The New Model Commercial Lease – Five observations on sustainability obligations

The Model Commercial Lease published a new version of its lease (MCL) last week, the first iteration since the launch of the BBP’s revamped Green Lease Toolkit in early 2024 (the Toolkit). Kieran Mitchell delves into some of the key changes to the MCL’s sustainability provisions that landlords and tenants adopting the MCL should be aware of.

1. Missing clauses

Perhaps the most telling observation from the new version of the MCL is the extent of issues raised in the Toolkit which are omitted.

It is important to note that the MCL is intended to be reflective of the market, not leading it. Whilst the revamped Toolkit heralded a new standard for sustainability obligations, with the hope that the market would adopt a wider array of more impactful responsibilities, the new version of the MCL suggests that the market is not yet ready to adopt a number of the Toolkit’s highlighted issues.

Some notable omissions are:

• Cost sharing arrangements for improvement works;
• Social impact clauses;
• Circular economy principles; and
• Obligations in respect of energy supply.

Inroads are certainly being made with more robust and wide-ranging sustainability obligations, but some more detailed and practical issues are still left unspoken for.

2. Improvements and MEES Exemptions

Previous versions of the MCL have reserved a right to landlords to enter the demised premises to carry out energy efficiency improvements and for the tenant to cover the cost of such improvements where the tenant (in its absolute discretion) consents to such works. The purpose of this was two-fold:

1. to establish a mechanism by which landlords could carry out works required to comply with the requirements of the MEES Regulations; and
2. to make clear the landlord’s ability to rely on the third-party consent exemption under the MEES Regulations if the tenant lawfully refused consent to the works.

The new version of the MCL marks a significant change in approach on this issue, namely:

• tenants must not unreasonably withhold or delay consent to improvement works – meaning consent is no longer at their absolute discretion; and
• any improvement works must be carried out at the landlord’s cost if consented to.

Tenants will welcome the change in respect of costs, but they will be concerned over the potential impact of energy efficiency works on their use of the premises and business operations, unless appropriate safeguards are put in place.

Under the terms of the updated MCL, landlords are granted more freedom to carry out needed improvement works but must exercise caution if seeking to rely on the third-party consent exemption (especially where they have previously registered an exemption and the MCL is adopted upon renewal). The MEES Regulations require that a landlord make reasonable attempts to obtain the third party’s consent, the standard for which may change if consent can no longer be withheld without good reason.

3. Interruption of services

Continuing with the theme of increasing landlords’ freedom to carry out improvement works, the new version of the MCL expressly states that the landlord will not be responsible for any interruption in the supply of any service due to the landlord carrying out works intended to improve the environmental performance of the building or any other environmental rating (including the EPC rating). Again, this will be a welcome change in removing the barriers to landlords carrying out works necessary to comply with MEES regulations.  

4. The provision of assessment information

The MCL now requires tenants to provide the landlord with sufficient information for the landlord to assess the impact of any tenant works on the environmental performance, EPC rating or any other environmental rating of the premises or any other parts of the building.   This information must be provided as soon as reasonably practicable following completion of the works. Interestingly, the MCL has not fully adopted the Toolkit’s recommended drafting on this issue, which requires such information to be provided in advance of works being carried out. In doing so, the MCL avoids the risk of this creating a consent requirement through the back door where such works are generally permitted without consent, preferring a retrospective obligation that allows the works to go ahead without unnecessary delay. However, it is important to note that tenants may still be required to provide such information as part of their consent application where their proposed works require landlord’s consent under the terms of the lease.

5. More robust cooperation obligations

Historically, the provisions surrounding the parties’ cooperation on environmental performance matters have been relatively weak and difficult to enforce. The revised drafting now states that the parties intend, wherever reasonably practicable, to promote and improve the environmental performance of the premises and building. The obligation to cooperate to identify environmental performance improvement strategies has also been strengthened and the parties are now obliged to nominate individuals to attend any environmental forum meetings set up by the landlord. Whilst these changes are still some way from creating a positive obligation to improve environmental performance, they represent a small step in that direction.

Refer to our previous updates for details about the Green Lease Toolkit:  Part 1 Revamped Toolkit Takeaways  and Part 2 Revamped Toolkit Takeaways.