1. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Implementing the Green Lease Toolkit and the CRC Energy Efficiency Scheme John Morrison 10 June 2010

2. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT New leases - as standard clauses During existing lease term – collaboration through a Memorandum of Understanding On lease renewal - agreeing new clauses and variations to lease terms Introducing model form clauses for Green Leases

3. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Security of tenure under Part II of the Landlord and Tenant Act 1954 (“the 1954 Act”) Section 35(1) of the 1954 Act:- “The terms of a tenancy granted by order of the court…shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances” Introducing Green Lease clauses on lease renewal (1)

4. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT The party seeking variation of terms must adduce cogent reasons in support O’May -v- City of London Real Property (1983) Change must be fair and reasonable Does change impose financial risk and burden on the tenant? Introducing Green Lease clauses on lease renewal (2)

5. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Tenant’s right to carry out alterations –Absolute prohibition (e.g. exterior and/or structure) –Qualified right, i.e. with landlord’s consent (e.g. non-structural) Restrictions on tenant’s alterations

6. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT The Green Lease Toolkit proposes the following clause:- “Where the Tenant wishes to make changes to the Demised Premises or its use which may adversely impact on an existing EPC rating or which may adversely affect the efficiency of the use of energy or water within the Demised Premises or the Building, the Tenant shall provide sufficient information to the Landlord to enable the Landlord to ascertain the effects of the alterations and the Tenant shall consider [and, where reasonable, implement] any suggestions the Landlord makes to [avoid/minimise] any such adverse effect” Promoting “Green” alterations

7. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Is reinstatement an automatic obligation or subject to landlord’s notice? The Green Lease Toolkit proposes the following clause:- “The Tenant shall not be required to reinstate any tenants’ alterations which have been carried out lawfully during the term which improved the energy or water efficiency of the Demised Premises unless such reinstatement is reasonably required by the Landlord having regard to its intentions in respect of the use or re-letting of the Demised Premises or the Building after the expiry or sooner determination of the term” Reinstatement of alterations

8. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Alterations to promote energy efficiency – does landlord have access rights? The Green Lease Toolkit proposes the following clause:- “The Landlord… shall be entitled at all reasonable times and on reasonable prior notice to the Tenant to enter and remain on the Demised Premises for… (b) carrying out works which are agreed by the Tenant (acting reasonably) and are aimed at more effective management of, or reducing, energy or water use or waste production…” Landlord’s alterations

9. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Tenant’s service charge liability is commonly limited to reasonable costs (e.g. in relation to the repair/renewal of plant and machinery or the structure) Can landlord charge the costs of improvements (e.g. replacement of inefficient air conditioning or insulation of roof voids)? The Green Lease Toolkit clause does not propose that the cost of these works should be within the service charge (but it acknowledges that the parties may wish to consider this) Landlord’s alterations – implications for service charges

10. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT An emissions trading scheme for public sector organisations and large private energy consumers Participants buy allowances to reflect estimated emissions of CO² Participants can trade allowances with each other League tables ranking participants’ emissions are published each compliance year Participants may receive a revenue recycling payment based on league table ranking The CRC Energy Efficiency Scheme (“CRC”)

11. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT CRC participant is the “counterparty” to the energy supply contract, i.e. the organisation that receives the energy supply Landlords of multi-let properties – tenants’ emissions are added to landlords’ total Landlords and tenants can agree between themselves how to address costs and benefits of the CRC (e.g. in the lease) Tenants required to cooperate with landlords (but to what extent?) CRC – impact on landlords and tenants

12. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Do landlords seek to pass on costs and benefits through service charges? Practical issues –How is charge for allowances calculated? –Are tenants entitled to a share of recycling payments? –How can this be calculated to benefit tenants which reduce emissions? –What happens on transfer of landlord’s reversionary interest? Do landlords treat the CRC as an overhead cost? Do landlords ask electricity supply companies to install additional meters? CRC and service charge issues

13. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Existing leases will generally not make adequate provision for the CRC (NB CRC participant may not be the immediate landlord) Agree variations mid-term or introduce new terms on renewal (subject to Section 35(1) of the 1954 Act) Do landlords have rights to compel reductions in energy use (e.g. air conditioning between fixed hours)? Can service charge provisions be varied fairly? CRC – existing leases

14. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Consultation paper on apportionment of CRC costs published – consultation closed in February 2010 Purpose is to establish cross-industry consensus on treatment of CRC costs in new leases –What should be included as CRC costs? –Method of allocating CRC costs –Dealing with recycling payments BPF would like standard CRC lease clauses but consultation responses may indicate insufficient consensus British Property Federation (“BPF”) consultation

15. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Green Lease Toolkit www.lda.gov.uk/upload/pdf/BBP_Green_Lease_Toolkit.PDF BPF Guide on the CRC for landlords and tenants and Consultation http://www.bpf.org.uk/topics/document/23672/carbon- reduction-commitment-crc---a-guide-for-landlords-and- tenants http://www.bpf.org.uk/pdf/21552/CRC%20Industry%20Cons ultation%20FINAL%20- %2017th%20December%202009.pdf Useful Links

16. www.manches.com IMPLEMENTING THE GREEN LEASE TOOLKIT Susie Hilton Email: susie.hilton@manches.comsusie.hilton@manches.com Giles CliffordEmail: giles.clifford@manches.comgiles.clifford@manches.com Carrie Bolton Email: carrie.bolton@manches.comcarrie.bolton@manches.com John Morrison Email: john.morrison@manches.comjohn.morrison@manches.com Thank you Manches LLP 10 June 2010