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Green Leases – All You Need To Know

images (4)The mention of something called a green lease may conjure up something by a sea-sick lawyer or scribbled on elephant dung paper. But it is far more practical than it may sound to some who still have the idea of green being about separating the garbage or wearing daisies in strategic places. Green leases are here to stay and it’s likely if you have a foot in commercial property in South Africa that you’re going to need to know what one is.

Crudely a green lease would include obligations on the landlord and tenant to achieve targets for energy consumption and sustainability, among others.

At a residential level green leases would encourage landlords and tenants to agree to work together to make a home greener. The property owner typically commits to manage the rental in a sustainable way while the tenant pledges to reduce energy consumption, to recycle whenever possible and to follow other green lease terms.

green-leaseIn the world of big buildings and commercial interests such discussions can leave one quite discombobulated. As serious as these matters are, in order to understand the necessity of green leases we need to extricate ourselves from some of the genuine earnestness and angst with which the subject is typically approached.

No better place to do so than the good old land of Oz. No worries mate! Well it’s true, despite the rumblings for things to go green in the construction world in the US and Europe for many years, it was the practical Aussies who have played such a pioneering role in the world of green building and thence the accompanying lease framework.

The essential motive for the bringing about green leases in Australia was its federal government’s resolution not to inhabit structures that did not make a 4.5 star NABERS (not the soap opera) rating. NABERS is the operational rating system for carbon emissions in Australia. South Africa is in the process of developing a similar system. More recent legislation relating to mandatory disclosure has further strengthened the Australian regulatory framework and has had a positive impact on green leasing. The carbon emissions legislation in the UK has played a similar role in framing green leases.

Since the Australians have been down this road before, let’s consider what has typically been present in their green leases. According to Commercial Property firm Cousins Business Lawyers, experts in green leases, indicate the following ingredients in Australian green leases:

  • A commitment on the part of the landlord to maintain the central services of the building to such standards to ensure the Australian Building Greenhouse Rating is retained.
  • An obligation on both parties to consider “in a reasonable and co-operative manner” whether an improved rating can be achieved during the term of the lease and, if they agree, to take whatever steps lie within their control to achieve that rating.
  • Both parties to commit to an energy management plan to operate the building in accordance with prevailing government policy on energy conservation.

green-lease1Over in the UK there are increasingly stringent building regulations requiring developers to build more energy efficient buildings and Green Leases may be being used as a device to attract “Green Tenants”.  It is anticipated that in the EU and UK in the future, property owners will be under pressure to improve the energy performance of their buildings as a result of the introduction of Energy Performance Certificates (EPCs) for commercial premises and Green Leases may have a key role in enabling the implementation of the recommendations that will form part of EPCs. The commercial property industry is trying to anticipate legislative pressure that may manifest itself in the same way as it has done in Australia.

Here in South Africa, just last year, The Green Building Council and SAPOA (South African Property Owners Association) put their heads together and rather helpfully released a “Green Lease Toolkit” similar to the UK version and those used in some US cities. The Toolkit aims to facilitate a smoother path than some of the pioneers in this field have experienced thus far. In the Toolkit are some contemplative thoughts like:

“Green buildings present a textbook example of economic game theory. Each party stands to gain if the other acts, but loses if they act and the other doesn’t. The challenge is in negotiating an agreement where both parties act for green buildings to achieve an optimal equilibrium – a ‘win-win’. An informed tenant may be willing to pay a higher base rental if the costs and efficiencies of occupation are improved, so that the joint gain needed to stimulate investment into green development, can be achieved.” PG17 Green Lease Toolkit.

images (1)The Green Building Council and SAPOA’s document make the point that mutual understanding is what underpins any green lease.  They believe the primary purpose of the lease is to a) improve the operational performance of green buildings and b) deliver to landlords and tenants an “equitable share of the incremental value provided by green buildings.”

Finally the toolkit, which has a wealth of information and opinion from South Africa’s leaders in the field, States that a Green Lease seeks to achieve its goals through the governing of:

  • The base building and fit-out quality in buildings
  • The contractual requirements of facilities managers
  • The behaviour of tenants from an environmental perspective
  • Regulation of governing bodies (through continuing education)

Clearly conceptualising of the practical elements as well as articulating the more abstract notions has come together in a very sober yet encouraging document that behooves potential tenants and landlords to seriously consider the work of those who have gone before, as well as follow the advice of men and women who have laid a foundation on which others may build.

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Whilst the aims of green leases are admirable enough, the provisions that impose obligations on the parties may have some unforeseen consequences:

•      For tenants, the cost implications of the green provisions may only become apparent some way into the lease.

  • For landlords, the level of rent on review may be lower if the green provisions are deemed to be onerous on the tenant.
  • As these provisions are largely unknown and untested in this South Africa, the uncertainty surrounding them may make green leases more difficult to sell on.

Regardless of one’s opinion of matters green it’s clear that green is the future and green has benefits. One thing is certain; if you’re going to get a green lease drawn up make sure you use someone with green fingers, that is someone who knows all about the new strides in green leases.

PIE, Prevention of Illegal Eviction from an Unlawful Occupation of Land Act – Challenged

“If you wish to make an apple pie from scratch, you must first invent the universe.” Carl Sagan. Up until now, and some hope it continues, PIE was all you needed in dealing with an unscrupulous landlord. Similarly PIE protects landlords from unlawful occupation.

 

PIE, the Prevention of Illegal Eviction from an Unlawful Occupation of Land Act. Itis an act of Parliament which came into effect on June 5, 1998, and which sets out to prevent, among other things, arbitrary evictions.

 

This may all change if the complainants of the Maphango and 17 Others v Aengus Lifestyle Properties case before the constitutional court have their way. There are currently 11 constitutional court judges contemplating this case. Those with property investments, landlords in poorer residential communities in particular, have their eyes cocked toward the outcome.

 

PIE governed landlords rights could be permanently altered. Trudie Broekmann, commercial director for Gunstons Attorneys’, has been quoted as saying: “But community and human rights organisations representing indigent tenants are hoping that the judgement will provide extended security of tenure for the urban poor, who often “fall between the cracks” because housing law does not protect them.”

 

Aengus Lifestyle properties bought a rundown block of flats in Braamfontein with the view to renovatingit; this isn’t a slumlord at work here but a legitimate developer. In the process, Aengus has chosen not to renew tenants’ leases as they expire.  This way the building would empty in time, renovating the units as they became empty. It also means that Aengus can charge higher rentals in line with other renovated buildings in the area. This has been a common practice in the renewal movement of inner city Johannesburg and around the world.

 

However tenants are people and people have lives. As it turns out Loliebenhof, the building in question, has some very fine occupants. Firstly they are tenants of long-standing, some as long as 18 years. Secondly they are on record as being regular, prompt rent payers.  These aren’t squatters or criminals but law abiding citizens. Their argument is that they are not in a position to occupy similar accommodation elsewhere.

 

As it turns out the leases, which were fixed term, ceased to be current upon Aengus’ purchase of Lowliebenhof. The result was that the tenants were continuing to be tenants subject to either party’s right to terminate on reasonable notice. Notice was given with the offer of a new lease at rental increase of up to 150%. Under the South African law of contracts, landlords do not have to renew a lease upon expiration, although reasonable notice of termination must be given.

 

The case was then brought before Justice A.J. Van Der Riet of the South Gauteng High Court, and to quote the Southern African Legal Institute:  “First, that the respondent’s purported termination of the leases was invalid. Second, that, even if the leases were validly terminated, it would not be just and equitable to evict them from the flats. For the second ground they relied on the provisions of s 4(6) of the Prevention of Illegal Eviction from, and Unlawful Occupation of, Land, Act 19 of 1998, that generally became known as PIE.” A.J. Van Der Riet dismissed the case.

 

The Lowliebenhof tenants’ leases were validly terminated and eviction has been permitted.Currently the tenants are relying on section 26 of the Constitution, which guarantees each person’s right to have access to adequate housing.

 

The case went before the Supreme Court of appeal and was heard on the 11th of May 2011. By the 1st of June Justice JA Brand dismissed the appeal.  Justice Brand ended his judgement with:”The court held that, since the appellants raised important constitutional issues, they should not be burdened with costs. It therefore makes no order as to costs. “

 

Clearly Justice Brand sees the matter in a more serious light than just another case, but rather a case “that raised important constitutional issues” and needs to be tested before the constitution.

So the Constitutional Court will be aiming at balancing the interests of landlords and tenants. The exact nature of ones constitutional rights to adequate housing, or education and healthcare for that matter, are still being processed before South African courts. The United Nations has prescribed that ‘irrespective of the type of tenure, all persons should possess a degree of security which guarantees legal protection against forced eviction, harassment and other threats’.

 

Trudie Broekmann commercial director for Gunstons Attorneys’ has been quoted as saying: “If the Constitutional Court comes to the conclusion that it will advance access to adequate housing to grant tenants housing rights that extend even after their leases have elapsed, this case will certainly set a precedent and make landlords’ obligations more onerous.”

 

The consequences for landlords in particular and South African property in general would be sweepingin the event of a favourable decision for the tenants. Some would argue that human rights and championing the cause of the vulnerable would have won. On the other hand urban decay may be seen as having won the day with the renovation of buildings becoming more difficult and less financially viable due to deeply rooted occupants.

 

PIE may have become a redundant meal in the world of property law.