A greener building may reduce running costs, protect its value and support a business’s sustainability commitments. Few boards would object to that. The trouble usually starts when the invoice arrives.
Many commercial leases were drafted before decarbonisation was a boardroom consideration. They now have to accommodate decisions about energy upgrades, access, assessment data, alterations, service charges and reinstatement. If the wording is old, vague or over-ambitious, shared ESG aims can lead to a familiar landlord and tenant dispute.
The regulatory floor is rising
In England and Wales, the Minimum Energy Efficiency Standards (MEES) currently prevent most privately rented non-domestic property with an Energy Performance Certificate (EPC) rating below E from being let or continuing to be let unless an exemption applies. The legal obligation rests principally with the landlord, but the tenant may control the premises, the energy use and the alterations that influence the rating.
The Government has also stated its intention to require privately rented buildings over 1,000 square metres to achieve EPC B by 2031 where cost-effective, although further legislation will be needed to make this mandatory. Smaller buildings are expected to remain subject to EPC E for now. That distinction matters to owner-managed businesses. Do not assume that every property faces the same timetable, or that a headline about ‘EPC B’ tells the whole story.
Lenders, investors, customers and larger businesses are also asking for better environmental information. Green lease provisions can allocate responsibility for energy efficiency, EPCs, utility consumption, waste reporting, sustainable alterations and environmental standards. In practical terms, they decide who has control, who incurs the cost, who receives the savings and who carries the risk.
Five predictable flashpoints
1. Responsibility for energy-efficiency works
A landlord may need to improve a building so that it can lawfully be let, retain its value or meet a lender’s requirements. The tenant may benefit from lower energy bills but have only a short period left on the lease, making it reluctant to fund works with a long payback. In other words, the party paying for the work may not receive the full benefit.
The lease needs to answer some practical questions: Can the landlord enter the premises to carry out the works? Must the tenant cooperate or temporarily relocate? Who pays for interruption to the business and making good afterwards? Is the right limited to legal compliance, or can the landlord pursue its wider net zero strategy? There should also be clear safeguards covering notice, access and disruption. A broad right to carry out ‘environmental improvements’ without those limits is likely to cause problems.
2. Service charge recovery
The starting point is the lease. Repair, maintenance and replacement may be recoverable. An improvement carried out mainly to enhance the landlord’s investment is much harder to pass on.
Replacing failed plant raises a further question: was a genuine like-for-like replacement reasonably available? If it was, the additional cost of choosing a higher specification may be an improvement rather than a recoverable repair. If an equivalent is obsolete, unavailable or uneconomic, a modern replacement may still be reasonable, even if it performs better. The wording of the lease, the available options and the landlord’s reasons for selecting the work will all matter.
The RICS professional standard on commercial service charges, effective from 31 December 2025, emphasises fairness, transparency and consultation. It treats improvement costs as generally excluded, while recognising that some energy-efficiency expenditure may be justified where the lease permits it and there is a proportionate cost benefit for tenants. Landlords should be ready to show the options considered, the expected savings, the allocation method and why the chosen solution is reasonable. Tenants should engage with or challenge the contractual basis and evidence rather than simply refusing payment.
3. Tenant alterations and EPC protection
Fit-outs can affect energy performance. Lighting, heating, cooling and ventilation choices may change the EPC rating or undermine a landlord’s planned works.
Landlords increasingly seek consent controls, sustainable specifications and tenant covenants that alterations will not worsen the rating. Tenants should resist absolute obligations where the outcome depends on assessment methodology, the wider building or matters outside their control.
The drafting should identify the baseline, the evidence needed and the remedy if the rating falls. Without that detail, the parties may disagree about whether the tenant caused the reduction, whether a new assessment is needed and who must pay to put matters right. That uncertainty can lead to a dispute of its own.
4. Data sharing and ESG reporting
Energy and water consumption figures, together with information about the amount and type of waste produced and how much is reused, recycled or sent to landfill, help the parties measure the building’s performance. The information may also be needed for environmental certifications and corporate reporting.
Problems arise when a clause demands information that the tenant cannot readily obtain, permits broad use of commercially sensitive information or imposes incompatible reporting formats.
A useful clause should specify the data to be provided, how often it is shared, its format, how it may be used and how confidential information will be protected. It should also address meters, access to systems and the cost of collecting the information. A general promise to ‘cooperate’ sounds attractive but may be difficult to enforce if neither party knows what it requires.
5. Reinstatement and dilapidations
At the end of the lease, an old fit-out obligation may conflict with a current sustainability objective. Removing efficient equipment simply because the lease requires reinstatement may waste materials and reduce the building’s performance. A better approach is for the landlord to identify early which alterations can remain, taking account of environmental performance and the property’s future use or reletting. If reinstatement is still needed, the parties can agree how materials will be reused, repurposed or recycled. The landlord may also argue that the tenant’s alterations damaged the EPC rating and require remedial work.
The County Court decision in Clipper Logistics Plc v Scottish Equitable Plc is instructive. In a lease renewal, the court rejected several landlord proposals that would have shifted too much MEES risk to the tenant, but allowed a requirement to return the premises with the same EPC rating as at the start. The decision is not binding precedent, but it shows the court seeking a fair and reasonable balance rather than allowing the landlord to transfer its regulatory responsibility wholesale.
What should businesses do now?
The parties should discuss green lease provisions at heads of terms, before entering into a new lease or agreeing a renewal, so that access, cost and operational issues are not left until the drafting is nearly complete. The Better Buildings Partnership’s Green Lease Toolkit provides a useful framework for those discussions. If a lease is already in place, the parties can use a non-binding memorandum of understanding to record practical steps, such as sharing consumption information or meeting to review performance, without changing the legal obligations in the lease. This can produce progress before the next renewal, while leaving any binding allocation of cost and risk to be negotiated formally.
Landlords and tenants should:
Ascertain the risk: record the EPC rating, expiry date, floor area, lease events and any planned upgrades.
Read the whole lease: green obligations interact with repair, alterations, access, services, insurance, compliance with laws and yield-up provisions.
Agree the business case: document the cost, payback, disruption, savings and who benefits during the remaining term.
Set boundaries: define approvals, consultation, metering and data access, cost caps, disruption safeguards and what happens if standards change.
Plan the exit early: agree which efficient installations can remain and how unavoidable reinstatement waste will be reused, repurposed or recycled.
Provide a route out of conflict: use escalation, mediation or expert determination before litigation becomes the only option.
The bottom line
Most green lease disputes are not about whether buildings should become more sustainable. They arise because the lease does not say clearly who has control, who pays and who receives the benefit. For a new lease or renewal, it is usually easier and cheaper to settle those points at heads of terms, before detailed drafting begins. For an existing lease, the parties should address them before works are ordered or a service charge demand is issued.
Put your leases on the next board risk agenda. Review the EPC position, planned capital works and cost recovery wording now, while there is still time to agree a commercial solution.
This article is intended as general guidance and does not constitute legal advice. The position will depend on the property, the lease and the applicable regulatory regime.
References and further reading
Royal Institution of Chartered Surveyors, Service charges in commercial property, 2nd edition, effective 31 December 2025.
Better Buildings Partnership, Green Lease Toolkit.
Landmark Chambers, Clipper Logistics Plc v Scottish Equitable Plc, judgment, County Court at Sheffield, 7 March 2022.
