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Rachel Duncan
Rachel Duncan,
DIRECTOR
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Heating Up the Tech World - Environmental Clauses in Leases 
25 November 2019

Environmental protection is certainly not a new concept but with the ever-increasing global social-economic awareness of the importance of environmental issues this means that there are now a huge number of environmental laws and issues in practice. These overlap with many areas of Commercial Property law, especially when it comes to Leases entered into by tech companies.

From a landlord’s perspective…

A landlord will be very keen to ensure that a tenant is responsible for cleaning up any contamination discovered during the term of a Lease, especially where it is caused or knowingly disturbed/permitted by the Tenant. Landlord’s often put wide ranging ‘sweeping up’ clauses into a Lease, wide enough to cover any remedial works required – even if the pollution was not caused by the Tenant in the first place, and even if the clean-up works involved would not be covered by the tenant’s general repairing obligations. An example of this is where a Lease says that the Tenant shall ‘comply with all Environmental Laws’ – meaning that in the case of pollution or contamination at the property the Tenant can find themselves liable for clean-up works even where this would not fall within their express repairing obligations.

Similarly, an environmental clause stipulating that the tenant shall act in compliance with all Environmental Law in relation to the use and operation of all service media and machinery and equipment might mean that the tenant will have to replace and convert such service media so that it is capable of lawful use or operation.

Many more landlords are now also putting express provisions into their Leases requiring their tenants to provide energy savings (for example by not carrying out alterations which would reduce the efficiency of any air-con system) or to comply with any ‘green’ / environmental management policies which the landlord may operate.

From a tenant’s perspective…

The most important thing for a Tech company entering into environmental obligations within a Lease is to strike the right balance.  

Under the current trend of increased environmental awareness, both landlords and tenants are keen to enter into 'green leases' – showing themselves to be actively aiming to reduce the building's impact on the environment and so entering into obligations (on both sides) to achieve this. This is good for the companies involved in terms of staff morale, reputation of the company, publicity and so forth.

Both sides should play their part. A Tech tenant may want to see clauses in the Lease obliging the landlord to achieve a specific energy rating throughout the term and/or to instigate a green management plan setting out targets. They may want to ensure that the Landlord covenants to keep all plant and equipment operating efficiently within the Building.  They may want the Landlord to meter the water and electricity consumption of each tenant separately or obtain an annual independent audit of the building's performance level.

On the other hand a Tenant needs to be careful that they in turn are not lumbered with potentially having to clear up an environmental problem that they did not cause which comes to light during the term of a Lease (such as pollution caused by any earlier tenants or owners of a property). Many modern commercial leases deal expressly with this situation – with a clause included that expressly excludes tenant liability for any pre-existing contamination at the property (or even apportioning liability for such pollution expressly to the Landlord) – with the Tenant remaining liable for any new contamination shown to have been caused during the term of the Lease.

It is therefore clear that in order to strike the correct balance between the need to improve and enhance our environment and that of avoiding clauses which might be too 'strong', Tech tenants should be seeking legal guidance with regards to the effect environmental law is having on leases. 

If you would like further information or advice on the impact of environmental clauses in property transactions, please contact Rachel Duncan at [email protected]

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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