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Claudia Watkins and Christopher Woolf
Sustainable development – responding to the
challenges of greener buildings
Sustainable development – responding to the challenges
of greener buildings
 “Development which meets the needs of the present
without compromising the ability of future
generations to meet their own needs”
 Security of energy supply
 Climate change
 Sustainable production and consumption
 Increasing tide of policy and legislation
 Mandatory and voluntary measures = compliance,
commercial and best practice
Sustainability
1992 Rio Earth
Summit
CSR
UK Climate Change
Bill
UN Framework
Convention
on Climate Change
and Kyoto Protocol
Sustainability
EU 6th Environment
Action Programme
EU Green Paper on
Energy Efficiency
EU and UK Sustainable
Development Strategy
Sustainability (cont’d)
 Financial implications of climate change better
understood
 Mandatory measures
 EU ETS and Carbon Reduction Commitment
 Energy efficiency in Buildings/EPC
 Sustainable and Secure Buildings Act 2004
 Voluntary or good practice
 Green leases
 Environmental Management Systems
 Sustainability codes
Energy Performance of Buildings
Introduction
Governments are trying to increase awareness of,
and transparency in, the energy efficiency of
buildings
BS:1999453.1
Energy performance of buildings
 Energy Performance Certificates to be made
available to prospective buyers and tenants on
construction, sale or lease of building
 Display Energy Certificates in large buildings
occupied by public authorities providing services to
the public
 Regular inspection of boilers and air conditioning
systems
Energy Performance Certificates (EPCs)
 Information on potential energy performance of
building
 Asset rating from A to G
 Allows buyers or tenants to compare energy
performance of buildings
 Accompanied recommendation report
 Now required for all commercial and residential
buildings, upon trigger events
EPCs (cont’d)
 Trigger events
 Construction of new building
 Sale, lease, sub-lease of an existing commercial
building – on the earliest of:
 seller/landlord providing written information following
request;
 prospective buyer/tenant viewing; or
 contract being entered into
 Modifications to the building resulting in more or
fewer units, and which affect or extend the fixed
services
EPCs (cont’d)
 Valid for 10 years
 May be revoked if a new EPC is issued for the
whole building
 Fine of £5000 for failure to provide
 Landlord may have difficulty in recouping cost of
producing EPC
 Tenants may press for reduction in rent if building
has a poor EPC rating
 May need to instruct energy assessors well in
advance
Display Energy Certificates (DECs)
 DEC
 Based on actual metered energy use of building in
previous 12 months
 Advisory report listing recommendations
 Must be displayed in a prominent position
 Who does it apply to?
 Occupiers of all new and existing buildings of more
than 1000m² of useful floor space
 Occupiers are either public bodies or institutions
providing a public service, and are frequently visited
by large numbers of the public
DECs (cont’d)
 DEC produced by occupier of building
 Typical tenant’s covenant to comply with statute
should pick up the obligation to provide a DEC
 DECs are valid for 12 months and must be renewed
annually
Carbon Reduction Commitment
Carbon Reduction Commitment (CRC) – an outline
 Climate Change Bill and strict CO2 emissions
reduction target
 Carbon Reduction Commitment is a
 Mandatory UK-wide cap and trade ETS for large, nonenergy intensive businesses and public sector
organisations using “core source” energy
 2008 is “qualifying year”
 Starts 2010, introductory phase up to 2013
 Announced 2007, Defra consultation June 2007
 Consultation on draft regulations awaited
 Regulations should be in place by 2009
 Many outstanding issues
CRC (cont’d)
 Which businesses are covered?
 “CRC organisations” – offices, shops, hotels, rail
operators, hospitals, universities etc
 Who use “core sources”:
 Mandatory half-hourly electricity meters
 Using >6 000 MWh pa
 Likely to be included if total annual electricity bill is
£500 000 or more
CRC (cont’d)
 Definition of “CRC organisation”
 Highest UK parent
 Other arrangements – “counterparty to the energy
supply contract”
 The 90% requirement
 At least 90% of organisation’s total emissions must be
covered by either EU ETS, CCA or CRC
 Include smaller emissions sources to reach 90%
threshold
 Once organisation reaches 90%, may voluntarily opt
in all/any other sources
CRC (cont’d)
 Cap set by government every 5 years
 Allowances to be auctioned (fixed price, then closed
bid system) in 5 yearly phases from 2013
 Businesses to self-certify emissions
 Gateway into EU ETS but may not sell from CRC
into EU ETS
 CRC “performance table” and bonuses or penalties
 Scheme to be revenue neutral to Treasury
Issues for landlords and tenants
 Who is responsible in the following situations?
 (A) – owner/occupier or long-term leaseholder (FRI)
invoiced directly
 → UK parent co of owner of building or tenant
 (B) – sole tenant of large property
 → UK parent co of owner of property/tenant
 (C) – multi-let properties with managing
agent/property manager
 → UK parent of MA/PM co and tenant
Issues for landlords and tenants (cont’d)
 Other arrangements being considered:
 Pass-through of CRC costs/benefits from landlords to
tenants – guidance requested
 Channelling of CRC revenue recycling payments into
dedicated fund for energy efficiency investment?
 If landlord and tenant agree before each phase, CRC
responsibility could fall to tenant
 Lease provisions will have to deal with this
 Lobbying DECC
Other outstanding issues
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Effect of organisation change
Subsidiaries/ overseas companies
90% coverage rule unclear
Data collection
Market design
Disincentive to take energy efficiency action before
2009/10?
 No information on penalties yet
 Complex issues for companies who may be in EU
ETS and CRC
Issues for landlords and tenants (cont’d)
 Actions:
 Consider if you are likely to fall within this scheme
 Look out for DECC consultation on detailed
regulations in “late Autumn 2008”
 Look out for awareness-raising events
 In early 2009, Environment Agency will send
registration packs to UK billing addresses with halfhourly meters
 You may receive information from energy supplier
 Identify “CRC organisation”
 Consider how data collection on energy use could be
organised
Green leases
‘Green’ leases - introduction
 What is a ‘green’ lease?
 a commercial lease that places obligations on both
landlords and tenants to use the property efficiently
and in a way that promotes sustainability
 there are various shades of ‘green’ that can be
applied to commercial leases
BS:1999453.1
‘Green’ leases – a closer look
 ‘Light green’ leases:
 normal obligations in a commercial lease, but no
barriers to making the building more energy efficient,
eg no prohibition on tenant carrying out alterations to
improve heating efficiency
 generally, no penalties or rewards on either landlord
or tenant for achieving sustainable use
‘Green’ leases – a closer look (cont’d)
 ‘Mid green’ leases:
 some commitments on both parties, eg a general
environmental management plan to share information
and monitor energy use in the building
 common goals to minimise carbon footprint
 failure on either party to perform or maintain
obligations not actionable breach of the lease
‘Green’ leases – a closer look (cont’d)
 ‘Dark green’ leases:
 obligations to reach specific targets, eg on energy
and water use, or a target on the landlord to ensure
the building achieves a certain energy rating on its
EPC
 failure by either party will have consequences, eg
financial penalties or even forfeiture
 landlord could adjust mechanics of the service charge
to reflect good practice by tenants
 ‘dark green’ leases familiar in some US states, and
particularly in Australia
‘Green’ leases – landlord’s incentives
 Reducing size of air conditioning systems increases
lettable space
 Lower service charge and running costs – attractive
to tenants
 Brand enhancement for ‘green’ landlords
 ‘Future proofing’
 Landlord’s own corporate social responsibility profile
‘Green’ leases – barriers for landlord
 Inability to recover capital expenditure
 Uncertainty of covenants which are vague and
general – may not be enforceable in court
 Typical covenants not yet tested at rent reviews
 More time policing or liaising with tenant and
monitoring energy use
 Difficulty in introducing ‘dark green’ leases where
there is no green technology to introduce
improvements
‘Green’ leases – barriers for tenant
 Tenant with short term view of its occupation may
not benefit in terms of lower running costs over a
long period
 Will ‘green’ lease covenants make lease less
attractive on assignment?
 Current service charge mechanics discourage
energy efficiency
 Utility bills small fraction of budget, so landlord
charging premium on the basis of lower running
costs must show significant energy savings
‘Green’ leases – barriers for tenant (cont’d)
 No incentive for landlord to reduce energy usage
where leases are on a simple FRI fully recoverable
basis
 Extra expenditure for tenant and fear that landlord is
interfering with tenant’s use of building
‘Green’ leases – incentives for tenant
 Potential for reduced energy and fuel costs
 ‘Green’ lease as part of overall corporate social
responsibility targets
Conclusion
 Costs and incentives are a big stumbling block
 Easier to be ‘green’ in a new building than
refurbishing an existing building
 Landlords, tenants and advisers are nervous of
accepting unfamiliar covenants
 Lack of appropriate and widely accepted
benchmarks
Conclusion
Actions
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CRC plans going ahead
Climate Change firmly in government sights
Good practice worth developing
Consider how your organisation should respond
Questions?
These are presentation slides only. The information within these slides does not
constitute definitive advice and should not be used as the basis for giving definitive
advice without checking the primary sources.
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Claudia Watkins and Christopher Woolf
Sustainable development – responding to the
challenges of greener buildings