Is Your Lease Energy Efficient?

If you are coming to the end of your present business lease and looking either to negotiate a new deal with your present landlord or seeking new premises, the competitive nature of the present real estate market means that as a tenant you are in a strong position. Energy efficiency isn’t just a buzzword – it has the capacity to save you a lot of money if your landlord is willing to make a few small changes to the premises.

Lease types

First it is important to understand what type of lease you are attached to what bargaining tools you might have at your disposal. The type of lease you have will affect how certain costs (such as utilities) will affect you.

• Net Lease: this is where rent will not include other overheads such as cleaning, maintenance and services. Rent will tend to be lower and overheads variable
• Gross Lease: this is where the landlord is responsible for all other outgoings (including utilities) and will charge a higher rent, but at a flat rate
• Semi-Gross Lease: this is where everything except statutory costs (such as land tax and insurance) are included

If you have a gross lease, then it is likely that the landlord already is being as energy-efficient as possible in order to reduce their overheads. If you have a net lease, you’ll need to investigate whether the landlord is maximising your energy efficiency and keeping your costs down – there is no financial incentive for them to do so.

Environmental Performance Clauses

One of the key factors driving energy efficiency across commercial property is the rise of Energy Performance Clauses in tenancy agreements. These can be inserted by tenants and by landlords in order to set a standard of expectations for management of variable cost services such as water, lighting, heating, air conditioning and waste disposal.

For a tenant on a net lease, or a landlord who has a tenant on a gross lease, it is in their financial best interests to make sure that the other party is doing all it can to keep energy consumption and costs down. Typical clauses might be (these are workable clauses that are known to exist in present contracts):

• For a tenant to educate staff in how to reduce wastage across all aspects of the business
• For a tenant to monitor energy consumption and fully participate in any pre-existing energy management plan
• For a tenant to use energy efficient bulbs in their offices and time switches on air conditioning
• For a landlord to work towards and maintain a specific and achievable NABERS rating by installing more energy efficient lighting and monitoring consumption
• For a landlord to establish an energy management committee for the building and to instigate training
• For a landlord to provide adequate meters, sub-meters or a Building Management System
• For both parties to schedule regular meetings to discuss how they might maintain targets and achieve their common goals

Both tenants and landlords may request Environmental Performance Clauses. If you are a tenant looking for advice on environmental aspects of your rental agreement, contact Ausnviro in 1300 622 377