed simply gimmicky or eccentric as little as a year ago is close to becoming a serious option for landlords and tenants. And interest is not limited to the fringes of the market. Prominent developers, such as Hammerson and Prupim, the real estate arm of Prudential, are in the green lease vanguard.

The move towards some codification of sustainable practices in a green lease shows how seriously many of the leaders in real estate are addressing environmental issues. Although many are keen to trumpet their commitment to green practices, it is still difficult to put a finger on exactly what has been done and the impact of these efforts. Putting resources into developing green leases is in effect a way to quantify a company’s green credentials beyond the rhetoric.

Pioneered by the Australian government and brought into widespread use in 2006, green leases have only just started to appear elsewhere. In Australia, where the government is the largest tenant of commercial property, natural resources – water for example – are often scarce. Green leases were developed to help the government conserve resources and inhabit buildings in a more environment-sensitive way.

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