Green clauses could be an expensive commitment

For many businesses, it is their premises that have the largest impact on their carbon footprint and bring them into contact with environmental legislation. Because of this, developers are increasingly requiring consultants and contractors to ensure new buildings comply not only with statutory requirements but with voluntary standards.

Historically there may have been a perception that such clauses were simply aspirational “greenwashing”, but failure to meet objective standards can give rise to damages for breach of contract.

In the English commercial property market, the green standard most commonly referred to is that established by the Building Research Establishment Environmental Assessment Methodology (BREEAM).

If a party wishes those standards to be met, an obligation to do so must be created contractually. Where a BREEAM clause differs from other aspirational building standards (such as “a highquality office development suitable for use by financial institutions”) is that the BRE will assess whether the BREEAM standard – “passed”, “good”, “very good” or “excellent” – has been met.

Damages should easily be ascertainable for breach of contract where market value is attached to environmental standards and where costs relating to energy usage increasingly will be easy to demonstrate.

Another head of damages could be diminished rental value for a building that has not hit specified environmental standards. State subsidies and grants applying to zero carbon buildings could be lost and reputational damage could give rise to further loss.

As a hypothetical example, Ethical Bank wants a new headquarters. An agreement for a lease entered into by the bank might require the building to meet the BREEAM “excellent” standard. Any developer agreeing to provide such a building would have to ensure that the requirements for that standard be met, otherwise an obligation to take the lease (and pay rent) may never arise.

If the rent on Ethical Bank’s premises was £500,00 a year for 20 years, a loss of £10 million could be suffered if the BREEAM standard were not achieved and the bank’s obligation to take the lease fell away.

A developer should ensure that obligations owed to end users of buildings in property documents are backed up in building contracts and/or consultant’s appointments. Any reasonably foreseeable losses suffered by the developer should then be recoverable from the professional team and/or contractor that failed to meet the design or build standards required by the user.

NEGOTIATING A BREEAM CLAUSE

Where enhanced environmental standards are written into appointments and/or contracts, the parties should be aware of the need to meet those standards.

If assessment of satisfaction of those standards is in the hands of a third party, such as a BREEAM assessor, consultants and/or contractors should caveat any such obligation with a “reasonable endeavours” qualification. For example: “The [consultant/building contractor] shall use reasonable endeavours to see that on completion the works achieve a BREEAM rating of [insert desired rating] with regards to [insert relevant BREEAM scheme] and shall liaise with the employer’s BREEAM assessor to facilitate its assessment of the works.”

However, a clause that creates an absolute obligation to obtain a certain standard as assessed by a third-party assessor should be resisted if possible: however clear the BREEAM schemes are and however consistent the assessment process, there is always a risk that the employer’s assessor will not accept that the relevant standard has been met.