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A green future for real estate - The Chancery Lane Project

Posted: 06/10/2021


The UN’s latest climate report published in August warned of a ‘code red’ for humanity. Since 1970, global surface temperatures have risen faster than in any other 50-year period over the past 200 years, and the targets set by the Paris Agreement in 2015 will be broken this century unless huge cuts in carbon take place.

Whilst governments and policy makers will be key to facilitating the global changes needed to reduce rising temperatures, wider support from businesses, communities and the private sector will be necessary to achieve climate targets.

As part of this, the legal sector can play an important role in supporting those communities and businesses in fighting climate change. Lawyers advise across many areas of society, and the contracts they draft can influence relationships. The law presents an opportunity to achieve more direct and immediate impact than top-down legislation, which can take time to come into effect. The Chancery Lane Project (TCLP) is hoping to do just this.

About the project 

Set up in 2019, TCLP is a pro bono collaborative effort by lawyers and legal professionals to create climate conscious contracts. There are currently around 740 professionals involved.

The project’s website has a database of collaboratively drafted green clauses, which can be used in many types of contracts. The clauses are vigorously peer reviewed by experts before being published, free for anyone to use. Workshops and events are run to help practitioners assimilate such clauses into their precedent documents, and to assist them in drafting their own green clauses into their legal work.

The project also publishes model laws for policymakers to consider. To date, 71 model clauses have been published covering a range of legal areas such as corporate, commercial, public law and real estate.

TCLP recognises that legal contracts can enable solutions to climate change. It is one way in which private enterprise can drive action. The ambition is to help make practitioners more familiar with green clauses and so establish them as an industry-wide standard.

Real estate clauses

The commercial real estate sector has potential to make a significant difference by “going green”. The built environment reportedly consumes around 40% of the world’s energy and contributes up to 30% of global annual greenhouse gas emissions, two figures that will rise if the world’s population continues to migrate to cities. Lease or development agreements can be in place for many years, so the future carbon footprint of buildings can be influenced by the original contracts.

TCLP has published several model clauses to encourage cooperation between landlords and tenants to maximise the energy efficiency of buildings, including:

  • encouraging landlords and tenants to reuse materials or use recycled/reclaimed materials when making alterations and repairs. This helps reduce the amount of waste going to landfill and reliance on natural resources;
  • requiring landlords to act reasonably when tenants propose alterations that have a positive climate impact. This will promote environmental improvements; and
  • incentivising tenants to promote carbon sinks and ecological restoration in lettings of rural land.

Other future considerations include encouraging landlords to provide electricity from renewable energy sources and disclosures of climate change issues on Certificates of Title. Given current trends, investors may continue to demand action and tenant/consumer pressure will likely increase so this remains an area to watch.

What does this mean for real estate clients?

There may be concerns that extra clauses will become a burden on a landlord or tenant, with increased costs and prolonged negotiations, but TCLP is trying to focus on practical solutions that will benefit both parties. These may be novel clauses, but the emphasis is on collaboration.

It seems inevitable that climate-related regulation in the real estate sector will increase. Many clients will already have internal carbon reduction policies. Climate risk is becoming an investment risk and how companies respond may define their long-term prospects. By planning for these issues now, in new contracts, clients can not only protect themselves from future risk but can gain a competitive advantage over future changes.

One way in which landlords are already promoting sustainability is through green leases, to encourage the use and occupation of premises in a way that minimises its environmental impact and enabling both landlords and tenants to maintain energy efficiency throughout the term. This means long term cost savings for tenants and promotes a more collaborative, rather than adversarial, approach between the parties with a joint goal of conserving natural resources and energy. Although not commonplace, green leases are likely to become a more prevalent feature in the UK market, particularly considering the commercial advantages of having a portfolio of sustainable properties.   

The future

Penningtons Manches Cooper has previously assisted with one of TCLP’s ‘Big Hacks’ – an initiative bringing together lawyers from around the world and across a range of practice areas to translate TCLP’s existing clauses to make them jurisdictionally relevant, to increase incorporation of the clauses into firms’ precedents, and to draft new clauses. Sustainability is one of our firm’s key objectives, and we are continuing to make efforts to assist our clients and their businesses in tackling climate issues.

Climate change is one of the biggest topics of our time. A growing global population means the built environment will continue to expand. It is important to act now to produce energy efficient buildings in the future. Why wait for government legislation when lawyers and clients can start implementing those changes now?

 

This article has been written by Jenny Wright, a trainee solicitor in our corporate team.


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