Archaic lease agreements will prevent businesses meeting emissions targets

01 October 2009 by
Archaic lease agreements will prevent businesses meeting emissions targets

Hospitality operators will struggle to meet the Government's carbon reduction targets because they are tied in to "feudal and archaic" lease agreements, property experts have warned.

The Government wants businesses to reduce carbon emissions by around a third from existing building stock by 2020.

But consultancy Tuffin Ferraby Taylor (TFT) has warned that the traditional FRI (Full Repairing & Insuring) lease restrains both the landlord and tenant from carrying out improvements on buildings to make them more sustainable.

The company is urging the UK Government to follow the lead set by Australia and Canada in modifying the old English lease format to a green alternative.

Matthew Lown, sustainability partner at TFT, said: "Leases have changed very little over the last century and we are now in a situation where they have become outdated by the need to address global warming.

"This is something that has been recognised overseas and the UK must follow suit. A standard lease generally removes a landlord's right to carry out major improvements on a building whilst at the same time punishes a tenant who takes the initiative."

In a standard lease, the presence of a "yielding up" clause means that a tenant is obliged to leave the property as they took it, which means they must remove any alterations made during their occupation, at their own expense.

In contrast, a "green lease" includes the mechanism to allow a landlord or tenant to make any agreed sustainable improvements by removing the barriers and achieving financial incentives for both parties.

"The biggest incentive for tenants to become more sustainable is to save money on energy bills, but major changes such as installing alternative energy sources are unlikely to start paying for themselves during a lease term," said Lown.

"The nature of business and property occupation today means that it is unlikely that a tenant will be in place for long enough to make all their money back, so the lease needs to acknowledge this by sharing the financial burden with the landlord, who will benefit from added value to the property in both resale and rent increases for future tenants," he added.

The Carbon Reduction Commitment >>

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By Daniel Thomas

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