Nyree Applegarth, Partner and Head of Property Disputes, looks at how commercial property landlords are choosing to only deal with tenants which can prove environmental credentials.
I have already written about the tension between landlords and tenants and who has to foot the bill for energy efficiency improvements to a building. Striving to be more sustainable is a broader issue than purely energy efficiency and more and more business have policies and directives dictating the type of businesses that they will deal with.
Many commercial landlords have decided to introduce a policy that they will only let space to tenants that meets certain benchmarks relating to their environmental credentials and sustainability targets.
This raises the question of what a landlord can do if it receives an application from an existing tenant to assign or underlet to a tenant that falls foul of such a policy. It is settled law that a landlord's wish to maintain a good tenant mix in its property can constitute an adequate reason for refusing consent to assign or underlet and to extend this concept to a tenant mix policy focused on environmental and sustainability targets could also constitute a reasonable reason for refusing consent to assign or underlet to a new party that does not meet the required standard.
There is, however, no decided case law in this area that answers this question clearly, and therefore it would be in the landlord's interests to make sure that any policy is clearly communicated to a tenant and consistently applied if they wanted to rely on this argument.
Another thorny issue relates to alterations. Many landlords and tenants will have their own carbon reduction commitments and objectives which could impact on the approach that they take to alterations to a building. Landlords may require the tenants to use certain types of sustainable materials or ask the tenants’ fit out to be non-bespoke so that they do not have to tear out the fit out each time an ingoing tenant wishes to move in.
Most commercial leases contain provisions permitting tenants to make alterations provided they obtain their landlords’ consent not to be unreasonably withheld. We have yet to see a case go through the courts about whether or not it is reasonable for a landlord to try and impose sustainability related conditions as a refusal to give consent to an application from a tenant to carry out alterations. However, given the overarching global objective to move towards net zero you can well see that this is going to become a hot topic.
