Bringing Benefits to Business and the Environment
why commercial leases need to change to meet climate change targets
The UK and Scottish commercial property markets are dominated by rented stock and, to a lesser extent, institutional investors. Commercial landlords expect an investment return from these properties and use a particular form of lease, the Full Repairing & Insuring Lease, to achieve this. Under a traditional FRI lease:
- tenants are exclusively responsible for all repair and maintenance work to buildings
- landlords typically want a 25 year lease to match the expected economic lifetime of the building. When the lease ends, the building may simply be demolished and replaced
- rents can only rise
- many properties are professional managed on a purely commercial basis, ruling out co-operation
The outcome is that:
- neither landlords nor tenants have any particular incentive to make environmental improvements to the building
- indeed, if the tenants make environmental improvements, they will be penalised for those in the form of increased rent
- there is little co-operation between landlord and tenant over energy efficiency or other environmental improvements
Recently, there have been some signs of change:
- landlords have begun signing up to voluntary codes of good practice on lease terms (England and Wales only) and service charges
- landlords and tenants have begun to realise the need to work together in partnership to address the environmental challenge
The fact is, though, that the standard terms of FRI lease will need to change if commercial buildings are to meet Climate Change targets. Click here for the details of the legal products developed by CCW which are designed to achieve this.