After much anticipation, the upcoming 26th United Nations Climate Change Conference of the Parties ("COP26") is now around the corner and it’s a last chance for the world leaders to get things right when it comes to climate change. In order to limit the temperature increase of the planet to 1.5 degrees we need to achieve 'net zero' by the second half of this century - producing less carbon than we take out of the atmosphere. The UK government has committed to achieving net zero by 2050. We look at how the construction industry can help tackle the key goals of COP26 through clean construction, policy change and initiatives within our communities
The building and construction sector will play a central role in the shift to a low carbon economy. The sector’s greenhouse gas (GHG) emissions account for approximately 40% of global GHG emissions. The major contributors to these emissions are the materials used as well as the heating, cooling, and lighting of buildings and infrastructure.
Solution 1: Recycle, don't demolish
Whilst the built environment still contributes around 40% of the UK’s total carbon footprint, it has reduced since 1990. Insulation installation rates between 2008 and 2012 and decarbonisation of grid electricity has contributed to this downward trend.
The creation of an entirely new building is the most energy efficient and sustainable way to deal with carbon emissions. Issues with insulation, lighting and ventilation are often quoted as the reason for a building's contribution to significant carbon emissions into the atmosphere and thereby justifying demolition. However, it is becoming increasingly clear that the act of pulling down an old building results in the loss of embodied CO2 and 80% of buildings in 2050 have already been built, so a major priority is decarbonising the existing stock. Historic England has suggested that by "thoughtfully adapting" old buildings we could reduce emissions by more than 60%.
We therefore need to improve the energy efficiency of the current building stock. The reductions in emissions that can be achieved through sensitively refurbishing older buildings shouldn’t be overlooked. After all, historic buildings are inherently sustainable and have survived because they are not only robust, durable and adaptable, but have proven fit for the future time and time again. They are often recycled for a number of uses. The switch from residential to commercial and back again is not uncommon – particularly in London. Given that one of the most ruinous processes in achieving carbon neutrality is demolishing young buildings (circa 20-30 years) and building new replacements, the retention of old buildings is clearly a plus.
This concept is already prominent in New York, where real estate investment is focused around enhancing the core components of older buildings to help regulate temperature and humidity levels for longer periods of time. This makes the operation of the building more environmentally friendly without having to demolish it in its entirety.
Solution 2: Building materials
In an era of the clear and immovable goal to reach net-zero carbon by 2050, the biggest challenge is the embodied carbon within the building materials. Those tonnes of concrete, steel and glass also mean tonnes and tonnes of carbon. The Construction industry is slowly waking up to the use of sustainable materials and this is likely to become more and more common – arguably it needs to happen at a much faster rate.
The green benefits of using timber for buildings have been discussed at length for several years but its use, however, has been reasonably limited. Fire safety has put one brake on its use in construction, as has its structural inferiority to the favoured steel and glass. Wood warps, softens and gets damp. All these things have meant that timber framed buildings have been relatively low-rise. But could that be changing?
In 2017, a 53m-high wooden-frame student housing block was completed in Vancouver and, more recently, Lendlease has completed construction of a 45m-tall timber-framed tower. At the moment timber structures are confined to eight to 10 storeys because of the nature of the wood. Going higher requires hybrid structures, bringing in amounts of steel and concrete to help deal with the compressive strength and tensioning that is needed in tall buildings. A building of timber expresses a care in the environment, which is attractive to corporates, in showing their ESG commitments to investors and stakeholders. We believe this is a key area of development in the future.
Solution 3: Green JCTs
The standard JCT suite of contracts does not include environmental standards. Further they do not provide a remedy for the employer if energy efficiency targets are missed. Through the introduction of amendments to JCT contracts, energy efficiency can be part of practical completion.
The purpose of the green clauses is to prioritise energy efficiency in the design and build of a construction project and minimise energy use and waste in the works and the built asset.
The Chancery Lane Project's "Climate Contract playbook" is one vehicle that has created a number of green clauses for JCT contracts. One clause, known as Mary's clause, will ensure that new and refurbished buildings hit desired energy efficiency requirements. A more energy efficient building should have a lower carbon footprint and be a more resilient long-term asset for the developer or funder. It should also be more valuable.
The proposed amendments mean that a contractor will not be able to achieve Practical Completion without hitting the energy efficiency obligations. This puts energy efficiency front and centre. If the required standards are not achieved, then the contractor would have to retrofit the building until they are satisfied, as there are no liquidated damages in lieu.
Lenders are providing products which allow access to discounted rates for energy efficient property projects. Such Lenders and their covenants should be aligned with this clause.
The clause assumes the employer is happy with some uncertainty and has taken a commercial view as to the remedies available. The remedy is likely to include additional solar panels, further insulation, etc. and does not envisage the contractor knocking down and rebuilding the property.
The clause will ensure new and refurbished buildings hit desired energy efficiency requirements. A more energy efficient building should have a lower carbon footprint and be a more resilient long-term asset for the developer or funder. It should also be more valuable.
Some of the new clauses are as follows:
Compliance with Environmental Requirements
2.1 Add a new sub-clause:
“In performing his obligations under this Contract, the Contractor shall and shall ensure that each of its subcontractors shall:
2.1.1 comply with the Modern Slavery Act 2015 and the Anti-Slavery Policy;
2.1.2 comply with the Anti-Bribery Policy; and
2.1.3 at all times in carrying out its obligations under this agreement, the Contractor shall seek to [promote] the Environmental Requirements.”
[Note: Alternatively, the Environmental Requirement could be included in the ‘Standards/ Compliance with Law’ obligations.]
2.2 Add a new sub-clause:
“Without derogating from any other provision in this Contract, the Contractor warrants to the Employer that it shall use the Standard of Care when:
2.2.1 designing the CDP Works;
2.2.2 selecting goods, materials, plant and equipment for incorporation in the CDP Works; and
2.2.3 complying with the obligation in clause 2.1.3 in respect of the Environmental Requirements.”
EPC Obligation
3.1 Add new clause:
“For the purpose of assessing whether practical completion of the Section or the Works has been achieved, the [Employer/ Employer’s Agent/ Architect/ Contract Administrator] shall not issue any certificate to that effect until such time as the EPC Obligation for such Section or the Works, as the case may be, has been met, or alternatively specific agreement has been reached between the Employer and the Contractor for the urgent achievement of the EPC Obligation during the course of the Rectification Period (which may include the Employer requiring the Contractor to undertake remedial works (such remedial works to include, but not limited to, retrofitting as necessary) to achieve the EPC Obligation or (if not possible) improve the energy performance of the Works, provided that the total aggregate costs (excluding VAT) of such remedial works (which shall be borne by the Contractor) do not exceed [10]% of the Contract Sum.”
3.2 Add to the end of clauses 2.32 and 2.36, before the full stop:
“, provided that the [Employer/ Employer’s Agent/ Architect/ Contract Administrator] shall not be required to issue any Certificate of Making Good earlier than the expiry of the Rectification Period and/ or prior to the EPC Obligation for such Section or the Works as the case may be having been met.”
Solution 4: Working with occupiers and tenants
Since 2015, Minimum Energy Efficiency Standards (MEES) have been in force which ensure that properties meet a certain energy efficiency standard when a new tenancy is granted (unless exemptions apply). Since 1 April 2020, the MEES regulations have also required domestic properties to have a minimum EPC rating of E or above( regardless of whether a new tenancy is being put in place), and the same minimum rating is to apply to non-domestic properties from April 2023.
Where properties do not achieve such ratings, landlords may choose to carry out the alterations flagged in the EPC recommendation report in order to improve the energy rating to at least E, and thus the marketability of the property. Whilst exemptions do exist for certain properties, penalties for breaching the MEES regulations can be as high as £5,000.00 for each property. It is expected that MEES requirements will tighten over time.
It is therefore important for landlords to consider possible ways to mitigate the issue when a property is borderline substandard. The incorporation of green clauses in a lease allow landlords to work collaboratively with tenants to enable improvements whilst potentially giving the tenant an added benefit of being able to adapt the property to its own requirements. Such clauses can clearly define the responsibilities of both parties and may also regulate the tenant's ability to adversely affect the energy efficiency of the property.
Solution 5: Green Leases
Typically, a 'green lease' is one that incorporates various clauses that provide for the landlord and tenant to work collaboratively to improve the buildings green credentials and meet sustainability goals. For example, allowing the collection and analysis of a tenant's energy and water consumption in order to allow the landlord to improve energy efficiency within a building or estate. Howard Kennedy's work with The Chancery Lane Project is a great example of a joint collaboration to draft green clauses to support the built environment's transition to net zero emissions. Chirag Rao, Senior Associate in the Real Estate Development team, leads the efforts on our collaboration with this project and recently developed a new legal clause as part of this project, "Aatmay's Clause" (named after his son, meaning "long life"). Aatmay's Clause provides for the inclusion of sustainable and circular economy principles in lease obligations relating to repair and alterations. Laura Williamson, our real estate PSL, has contributed to the drafting of a new commercial service charge clause for The Chancery Lane Project, which embeds sustainability principles into service charge decision-- making and provides a framework for ongoing co-operation between landlord and tenant. There is an increasing variety of green lease clauses available to meet the needs of investors and occupiers.
What is next?
The UK government recently pledged to reduce carbon emissions by 78% by 2035 (compared to 1990 levels). A huge proportion of carbon emissions over the next ten years is already earmarked into the construction pipeline. Leaders in the real estate sector are beginning to recognise that they must act now - in 10 years' time it may not be financially viable for refurbishments to take place to achieve net zero.
Want to hear more from us? 
