Green Lease 2.0

What real estate owners should know about the Green Lease

With the revision of the guide for green leases by the Central Real Estate Committee (ZIA) in February 2024, the Green Lease was adapted to the current European ESG requirements. The most important points at a glance:

What is a Green Lease – and what are its benefits?

The level of sustainability in real estate cannot only be achieved and maintained through sustainable new construction or renovation. Rather, it is necessary for the latter that the property is operated sustainably throughout the entire holding period. For this purpose, the implementation of green provisions in the lease agreement is an essential component. There is still no statutory definition of the term “Green Lease”. The ZIA continues to understand Green Lease as “a lease agreement oriented towards sustainability aspects, which through its special design, possibly flanked by the requirements of any existing certification of the property, is intended to encourage the tenant towards the most sustainable possible use and the landlord towards the most sustainable possible management of the property”. In practice, the “Green Lease” means that properties with a high degree of sustainability receive greater interest on the real estate market and can therefore also be financed more favorably. An advantage for real estate owners.

The birth of the Green Lease guide

In 2018, the ZIA developed a definition for the Green Lease together with a project group of real estate experts. Building on this, it created a comprehensive regulatory catalog for the Green Lease. This regulatory catalog was and continues to be used today not only by law firms as a practical guide for drafting sustainable clauses. It can also be assumed that banks and financial institutions take this guide into account when evaluating properties based on ESG criteria.

What is new about Green Lease 2.0?

As of February 2024, the aforementioned practical guide was revised once more by the ZIA and in particular adapted to the European ESG regulatory frameworks. There are still two categories:

• Basic Green Lease:

  Reduced to the provisions considered essential by the ZIA and focuses on the most important aspects for implementing the goals associated with the Green Lease

• Extended Green Lease:

  Contains more comprehensive and detailed regulatory proposals

The Basic Green Lease

Compared to the 2018 version, the ZIA has now attempted to standardize the concept of “sustainability” based on the Taxonomy Regulation and the Disclosure Regulation. According to the ZIA, the Basic Green Lease should now focus only on the following core elements.

The four core points of the Basic Green Lease:

1. Mutual exchange of consumption data: Tenant and landlord exchange consumption information (e.g. on energy, water, and gas),
2. Promotion of sustainable energy sources in energy and heat supply,
3. Resource conservation: measures to save energy and water as well as reduce waste,
4. Environmentally and resource-friendly implementation of construction and repair measures.

The Extended Green Lease

The Extended Green Lease supplements the basic version with more comprehensive sustainability provisions. These include, among others, energy-related modernizations, certifications as well as social and governance aspects such as accessibility. The goal is to involve landlords and tenants more strongly in the responsibility for sustainable building use overall.

Why is the Green Lease worthwhile for property owners?

• Market advantage

  Properties with sustainability standards are generally more sought-after by buyers and tenants.

• Financing plus

  Potentially better credit conditions through fulfillment of ESG criteria.

• Future security

  Achievement of ecological, economic and social sustainability goals.

What do you need to consider?

Despite the revision of the guide and the ZIA’s proposed wording, based on our practical experience there is no standard solution for sustainable lease agreements. It must be examined on a case-by-case basis which of these provisions makes sense in relation to the lease structure, building and interests of both contracting parties and can also be implemented in practice. These can range from loose declarations of intent to strict obligations. In general, any engagement with the topic of sustainability in lease agreements is to be welcomed, however mere “greenwashing” must be avoided. It is to be expected that a mere “green facade” will no longer be sufficient.

Our conclusion

Real estate owners who want to act in a future-proof and sustainable manner should familiarize themselves with the new Green Lease 2.0 provisions and integrate green clauses into lease agreements. Individual solutions are required – we are happy to support you as experts in the design process. Please feel free to contact us. By Lena Forster and Sinje Grefe