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AN ANALYSIS OF THE USE AND EFFECTIVENESS OF

THE AUSTRALIAN GOVERNMENT'SGREEN LEASE SCHEDULES

FINAL REPORT

August 2017

grosvenor management consultingcanberra sydney melbourne

grosvenor.com.au

Table of contents

Acronyms.........................................................................................................................3

Executive summary..........................................................................................................4

1 Introduction..........................................................................................................9

1.1 Overview....................................................................................................9

1.2 Purpose of review......................................................................................9

1.3 Methodology............................................................................................10

2 Energy Efficiency in Government Operations policy...........................................11

2.1 Policy overview........................................................................................11

2.2 The Green Lease Schedules......................................................................11

2.3 The Commonwealth as a tenant..............................................................14

2.4 EEGO policy and the broader policy environment...................................16

3 Findings on the use and effectiveness of the current GLS..................................20

3.1 Establishing a green lease........................................................................20

3.2 Managing property under a Green Lease Schedule.................................27

3.3 Reporting and compliance.......................................................................31

4 Benchmarking in green leasing practice.............................................................33

4.1 International comparisons.......................................................................33

4.2 Government Property Group comparisons..............................................35

4.3 Industry comparisons – Better Buildings Partnership..............................40

4.4 Better practice..........................................................................................44

5 Improving the effectiveness of current GLS........................................................45

5.1 Improved incentives to use GLS...............................................................45

5.2 Reduce complexity...................................................................................48

Department of the Environment and Energy – Effectiveness of Green Leasing Policy grosvenor management consulting 1

5.3 Improve flexibility....................................................................................50

5.4 Improvements to achieve the intent of EEGO policy...............................53

6 Bibliography........................................................................................................57

7 Attachments........................................................................................................59

Attachment 1: Methodology....................................................................................60

Attachment 2: Additional literature review elements..............................................62

2.1 Green Leasing Drivers..............................................................................62

2.2 NGLP details.............................................................................................66

2.3 Green Leasing in Private Industry............................................................67

Contact details...............................................................................................................68


Acronyms

AGBR - Australian Building Green House Rating

BBP - Better Building Partnership

BCM - Building Committee Meeting

CBD - Commercial Buildings Disclosure

CNL - Commonwealth National Lease

CSA - California Sustainability Alliance

EEGO - Energy Efficiency in Government Operations

EMP - Environmental Management Plan

GLS – Green Lease Schedules

GREP – NSW Government Resource Efficiency Policy

MOU - Memorandum of Understanding

NABERS - National Australian Built Environment Rating System

NGLP - National Green Leasing Policy

NSGOL - National Standard Green Office Lease for Single Building Projects

OSCAR - Online System for Comprehensive Activity Reporting

PCA - Property Council of Australia


Executive summary

Green Lease Schedules and the EEGO policy intent

The Energy Efficiency in Government Operations (EEGO) policy Green Lease Schedules (GLS) provide the management framework for Commonwealth agencies to meet the NABERS Energy ratings targets specified as the minimum energy performance standards for applicable office buildings. The GLS are to be included in all leases entered into by Commonwealth agencies above 2000m2 and with a term of more than two years.

The EEGO policy aims to:

‘…improve energy efficiency, and consequently reduce the whole of life cost and environmental impact of Government operations, and by so doing, lead the community by example’ - Energy Efficiency in Government Operations Policy aim (Department of the Environment and Water Resources Australian Greenhouse Office, 2006)

The policy aimed to reduce energy intensity in Commonwealth operations by 25% in office tenant light and power and 20% in office central services by 2011. The GLS were designed to support the achievement of the reduced energy targets of the EEGO Policy by providing a consistent and transparent approach to the procurement and ongoing management of energy efficient buildings. The primary function of the GLS in that regard is to ensure a commercial building meets and maintains a 4.5 star NABERS Energy rating which is the Minimum Performance Standard specified under the EEGO Policy. This is to be achieved through a collaborative approach which attempts to overcome the traditional barriers that characterise standard commercial leases where there is little incentive for either party to engage unilaterally in improving the energy efficiency of the building. Under one of the GLS, both landlord and tenant agree to work together to share the costs and benefits of a high-performing building.

This report provides an evaluation of the current use and effectiveness of the GLS in the EEGO policy and provides recommendations to guide the development of future GLS. This has been achieved through stakeholder consultations and a review of literature and better practices.

The use and effectiveness of the current GLS

The consultation process undertaken as part of this review revealed that the EEGO policy is largely viewed as successful by stakeholders. One stakeholder described it as “a landmark policy with longevity” and another stated “the EEGO actually worked – I was sceptical at first, but it worked”. The consensus is that it was successful in motivating proactive landlords to engage and improve the quality of their building stock.

The GLS in the EEGO policy are generally viewed as helpful for their ability to establish a dialogue between landlords and tenants around the environmental performance of


the building. Within most agencies consulted, the management of GLS are largely the responsibility of service providers (leasing agents and facilities managers) where engaged.

However, the EEGO Policy is now having reduced impact primarily as a result of limited incentive to comply and the perceived complexity and impost of the GLS. There are mixed views on the necessity of elements of the GLS as they are currently specified, and stakeholders took differing approaches to the application of the GLS in their leasing and building management practices.

Recommendations for improvement

The improvements to the GLS in the EEGO policy identified from the review are grouped into three broad themes covering improved incentives to use the GLS, reduced complexity of the GLS and improved flexibility of the GLS.

Recommendations targeted at improving incentives to use GLS

Resume centralised monitoring and reporting

The cessation of EEGO centralised reporting in 2013 was perceived by many stakeholders from both landlord and tenant sides to be a sign that the EEGO, and subsequently the GLS, were no longer important to the Commonwealth. Numerous stakeholders cited this as a major contributor to reduced support and apathy within their organisations. The resumption of centralised reporting is a vital part of signalling the importance of the EEGO. The data submission requirements for agencies should be streamlined which may involve investigating an expanded scope of what is captured under the existing Australian Government Property Data Collection program or utilising another similar tool. Annual reports and data should be published that shows the achievement of agencies, giving high performing agencies recognition and providing an incentive for low performing agencies to improve.

Promote the EEGO Policy and GLS

The consultations revealed a varying degree of awareness of the EEGO policy and the GLS. This is compounded by the cessation of centralised reporting and contributes to reduced importance within organisations. Promoting the EEGO policy and the GLS will help address limited awareness and improve engagement of key stakeholders.

Additionally, current sentiment towards the branding of the schedules as ‘green’ is mixed and better practice approaches are typically using ‘performance’. The opportunity to rebrand the GLS should be taken in conjunction with a promotional push to improve awareness.

Recommendations targeting a reduction in complexity of the current GLS

Simplify GLS documentation

Stakeholders from all groups consistently lamented the size and form of the current GLS and saw this as a major obstacle to including GLS, particularly when dealing with


parties who are less familiar with them. The size and form is seen to be intimidating and a cause of ‘legal fatigue’ which has a direct cost impact as negotiations and drafting is protracted. Green leasing approaches in other jurisdictions use considerably shorter documents and, in many cases, cover a greater number of environmental targets. Better practice clauses published by organisations including the Better Building Partnership (BBP) are not only shorter, but also written in a plain English style which enhances readability and improves engagement from all parties.

Improve understanding of GLS across stakeholder groups

Numerous stakeholders had gaps in their knowledge of GLS and supporting elements. A high level of understanding of the GLS, commercial building design and use, and an appreciation of the dynamic of commercial leases is viewed by stakeholders and the literature to be essential for positive outcomes when using GLS. Additionally, benefits of the inclusion of GLS, particularly beyond reduced outgoings, were seen to be poorly understood in some organisations, agencies and landlords, reducing the ability of staff responsible for the GLS to be able to affect change within their organisation. Updating existing support documentation and providing new educational material will help overcome the knowledge gaps that hinder negotiations and operationalisation of the GLS.

Recommendations targeting improved flexibility of the current GLS

Create greater flexibility for how GLS are included in leases

Representatives from both Commonwealth agencies and state government coordinated procurement teams consistently called for greater flexibility in the targets that should be mandated for them to achieve. This is in response to the challenges faced when leasing in areas of limited supply such as regional areas, or when subject to operational imperatives such as requirements for lighting or location within transport nodes. The exception process that was part of the EEGO policy to support agencies that faced these challenges was seen to be useful prior to 2013. However, agencies have recently noted difficulties contacting and receiving advice on exceptions, highlighting the need for a robust and well managed exception system. The differential application of targets should be introduced to reduce reliance on the exception process. Specifying different targets for the Base Building and Tenancy rating will ensure that the best practical outcomes are still achieved.

Create greater flexibility in the use of GLS and targets

The primary objective of the GLS is the achievement and maintenance of the target NABERS rating. Feedback from many stakeholders is that the GLS adds additional impost in a number of instances where it is not required. This is often the case in high performing buildings with proactive building managers, where monitoring and exchanging energy use information with the tenant or their representative is a matter of course. In these instances, management elements such as the Building Committee Meetings (BCMs) and Energy Management Plans (EMPs) were of little benefit and often subsequently ignored. Providing greater flexibility for the management elements will reduce costs and impost to landlords and tenants. The requirements may also be dynamically adjusted based on the performance of the building, such that frequencies


of BCMs are only specified when the building falls below its target rating, and in doing so act as an additional incentive to comply.

Other recommendations

A final set of recommendations are provided which offer alterative pathways to improved environmental performance outside the functioning of the current GLS.

The use of green lease clauses instead of a schedule

There is no definitive answer to whether insertable clauses are a better format than a schedule for including environmental provisions in a lease. The approach taken by the BBP is to provide a document of insertable clauses. A similar document of insertable clauses may be formalised into an attachable, but modifiable schedule that can be attached in whole or part to the main lease document while retaining the ability to easily insert the clause into the body of the lease if preferred, or remove from the schedule if already in the body of the lease.

Consideration of additional clauses for environmental performance

Better practice in green leasing is to include a wide range of environmental (and even social) sustainability clauses. This is seen in the approaches taken across most state governments and landlords as well as the BBP and it is in this regard, perhaps more than any other, which the current GLS lags significantly. A number of Commonwealth agencies felt the absence of support for other NABERS and GreenStar targets in the current GLS was a missed opportunity. Future GLS should encourage and provide a framework for agencies to include as many additional elements as they desire.

Transfer accountability of tenancy ratings from tenants to landlords

The current dynamic of the GLS relies very heavily on a cooperative approach that makes positive outcomes very dependent on proactivity from both landlord and tenant. This is a source of frustration for some agencies and landlords who feel that the other side is not adequately engaged with one of their GLS. Landlords expressed a particular gripe around the reluctance of some tenants to acquire tenancy ratings. By transferring the accountability of the acquiring of these ratings to the landlord, proactive tenants are in a better commercial position to force landlords to obtain the ratings and landlords are in a better position to obtain the ratings on behalf of disinterested tenants.

Development and publication of cost-benefit analysis for GLS

A common concern from stakeholders is that the cost of managing the GLS outweighs the benefits of reduced outgoings which limits executive support. The Department of the Environment and Energy should consider undertaking a cost-benefit analysis of all elements of the GLS to better inform educational material and future Policy decisions.

Promotion of Smart Metering for Government tenancies

Separate digital metering is the most difficult element of the GLS to include when conducting lease negotiations. This is due to the perceived cost of retrofitting separate


meters in existing buildings. The metering is required however for obtaining NABERS Tenancy and Base Building ratings. Recently, Smart Metering has been put forward by some stakeholders as an affordable and effective option to install separate metering in older buildings. This should be investigated further and promoted in educational material for stakeholders.

The adoption of a consistent national approach to green leasing

The National Green Leasing Policy of 2011 was supposed to lead to a common set of GLS to be used by all State Governments; however, this didn’t eventuate. A nationally consistent framework developed with the State Government Property Group members as well as the BBP will help boost awareness and understanding as stakeholders only have to be familiar with a single approach. Working in close partnership with these groups will enable sharing of collateral such as the educational material and model clauses produced by the BBP.


1 Introduction

1.1 Overview

This report documents the outcomes of a review of the use and effectiveness of the current Green Lease Schedules’ (GLS) and its contribution to the outcomes of the Energy Efficiency in Government Operations policy (EEGO policy). The report also provides recommendations to the Department of the Environment and Energy (the Department) to improve future delivery of the green leasing element of the EEGO policy.

The GLS provide the legal and management framework for Commonwealth agencies (agencies) as tenants to work with landlords to achieve the Minimum Energy Performance Standards specified by the EEGO policy.

The review examined the use of the GLS by Commonwealth agencies as well as the use of similar green leasing frameworks by State Government coordinated procurement agencies. The review was informed largely by consultations with key stakeholders. Additionally, a literature review was carried out that examined approaches to green leasing taken in the Australian private sector and internationally.

The effectiveness of the current GLS was determined based on user feedback, benchmarking against better practice, and the experience of Grosvenor Management Consulting (Grosvenor) in conducting similar reviews.

1.2 Purpose of review

Governments should lead by example…action undertaken by governments on their own energy productivity can have flow on benefits to the economy, not only through energy and cost savings and emissions reductions, but through leadership and driving market development in related services and technologies. – Measure 12: Improve energy productivity in government operations of the National Energy Productivity Plan (Council of Australian Governments Energy Council, 2015)

This report forms part of the broader review and revision of the EEGO policy committed to by the Commonwealth under measure 12 of the National Energy Productivity Plan (NEPP). The NEPP was released at the end of 2015 by the Council of Australian Governments Energy Council and provides a framework and an initial work plan to achieve a 40% improvement in Australia’s energy productivity by 2030.

This report provides an evaluation of the past and current use and effectiveness of the GLS in the EEGO policy and proposes options to guide future GLS development. The report provides a broad overview of green leasing as a concept and the approach of the Australian Government under the EEGO. The use of the GLS is outlined and comparisons are made between other approaches to green leasing in local and international jurisdictions to determine better practice. A detailed summary of the


effectiveness of the GLS is provided together with recommendations designed to improve the development of future schedules.

1.3 Methodology

The review involved the provision of the following deliverables to the Department:

a review of academic and grey literature on green leasing practices across Australia and internationally. This literature review covered the following aspects:o history, application and impact of green leasing policieso green leasing approaches across other local and international

jurisdictions, in both the private and public sectoro drivers and barriers for green leasing

findings on the use and effectiveness of the current GLS in the EEGO as well as other green leasing approaches from consultations undertaken with stakeholders from a wide range of pertinent groups including:o Commonwealth agencieso landlords (both major and minor)o third party service providers including leasing agents, facilities

managers, and property lawyerso representatives from promotional organisations including NABERS, the

Better Building Partnership, CitySwitch, and the Green Building Council of Australia

o State Government coordinated accommodation procurement officers. this final report which summarises the use and effectiveness of the current

GLS and details options for improvement.

Recommendations to improve the GLS are aligned to overcome factors identified as barriers to effectiveness, and to support factors identified as promoting effectiveness.

Further details on the review methodology are included in Attachment 1.


2 Energy Efficiency in Government Operations policy

2.1 Policy overview

The EEGO policy was established in 2006 as an update of the previous Measures for Improving Energy Efficiency in Commonwealth Operations policy which was in place from 1997. The EEGO policy was designed to drive reduced energy consumption and emissions from agencies, with a particular focus on building energy efficiency, to achieve revised energy intensity portfolio targets by the 2011/12 financial year. The energy intensity portfolio targets were:

7,500 MJ/person/annum for office tenant light and power 400 MJ/m²/annum for office central services.

The EEGO policy provides an ‘enhanced proactive management framework’ for agencies to manage their energy consumption by specifying minimum energy performance standards (generally 4.5 National Australian Built Environment Rating System (NABERS) energy stars) in contracts for new buildings, major refurbishments and new leases over 2,000m2 (Department of the Environment and Water Resources, 2007).

The policy applies to all Australian Government departments and agencies covered by the Financial Management and Accountability Act 1997 and all agencies and statutory bodies covered by the Commonwealth Authorities and Companies Act 1997 (now covered by the Public Governance, Performance and Accountability Act 2013) and whose operations are substantially budget-dependent.

The administration of the EEGO policy has been the responsibility of multiple Departments since 2007, corresponding with Machinery of Government changes. The administration of the EEGO policy is currently with the Department of the Environment and Energy (the Department).

As part of the EEGO policy, agencies reported to the administering department via the Online System for Comprehensive Activity Reporting (OSCAR). A report was prepared and tabled in Parliament covering the energy use of the Commonwealth with the last report published covering the 2011/12 period.

While the policy remained in place, in July 2013 the monitoring requirements changed, OSCAR ceased and agencies self-managed compliance with no external reporting or monitoring.

2.2 The Green Lease Schedules

What is a green lease?


Green leasing is a relatively new concept that attempts to break the traditionally adversarial dynamic between landlord and tenant and encourage a cooperative approach to improving the environmental performance of a leased office space.

EEGO Green Lease Schedules

The GLS in the EEGO policy were designed to encourage a cooperative approach from the landlord and the Government agency tenant to work towards achieving the minimum NABERS Energy rating of 4.5 stars. The GLS sought to overcome traditional barriers such as the split-incentives dilemma by sharing costs and benefits of undertaking improvement works designed to improve energy performance.

The framework was designed to incorporate other sustainability outcomes including water conservation and waste reduction as desired by agencies. A GLS is required under the EEGO policy to be included in all commercial office leases above 2,000m2 with a lease term of over two years. The GLS template used depends on whether the lease is gross or net as well as what portion of the building is being let by the agency as this determines the type of NABERS Energy rating (Whole Building, Base Building, and/or Tenancy) required.

In all, eight GLS templates were created by the Australian Government Solicitor to provide consistency in lease agreements across agencies and to avoid the need for legal advice on individual green leases that were being offered by some landlords.

The policy does not require a GLS to be included in leases under 2,000m2. However, the tenanted area must be separately metered and a maximum of 8W/m2 for lighting must be achieved.

Drivers for green leasing

The drivers for green leasing vary between landlord and tenant and may be financial (such as reduced energy expenditure) or organisational (such as compliance with policy). From the perspective of the landlord the overarching incentive is for the building to achieve and maintain a high level of environmental performance, making the asset more attractive to tenants and as such, to investors. This objective often aligns with building owners’ corporate social responsibility policy, which in turn is part of their brand and market positioning.

For tenants, a green lease should result in cost savings from reduced energy consumption achieved as a result of improved building management. It can also contribute to an improved work environment with associated productivity improvements and staff retention. Similar to the landlord, leasing energy efficient office space may be a policy obligation or an organisational goal which in turn can be used to promote the organisation’s sustainability credentials.

Drivers for green leasing identified from the literature are further expanded upon in Attachment 2. Findings on current drivers from the consultations are included in section 3.1.5.

The GLS and their relationship to commercial leases


A commercial lease sets out the relationship between landlord and tenant and stipulates what responsibilities and costs are attributed to each party. In return for quiet enjoyment of the premises, tenants pay rent to landlords. Landlords are typically responsible for the building common areas, building structure and essential services. Leases may be a form of either gross lease or net lease. Under gross leases, costs of utilities are not separated from rent. Under net leases tenants are billed separately for their utility use.

The split-incentives dilemma occurs when those responsible for paying energy bills, say the tenant in a net lease, are not the same entity as those required to make the capital investment in a building to reduce energy consumption, usually the landlord. As a result, landlords are often disinclined to make the necessary capital upgrades to building services when the energy cost savings will accrue to the tenant. Equally, tenants are not motivated to invest in improving the landlord’s building when the full benefits in the form of reduced energy costs are enjoyed well beyond the term of the tenant’s lease.

A green lease provides a vehicle for tenants and landlords to reach and maintain a high level of environmental performance for the building by sharing costs, benefits and accountability. While the literature review found that there is no single definition of what constitutes a green lease, the following elements were found to be common across all approaches:

mutual agreement – recognition of the principles of a collaborative approach and a commitment to sustainability. This also covers the cost sharing arrangements

targets or benchmarks – to be achieved by both or either party. These may be absolute, such as a percentage reduction of energy, or to a ratings system such as NABERS or GreenStar in Australia

sustainability management – these may support the targets or be unrelated guidelines for the design and use of the building in a sustainable manner

cooperation mechanism – articulation of the processes by which the sustainability goals will be collaborated upon, this includes a communication framework of meetings or systems to share relevant data and develop plans for improvements. This may also include elements that stipulate a more cooperative remedial action or dispute resolution process.

In Green Leases: The Next Step in Greening Commercial Buildings (Brooks, 2008) two approaches to green leasing are described:

paternalistic - where sustainability obligations are mandated in the lease by either the tenant or the landlord (may be either tenant paternalistic -often due to their need to comply with policy or landlord paternalistic – to reach organisational goals)

cooperative - where sustainability objectives are included in the lease with mutual responsibilities and liabilities for both parties (where both parties have an interest in strong environmental performance of the building).


The GLS in the EEGO policy are designed as cooperative. While green leasing was of interest to some landlords when the EEGO policy was released in 2006, the majority included GLS to appease the tenants. In this regard, the GLS could be seen as tenant paternalistic. Subsequent leadership from more progressive landlords has now shifted the dynamic; landlords are more willing, and in rare instances, they push tenants to achieve environmental targets.

Dynamic between tenant and landlords

The impact of the GLS in the EEGP policy on the market is a function of the successful inclusion of GLS into leases by agencies and their enforcement of the provisions of the GLS, including their adherence to the GLS as tenants. Consequently, supply and demand factors in the market have a strong influence on how much engagement landlords will have with the GLS. Landlords will weigh the benefits of acquiring a Government tenant and the associated benefits of complying with a GLS, against any perceived impost of complying. In markets where demand for office accommodation exceeds supply, landlords may be insufficiently motivated to agree to the inclusion of a GLS.

There are generally limited incentives for a landlord to force green lease requirements onto a tenant, as this may conflict with their objective for tenant satisfaction and/or impact the likelihood of the tenant renewing their lease. However, if landlords perceive an opportunity for mutual benefit they will seek to gain funding for capital improvement works that reduce tenant outgoings and in doing so, improve the future desirability of their building (as well as boosting their environmental credentials and ratings that are important for investors such as the Global Real Estate Sustainability Benchmark and Dow Jones Sustainability Index). Currently, the GLS in the EEGO policy do not provide a strong mechanism for ongoing improvements beyond maintaining the initial required NABERS Energy rating.

2.3 The Commonwealth as a tenant

According to the latest Australian Government Property Data Collection (PRODAC) data, the Commonwealth occupies 2,343,487m2 of useable office accommodation across Australia (Department of Finance, 2016) of which 93% is within the Australian Capital Territory (ACT) and major cities. This accounts for around 10% of the total office space nationally and 56% of total office space in the ACT. Of this, 97% of the office space occupied is leased, with around 621 leases over 500m2 making the Commonwealth the single biggest tenant in Australia with substantial power to influence the market. By comparison, the New South Wales (NSW) and Victoria (Vic) governments lease around 1,800,000m2 of office accommodation combined.

Key findings from EEGO policy review

Data from the 2011/12 Energy Use in the Australian Government’s Operations report revealed that office building energy use accounted for 18.5% of Australian Government energy use and 24% of its emissions (after excluding Defence operational fuel). The report also revealed that the Commonwealth successfully met the Tenant Light and Power Energy use target of 7,500MJ/person/annum, as shown in Figure 1.


Conversely, almost no headway was made towards achievement of the Central Services Energy use target of 400MJ/m2/annum, as shown in Figure 2, which reflects Base (and a portion of Whole Building) NABERS Energy ratings.

While the EEGO policy specifies a NABERS Energy rating of 4.5 stars as a minimum, the average rating across agencies office accommodation in 2017 is 4.3 stars for leases over 2,000 m2.

The total annual energy spend by the Commonwealth is significant and according to the EEGO Policy End of Term Review (ACIL Allen, 2011) if it had met the EEGO policy targets ahead of schedule (by 2008-2009) it would have saved almost $12M in energy costs by 2011.

The targets of reduced energy consumption not only assist with reducing emissions and saving money, but also promote the Commonwealth as an employer of choice by showing leadership in this regard.

Figure 1 - Australian Government Office - Tenant Light and Power Energy Use and Intensity 2001-02 to 2011-2012 (Department of Resources Energy and

Tourism, 2013)


Figure 2 - Australian Government Office - Central Services Energy Use and Intensity 2001-02 to 2011-2012 (Department of Resources Energy and Tourism,

2013)

The EEGO Policy End of Term Review (ACIL Allen, 2011) concluded that “EEGO policy has been highly effective in demonstrating the benefits of a GLS” but that the policy had been less successful effecting change in older buildings. The report highlighted the importance of the support offered by the Department to provide training and ongoing administrative assistance to agencies engaging with the EEGO policy.

Additionally, the ACIL Allen review found that the reporting arrangement was not effective in supporting the aims of the EEGO policy as it was a burdensome process which added to a number of other reporting requirements faced by Commonwealth agencies. On the GLS specifically, the ACIL Allen report made the following recommendations:

the GLS should seek closer alignment with the National Green Leasing Policy

adjust or remove the set NABERS ratings the GLS require for older buildings

formalise the support provided to agencies to enhance their capacity to negotiate GLS

promote the GLS benefits and requirements in regional property markets where supply challenges are a recurring issue

focus the GLS on the achievement of outcomes and provide flexibility in the process to obtain these.

The ACIL Allen report also suggested that a future EEGO policy may include water and waste targets in its scope.

The recommendations from the ACIL Allen review were largely consistent with the themes that emerged from the literature review and stakeholder consultations undertaken as part of this review.


2.4 EEGO policy and the broader policy environment

The EEGO policy does not operate in isolation of other energy efficiency policies. Programs such as the Commercial Building Disclosure program have influenced the market that the EEGO policy operates within. The GLS also rely on the NABERS rating scheme and may in future expand to include other schemes such as Green Star ratings. An overview of related policies and programs and their interaction with the EEGO policy and the GLS is provided below.

Table 1 - Overview of policies and programs relating to the EEGO policy and green leasing

NAME INTRODUCED TARGET TYPE

NABERS (formerly AGBR) 1998 Commercial buildings Rating Scheme

Green Star 2003 Commercial buildings Rating Scheme

Energy Efficiency Opportunities Program (closed 2014) 2006 All government buildings

and leases Program

National Green Leasing Policy 2009All Australian state and territory government leases over 2,000 m2

Policy

Australian Government Property Data Collection (PRODAC)

2009

All non-corporate commonwealth government buildings and leases over 500 m2 in Australia

Program

Commonwealth Property Management Guidelines (CPMG)

2009 All Commonwealth property Policy

Commercial Building Disclosure Program (CBD) 2010

Commercial buildings over 2000 m2 (over 1000 m2 will be introduced in July 2017)

Program

2.4.1 National Australian Built Environment Rating System (NABERS)

NABERS is a national rating scheme administered by the NSW Office of Environment and Heritage that measures the environmental performance of Australian buildings. It facilitates ratings of Energy, Waste and Indoor Environmental Quality as either a Tenancy, Base Building or Whole of Building rating and Water ratings as Whole of Building only. These ratings allow a distinction between the environmental impact of a building's shared services and its tenancies, and are used in the GLS depending on the portion of building occupied under the lease.

NABERS ratings are based on energy performance rather than the design of the building, with assessments carried out by third party accredited assessors based on verifiable data including utility bills. The ratings range from 1 star (poor) to 6 stars (market leading).


NABERS was formerly the Australian Building Green House Rating (AGBR) prior to 2008 and is mentioned as such in the EEGO policy as the minimum performance standard to be met in most Government buildings. NABERS Energy ratings for Base Buildings are consistent across all green leasing approaches in Australia and Water and Waste are supported by most.

2.4.2 Green StarGreen Star ratings are a sustainability rating system for buildings, launched in 2003 in Australia by the Green Building Council of Australia. Green Star assesses the sustainability of projects at all stages of the built environment lifecycle.

Ratings for buildings are available at the design stage and post-construction phase (Design and As-built ratings), for interior fit-outs (Interiors ratings), as well as ongoing operational performance (Performance ratings). Ratings range from one (minimum practice) to six (world leadership) for performance and from three (good practice) to six (world leadership) for the others.

Green Star certification is a formal process in which an independent assessment panel reviews documentary evidence that a project meets Green Star benchmarks within each aspect, similar to the NABERS accreditation approach.

Green Star provided the first opportunity in Australia to assess buildings designs and interiors against environmental performance measures and benchmarks. While not directly incorporated into the EEGO policy and accompanying GLS templates, Green Star ratings are popular across Australia. These are usually Design and As-Built and Interior ratings; Performance ratings are seen to overlap with the NABERS ratings and be more onerous.

2.4.3 Energy Efficiency Opportunities

The Energy Efficiency Opportunities program was established in July 2006 with the implementation of the Energy Efficiency Opportunities Act 2006. The program aim was to improve the identification, evaluation and implementation of energy efficiency opportunities by large energy-using corporations.

The program was mandatory for corporations that individually, or as part of a corporate group, used energy beyond 0.5PJ per financial year. In 2012, the program introduced voluntary participation for medium-energy users.

The program had a strong focus on improving energy use in a business, bringing benefits in productivity, competitiveness and greenhouse gas abatement. Reporting on energy use was mandatory for large corporations. The program was closed from June 2014 as a result of the Australian Government’s commitment to reduce costs for business and as part of its deregulation agenda.

2.4.4 National Green Leasing Policy

The National Green Leasing Policy (NGLP) was developed by the Council of Australian Governments Ministerial Council on Energy and the Government Property Group (GPG) of the Australasian Procurement and Construction Council as a nationally consistent green leasing policy. The NGLP aimed to establish consistency across


jurisdictions with flexibility to accommodate the specific policy settings of each jurisdiction, and enhance the provision of tools and information to boost green leasing uptake in private and public sectors.

The NGLP was based on, and is similar to, the GLS under the EEGO policy. Originally an NGLP-specific GLS was to be developed at the same time as the NGLP itself. However, disagreements between the state GPG representatives meant that this never eventuated.

2.4.5 Australian Government Property Data Collection (PRODAC)

The PRODAC database was established in 2009 and is administered by the Department of Finance. It was established to provide a central database on the office space leased and owned by the Australian Government. All Non-Corporate Commonwealth Entities are in scope of the PRODAC data collection and report on a biannual basis information relating to their building and leases.

The PRODAC information is used by the Commonwealth to identify better practice, improve the management and use of office space and inform property policy. Published reports have focused on the PRODAC occupation density target; however, there may be scope for the system, or a similar online reporting tool, to be used to monitor the achievement of the EEGO policy intent and GLS compliance, as discussed in section 5.1.1.

2.4.6 Commonwealth Property Management Framework (CPMF)

The CPMF applies to all properties within Australia that are owned or leased by agencies. The framework includes a set of policies that focus on value for money, property management planning, efficient and effective design, appropriate accountability measures and cooperative Commonwealth property management.

A series of guidance documentation is provided including RMG 504 - Commonwealth Property Management Framework Lease Endorsement Process, which currently does not include sustainability considerations. RMG 506 - The Flexible and Efficient Workplace Design Guidance does mention the EEGO policy though it is inaccurate in part of its description of the requirements of NABERS ratings requirements for Base Building and tenancy (tenancy is incorrectly titled ‘fitout’ in the document and it proceeds to describe what is more aligned with a Green Star Interiors rating). There is scope to integrate the requirements of the GLS more clearly in these CPMF documents.

2.4.7 Commercial Building Disclosure (CBD) Program

The CBD program was introduced under the Building Energy Efficiency Disclosure Act (2010). It requires landlords to obtain a Building Energy Efficiency Certificate (BEEC) and disclose this information when selling or leasing office space greater than 2,000m2 (1,000m2 from July 2017).

BEECs include the building's NABERS Energy Base Building rating (without GreenPower) and a tenancy lighting assessment of the relevant area of the commercial building. Full


mandatory disclosure commenced on 1 November 2011 after a one year transition period during which obtaining and disclosing a NABERS rating was the only requirement. Penalties for nondisclosure are up to $170,000.

The impact of Mandatory Disclosure on mid-tier buildings (defined as B, C and D Property Council of Australia Graded buildings) has been significant.

According to the 2013/14 NABERS annual report, the "CBD successfully captured segments of the office market (predominantly the mid-tier) that previously had limited engagement in energy efficiency". The report noted that many buildings affected by the CBD program were notably different from those that had previously obtained NABERS ratings. There was an increase in smaller buildings and a higher proportion of buildings from outside capital cities’ central business districts, and additionally those that typically perform lower than the rest of the office market in terms of energy efficiency.


3 Findings on the use and effectiveness of the current GLS

Overall, the GLS were found to be a key contributor to the achievement of EEGO policy outcomes for the following reasons:

adoption of GLS has contributed to an improvement in energy efficiency in government accommodation, and the average NABERS Energy rating across Commonwealth agencies offices is close to the target of 4.5 stars

the GLS have informed leading international practice, expanding the reach of the importance of improved energy efficiency

the longevity of the EEGO policy has helped awareness and understanding amongst landlords, who have in turn acquired and met NABERS ratings targets

the GLS provide a good opportunity to begin discussions around energy improvements and to factor into negotiations between landlords and tenants

the use of the NABERS rating is a well-recognised and easily communicated metric

the management framework of the GLS is viewed by stakeholders as comprehensive and having the potential to support collaboration between the landlord and tenant.

Despite these achievements, the review identified multiple issues impacting the use and effectiveness of the GLS in contributing to the achievement of EEGO policy outcomes. These are explored in detail below under the following headings:

process of establishing a green lease ongoing management of a tenancy under a green lease monitoring and reporting of compliance/performance under a green lease.

3.1 Establishing a green lease

Establishing a green lease is the first step to realising the outcomes of the EEGO policy. Including a GLS in a lease contract initiates dialogue between tenant and landlord to work together to improve the energy performance of a commercial building.

3.1.1 Approaching the market

Upfront notification to potential landlords of the intention to include a GLS in a lease during an approach to market activity was viewed as essential by both landlords and tenants. The review found that almost every Commonwealth agency and State Coordinated Procurement Team include the GLS requirements in their approach to market. Where agencies were found not to include the GLS requirements in their approach to market, the following reasons were provided:

variable awareness of the EEGO policy – a small number of Commonwealth agencies’ leasing managers were unaware of the existence of the EEGO policy and the GLS. Some mistakenly believed the policy had ceased after the conclusion of centralised monitoring in 2013. Numerous stakeholders from


both landlords and agencies also stated that the cessation of centralised monitoring and reporting was taken as a sign of reduced importance of the GLS, which in turn impacted their ability to gain executive support within their organisation.

limited cost/benefit in complying with the policy – the additional costs born in rental premiums or management time expended in complying with elements of the GLS are considered by some agencies to be greater than the benefits that accrue. Agencies were found to renew leases even where they knew the ratings could not be met. The priority placed on inclusion of a GLS was found to vary between, and at times within, agencies, with some property managers reporting frustration with the lack of executive support for GLS inclusion. One representative from an agency that doesn’t use GLS or obtain ratings stated that “utilising the GLS is very labour intensive”.

low likelihood of compliance – because of a perceived lack of flexibility of the GLS to align with operational requirements, a number of agencies chose not to attempt to include a GLS as they felt they would struggle to meet the requirements.

3.1.2 EEGO awareness and the link to GLS

Institutional landlords are now largely aware of the existence of the EEGO policy and the requirements of the GLS. This increase in awareness of the EEGO policy has meant agencies have found it increasingly easier to include the GLS. Many of the largest institutional landlords now have their own policies on green leasing, with some now viewing the GLS in the EEGO policy as a barrier that restricts dialogue and constraints the parties from going above and beyond the targets. Most of the commentary around this was based on the lack of scope of the current GLS in only targeting NABERS Energy and not including other environmental or social initiatives. In this regard, the review found that these landlords had moved beyond the GLS and were, in their opinion, implementing more sophisticated green leasing provisions.

In contrast, smaller landlords, particularly those in regional areas, have less awareness of the EEGO policy and the GLS, which presents a challenge faced by agencies with regional offices.

Awareness and understanding of the GLS was complicated, particularly for landlords, by the lack of consistency of green leasing approaches across the Federal and State Governments. A number of stakeholders, including property lawyers, leasing agents and facilities managers, also identified this issue and believed that the introduction of a nationally consistent framework would boost awareness, understanding and take up of green leasing across the market.

3.1.3 Complexity of the GLS as a barrier to inclusion

The size and complexity of the GLS documentation was found to hinder engagement by both landlord and tenant stakeholders. One stakeholder stated that the size of the GLS and energy management plan (EMP) templates “catch unfamiliar landlords off guard”, with another stating that they are “boring, too wordy and too intimidating in their size and detail”.


Stakeholder feedback was that the bland form, formal structure and considerable length of the GLS result in a lack of understanding which in turn results in the GLS being watered down or often negotiated out completely. Separate guidance documentation linked to and provided on the EEGO policy webpage were found to be not regularly used by agencies or landlords.

There are costs associated with the complexity of the documentation. Lease negotiations can be protracted and ‘legal fatigue’ sets in, with property lawyers who are unfamiliar with the GLS charging for examination and redrafting of the schedules. To mitigate this, some leasing agents and agency service providers have produced condensed summaries of the GLS which are included when approaching the market. Feedback confirmed that these summaries have been well received for their improved readability when compared to the GLS.

The view of many stakeholders from both agencies and landlords is that a shorter, clearer document that sets out the targets, how they will be measured and how they will be reported will improve understanding and reduce cost to agencies.

3.1.4 Lack of agency experience with GLS

Agency appointed service providers acting as leasing agents are relied upon by many agencies as the experts in GLS, as many internal representatives within agencies are not sufficiently exposed to the GLS. Only 10% of the surveyed stakeholders from agencies rated themselves as having high direct experience with the GLS, and only 30% as having a high understanding of the EEGO policy.

Additionally, many of the stakeholders consulted did not have a background in property or building management, limiting their effectiveness in negotiations and effecting internal change where necessary to implement GLS requirements. The involvement of agencies’ property managers in establishing the GLS varies between agency based on their familiarity with the GLS, as well as the scope of the engagement of their service providers. In many cases service providers are responsible for notifying and informing the landlords of the requirements of the GLS when agencies approach the market. The service providers also handle the ongoing management of the GLS, such as representing their agency at the Building Committee Meetings (BCMs).

3.1.5 The importance of cost

Tenant drivers

Table 2 evaluates the drivers for energy efficient accommodation as described by agency stakeholders.

Table 2 - Drivers for energy efficient accommodation from agency stakeholders

VOTES

DRIVER

8 Lower cost of outgoings

4 Compliance with Government policy (seen to have reduced importance


now)

3 Environmental benefits / responsible corporate citizenship

2 Improve building stock

1 Improved quality of accommodation

1 Show leadership in the market

There is clear consensus that any measures proposed by landlords to improve building performance must primarily result in reduced outgoings. As one agency stakeholder stated, it comes down to “cost and only cost, can’t get it through any other way with management”.

As electricity prices rise the cost savings will become more significant. Equally important from recognising the importance of cost as a driver or barrier is that any additional costs of complying with GLS must be offset by reduced outgoings. This is currently viewed as an issue by some agency stakeholders who see the cost incurred as a result of complying with the GLS as greater than the cost saving benefits that accrue.

Stakeholders advised that compliance with the EEGO policy is seen to be of reduced importance, with one stating “originally compliance with the EEGO was driving the building landlords, no longer really an issue as savvy landlords have their own clauses and are driving us now”. The consensus from both landlords and tenants is that the cessation of centralised reporting signalled reduced importance of the EEGO policy to the Commonwealth and correspondingly the inclusion of GLS is no longer prioritised.

Landlord drivers

For landlords, the key driver will always be securing tenure and if that means complying with the EEGO policy then it is in turn a strong driver. Government tenants are highly valued as they are considered a very low risk for tenancy default and often enter into long duration leases. According to a property lawyer the introduction of the EEGO policy “scared landlords (as they believed) that they couldn’t get a Government tenant without a NABERS rating”.

3.1.6 Supply and operational barriers

Many agencies face challenges incorporating GLS in regional areas where there is limited supply of suitable office accommodation or where they face other operational challenges. The EEGO policy was seen as inflexible in the structure and application of the GLS to sufficiently respond to these challenges. This hinders agencies from achieving the best practical outcome and as a result GLS are regularly modified to reduce perceived compliance risks and costs to both landlord and tenant. In some rare instances, the GLS are consciously ignored by agencies.

Weakened negotiation positions

Even if included in an approach to market, the inclusion of a GLS in the final lease documentation often comes down to the relative strength of the negotiating position


of the tenant. This position is much weaker when faced with limited supply. As such supply constraints are a major barrier to establishing a green lease, consistent with the findings in the EEGO Policy End of Term report (ACIL Allen, 2011). This is more common in regional areas, and often further constrained by operational requirements such as proximity to a transport hub or minimum lighting intensity.

In regional areas, agencies often have to deal with fewer and lower grade buildings, as well as landlords who are:

less familiar with the EEGO policy and GLS less willing to invest in understanding a GLS insufficiently motivated to upgrade a building to meet the GLS requirements.

The knowledge that agencies have fewer choices in these circumstances impacts how forceful they can be in their pursuit of GLS inclusion. Equally, short term leases or leases where the agency is not the major tenant weaken bargaining power.

These barriers have, however, been overcome in some instances. The Department of Human Services (DHS) have GLS attached to all 51 of their currently applicable leases, despite the geographically diverse and regional nature of their portfolio. Stakeholders from DHS have cited strong executive support which is based on reducing energy use, and consequently outgoings.

Limited leverage over intractable landlords means that mutual benefits and the collaborative nature of the GLS must be clearly highlighted from the outset, and clearly understood by the tenant to foster such a discussion.

In some jurisdictions, the State Government (as a tenant) has paid for upgrades to leased buildings to facilitate the inclusion of GLS. While this may result in some cost savings for the tenant from reduced outgoings, the landlord is the main beneficiary as they have improved their asset and increased the attractiveness of their building to the market. In these circumstances, some State Government tenants have then committed themselves into a long-term commitment to that building to justify the investment over a longer payback period. The views of the State Government property representatives confirmed that this approach should be avoided wherever possible unless a business case can be made that demonstrates that expenditure on the upgrades will be cost neutral or positive over the tenure of the lease.

Government programs as a barrier

Programs such as Operation Tetris, Machinery of Government changes and subletting arrangements have introduced challenges where agencies may inherit, or be encouraged to enter into, lease agreements in office space that will not enable them to include a GLS. One agency representative proclaimed “we start with the best intentions then inherit a building that cannot comply”.


3.1.7 Exceptions

In some buildings, it is not practical or cost effective to meet the GLS requirements. The EEGO policy recognised this and has an exceptions provision to allow for lower ratings due to factors such as location, heritage, security or operational constraints.

While there exists a history of agencies applying for exceptions, many stakeholders reported that these are no longer pursued. While data of the specifics of exceptions is not available, stakeholders reported that they have recently found it difficult to contact the Department for support with the process.

This is in contrast to pre-2013 changes where policy officers from the Department were available to provide support, and their facilitation of the exception process was seen as helpful and successful.

3.1.8 Negotiations

Nature of negotiations

The GLS provide a framework for agencies to approach the market with a clear intention. As a Commonwealth tenant the EEGO policy supports the agency’s negotiating position and the GLS initiates the discussion during negotiations around building energy performance and, if required, improvement works.

As previously highlighted, increased awareness of the policy has resulted in an increase in the ease of GLS negotiations for some stakeholder groups. However, the relative willingness and negotiating positions of both the tenant and landlords ultimately determine how the GLS is included and in what form.

The NABERS rating element is an easy measure to communicate to all stakeholders and sends a strong signal to the market that the Commonwealth is committed to improving the energy efficiency of the buildings it occupies. The energy performance of building stock has improved over the last decade and most new, high grade buildings meet the NABERS Energy rating requirements. In negotiations for these properties, the ratings targets were not a critical point in negotiations. Landlords, however, are “not as familiar with the other (non-NABERS) requirements which takes a bit of negotiating to get into the lease”.

Negotiating parties / representatives

Some agencies conduct the approach to market and negotiating process entirely without external assistance, however, as mentioned above, in many situations agencies rely heavily on their existing service providers who act as both leasing agents and facilities managers. As stated earlier, service providers as property experts will typically have a greater level of expertise and knowledge of GLS than agency representatives.

Landlords and tenants observed that service providers and property lawyers sought to negotiate down the requirements of a GLS to ensure minimal liabilities to provide “protection” for their client and reduce risk. This was seen by the tenants to be the


result of the landlords’ property lawyers; and conversely seen by the landlords to be the result of the tenants’ service providers.

Despite this, the expertise of the service providers around what is achievable or reasonable and their involvement during negotiations was cited as essential and their role should be understood and recognised when developing educational material.

The upcoming mandatory whole of Australian Government co-ordinated procurement arrangement for property services that will cover leasing and facilities management services is predicted to provide greater consistency in this regard in future.

3.1.9 GLS overly specific

The GLS are viewed by many stakeholders as being unnecessarily specific, particularly in regards to supporting elements such as the BCMs and Energy Management Plans (EMPs). The GLS could benefit from increased focus on the target requirements, while providing more flexibility in how the targets are achieved.

The specification of meeting intervals for BCMs were seen as onerous and adding little value. Stakeholder feedback confirmed that building management activities including BCMs and EMPs should be encouraged where appropriate, but left up to the agencies to implement where necessary.

Similarly, the dispute resolution element of the GLS was seen to be overly specific and complex with no tangible benefit. It was often removed in favour of the provisions contained within the main lease document, primarily to allay concerns of landlords, as part of a number of contract negotiation that regularly occur before GLS are included in contracts.

3.1.10 GLS modifications

Every agency consulted uses the Commonwealth National Lease (CNL) which has provisions for attaching one of the GLS. In many situations, schedules were modified during the course of negotiations. The most common modifications were:

removal of separate metering requirements – this is consistently seen to be the most challenging to include and was often removed. Particularly problematic in older buildings where it is perceived to be too expensive to install

removal of Tenancy rating requirements – this is primarily where lack of separate metering meant that acquiring a separate audited Tenancy rating was impossible

removal of remedial action and dispute resolution clauses - in favour of the dispute resolution clauses of the base lease. The definition of an expert is sometimes modified upon request of the landlord to be more specific in the professional credentials, with specific experience required

removal of BCM frequency - due to the cost of running the meetings and the belief that they added little value. In some instances, the frequency of meetings was reduced and in a smaller number of leases, the requirement for BCMs were removed altogether

softening of obligations on both sides – this involves altering phrases such as the inclusion of the word ‘reasonable’ and removal of ‘all’ and an overall shift so that


both parties see it as ‘best endeavours’ which is seen to be less of a compliance risk

amendments to the structure of the GLS – in some instances, the structure of the GLS is changed from a schedule to a set of clauses that are inserted into a standard lease document.

3.2 Managing property under a Green Lease Schedule

The second key activity considered in the review is the impact of GLS on the ongoing management of a leased property. Ongoing management is important in both lower rated buildings, where the opportunity for energy efficiency gains are high, and in higher rated buildings, where management of the building can have a strong impact on ratings.

This section considers how effective the GLS are in encouraging landlords and tenants to engage, and includes analysis on each of the key elements stipulated in the GLS.

3.2.1 Engagement

Many stakeholders saw the GLS as being a “people centred approach” rather than a hard, technical approach. Successful inclusion is sometimes a result of the strength of conviction of the negotiating individual as to the merits of building environmental performance on either the tenant or landlord side. The ongoing success of the GLS is highly dependent on motivated individuals on both sides who possess a solid understanding of GLS and building management practices.

Often the establishment of a green lease is characterised by substantial initial activity and enthusiasm however, the enthusiasm was seen to quickly fade. This was found to be accurate across both Federal and State government agencies. It was concluded that often “people agree to the lease, it’s in the contract, then nothing happens”. The success of GLS is therefore heavily dependent on the engagement of key individuals on both landlord and tenant sides; this is particularly so due to the absence of a strict compliance regime.

Staff involvement

Agency staff, responsible for the ongoing management of GLS, are often not involved in the negotiation of a lease and were viewed by landlords and service providers as often having limited influence within their organisation to pursue funding or implement change. In frustration, landlords claimed to have at times, requested different attendees at BCMs to overcome this issue. Often, agencies also hand over all responsibility of GLS to their service providers who are more knowledgeable in the matter but have less influence within the tenant’s organisation. Staff churn in Government only adds to this as there is a loss of building knowledge and delay in re-establishing relationship with a landlord’s representatives and/or an agency’s service provider.

Landlord engagement


While challenges do exist, landlords are generally prepared to match the enthusiasm of their tenants. However, they have little incentive to engage when they believe the tenant will not initiate a remedial action plan or dispute resolution process. Additionally, many landlords ceased the pursuit for cooperative building improvements after initial attempts were unsuccessful.

3.2.2 Perception of unimportance

Representatives of both landlords and agencies felt that the cessation of centralised reporting signalled reduced importance of the GLS to the Commonwealth.

Representatives believed this has strongly influenced reduced engagement, particularly in senior executive ranks within agencies. Agency representatives believe that there is currently insufficient motivation to engage senior executives to commit to funding for building upgrades or organisational change to improve tenant energy use. In some instances, this extends to not putting resources towards other GLS’ elements such as BCMs.

Not a single agency reported that compliance with GLS targets was reason enough to secure funding, with one stakeholder stating “it is not good enough just to point to EEGO and ask for funds”.

Landlords complained that even if they presented a strong business case for an upgrade that is cost neutral over the term of the lease (or less), the business case is rarely taken up. Some landlords consulted stated that they would like to see formalisation of a process for submitting and reviewing business cases included within the GLS. Typically, building upgrades that do occur were stated as being limited to LED lighting and IT-related projects. The inability to motivate change leads to fatigue in the parties involved on both landlord and tenant side. Engagement is then further reduced with declining attendance at BCMs and EMPs no longer updated.

3.2.3 Administrative costs

The perceived administrative costs and burden of administering the GLS are another major obstacle for ongoing adherence to elements of the GLS.

Costs associated with managing elements of the GLS such as facilitating ratings, attending BCMs, gathering and sharing data, and developing EMPs, are considered significant. During consultation, a procurement officer claimed that there were “staggering costs when quantified” paid to their service providers and incurred internally. Some stakeholders identified that reduced outgoings should offset costs of managing GLS, however most agreed that this would not be cost-neutral. Investigating the costs of administering GLS will enable a more informed decision to be made for their inclusion.

3.2.4 NABERS ratings

The NABERS Energy ratings are consistently claimed by stakeholders as the most important element of the GLS. In practice, targets are often met on new, high grade


buildings but difficult to reach in older, lower grade buildings without significant investment from the landlord.

Tenancy ratings

Tenancy ratings are NABERS assessments of the tenant’s energy performance and are required as part of all GLS except when the tenant occupies 100% of the building.

These are a constant point of irritation for landlords and some more proactive government agencies. Some agencies see tenant ratings as unimportant, difficult to meet, and costly to comply with. Anecdotally many landlords felt that agencies subsequently do not obtain ratings or meet their tenancy targets, though there is limited data to validate this and the targets reached by the Commonwealth for Tenant Light and Power use in the 2011/12 Energy Use in the Australian Government’s Operations report suggests this may be unfounded.

State Government coordinated procurement officers found a number of their tenant’s consistency failed to achieve the tenancy ratings, which has only reinforced negative sentiments across the industry. The review found that tenancy ratings are not obtained or met due to a number of factors including:

occupancy density reductions – these are often out of the control of the tenant due to machinery of government changes and result in less occupants in a space with a subsequently worse tenancy rating

an inability to effect internal change – tenant representatives often do not have sufficient influence within their agency to change the behaviour of tenants to improve the energy efficiency of their space

a lack of negative outcomes – the absence of enforcement or negative outcomes hinder the willingness of tenants to comply and meet their tenancy rating targets

a lack of landlord power – the landlords have little ability or incentive to motivate compliance from their tenants

the cost of ratings – a State property officer reported “some Departments aren’t getting their tenancy ratings due to the cost of getting the reporting and monitoring sorted”

the absence of separate tenancy metering - analysed further in section 3.2.5.

When rated as a Whole Building (Base Building plus Tenancy areas), some landlords blamed tenants for lower ratings however without adequate tenancy metering there is little transparency around the real cause. The operation of a tenanted space such as after-hours air-conditioning can also impact the Base Building rating. The absence of, or failure to meet, Tenancy ratings lead to a perception of one-sidedness by landlords and undermines the collaborative ideals of the GLS.

Current ratings scope

The focus of the current GLS on NABERS Energy only is a source of frustration for some agencies and landlords who desire, and in some cases, have implemented, broader environmental targets such as NABERS Water and/or NABERS Waste. Representatives


from proactive landlords and agencies expressed a strong interest in the inclusion of these additional optional elements within a future GLS.

3.2.5 Separate digital metering

Separate digital metering is viewed as the second most important element of the GLS, as they are required for obtaining NABERS Energy tenant and Base Building ratings. Unfortunately, separate metering is consistently stated to be the most difficult to include in leases, as the cost of installation is too great for most landlords to retrofit.

Anecdotally, it was reported that there were occasions when auditing was conducted on metering that discovered incorrect meter installation, leading to a substantial refund to tenants for electricity wrongly billed to them.

Recent advances in smart metering (digital wireless metering) may present an opportunity to install separate meters in a cost-effective manner and facilitate automatic data sharing between landlord and tenant. These smart meters can monitor and report energy use automatically to an online database that could be accessed by both the tenant and landlord. Education of stakeholders on the cost and benefits of smart metering may help boost inclusion of separate metering clauses in leases which will allow tenants to acquire ratings.

Compulsory reporting of the Tenancy ratings may help drive attainment of the targets. Additionally, transparency around tenancy and base building power consumption will improve the dynamic between landlords and tenants.

3.2.6 Building committee meetings (BCM)

BCMs are helpful in prompting stakeholder involvement and initiating dialogue between the landlord and tenant. These meetings also provide an avenue for dispute resolution with discussions held between key stakeholders to resolve issues without referring to the GLS.

Stakeholders advised that issues which negatively impact BCMs include:

challenges maintaining ongoing attendance – both parties claim representatives from the other side end up not attending after the initial few meetings

misaligned levels of commitment - proactive landlord or tenant representatives experienced frustration if their engagement is not reciprocated

meetings misused or poorly managed – even if regularly held they are not always productive if strong leadership doesn’t exist. As stated, “…many people just go to the meetings to chat and get away from their usual work”

agencies not prepared or not interested in supplying data – landlords expressed frustration at the lack of energy usage data provided by some agencies even when separate metering does exist

perception of being costly – the view of many agencies is that BCMs are an unnecessary expense, particularly in instances where there is little change arising from the regularly held meetings.


Open communication between landlord and tenant is part of good building management. BCMs are therefore regularly seen as redundant by proactive facilities management providers and landlords, because they meet as a matter of course without the need or formality required for a BCM’s under current GLS. Similarly, meetings are considered to be of limited value in new buildings where ratings are consistently met and information is regularly shared between landlords and tenants via email or online. This has led to some agencies now applying their own dynamic approach where meetings are only held if the ratings are not met.

3.2.7 Energy management plans (EMP)

An EMP is designed to support the maintenance of the NABERS rating by setting out a plan that details responsibilities on both sides and documents strategies for the ongoing achievement of the NABERS rating. Under the GLS in the EEGO policy, EMPs are required to be developed by the BCM and both parties are required to work towards the plan and report annually on their achievements against the plan. EMPs are viewed by all stakeholder groups as being of mixed importance and are not considered effective in driving change.

Adjustments to promote brevity to the EMP templates provided by the Department have been widely accepted. The key ratings targets and metrics are up front, with the broader information in the annexures. However, there is often overlap between EMPs and the landlord’s own management plans for newer buildings. With this in mind, there is potential for broader recognition of what constitutes an EMP under GLS.

3.2.8 Remedial action and dispute resolution

The remedial action and dispute resolution elements of the GLS were consistently reported as unimportant and rarely, if ever, used. The perception of agencies is that compliance is based on a best endeavours approach which is easy to satisfy, and in support of maintaining a good relationship with the landlord which is seen as more important than not complying with the GLS. Even if the ratings fell below the agreed targets, most agencies stated that they would not pursue this aggressively and would still renew a lease in the same building. It was also identified that landlords have no incentive to initiate the dispute resolution process, as maintaining occupancy is their primary driver.

3.3 Reporting and compliance

The final activity examined in the review is the monitoring and reporting of compliance, which relates to both establishment of a GLS and the ongoing activities of managing property under a GLS.

3.3.1 Cessation of centralised reporting arrangements

Mandatory reporting is the primary enforcement mechanism available to the Government as it conveys a sense of priority for compliance with the EEGO policy


As discussed in section 2.1 above, the last centralised report was the Energy Use in Australian Government’s Operations 2011/12 and was published in 2013. The EEGO policy administrative requirements changed from the start of the 2013 financial year to an agency based reporting approach where each agency only reported their energy consumption against core performance indicators to their portfolio Minister. The conclusion of centralised reporting sent a signal to the market that the Government was less concerned with the EEGO policy. Equally, many agencies saw less repercussions for non-compliance and some noted that they no longer report internally.

Despite the cessation of centralised reporting by the Department, relevant data is required to be captured and reported to the Department of Finance under the Australian Government Property Data Collection (PRODAC) program. However, published PRODAC reports do not include NABERS Energy ratings or other relevant metrics.

3.3.2 Limited incentives or penalties

The lack of any penalties or incentives for compliance was consistently cited as a cause of low compliance and a lack of interest in complying, which undermines the achievement of the EEGO policy outcomes. One agency representative concluded “there are little to no penalties for the landlord or tenant for not complying, overall the whole GLS success just comes down to people management”.

Equally, the absence of reporting limits opportunities for high performing agencies to be recognised. As noted in the EEGO Policy End of Term Review (ACIL Allen, 2011) competition between agencies is a powerful, under-utilised motivator. The ability to promote good news stories is lost by not centrally capturing and reporting on energy usage. Some agencies who are including additional elements such as NABERS Water in their leasing practices expressed an interest in being supported and recognised as a way of maintaining executive support.

3.3.3 Perceived imbalance

There is frustration felt by many landlords in regards to a lack of equality between disclosure requirements of tenants and landlords. Since the introduction of the CBD Program, landlords are required to obtain a Building Energy Efficiency Certificate and publish their Base Building ratings, however, there is no equivalent requirement for tenants to publish their ratings. A number of landlords, and even some tenants, stated that they felt this created imbalance in the relationship. This impacts the motivation of both parties to comply.


4 Benchmarking in green leasing practice

An evaluation of green leasing practices across international, local, public and private sectors was undertaken as part of the literature review to build an understanding of better practices and inform the identification of opportunities for improving the GLS in the EEGO policy.

4.1 International comparisons

Australia has historically been seen as the world leader in green leasing. The GLS in the EEGO policy are commonly recognised as the first adoption of a green lease schedules program globally. The 2015 Global Real Estate Sustainability Benchmark (GRESB) survey covered 700 leading global real estate portfolios. They reported that Australia outperforms the average, with 91% of portfolios featuring some form of green clause in their standard contract, compared to 60% globally (GRESB, 2015).

Approaches taken in other countries have often been derived from the GLS. The approaches of NZ, Canada and California all vary in their approach but provide a good indication of comparative practices.

4.1.1 New Zealand – Performance Leasing Guide and Model Clauses

The Performance Leasing Guide and Model Clauses was developed in New Zealand as a joint initiative between government and industry in 2015. It has been developed by the Energy Efficiency and Conservation Authority, DLA Piper and the New Zealand Green Building Council as a single document of voluntary, insertable clauses, and was based heavily on the Better Building Partnership (BBP) Model Clauses which are detailed in section 4.3 below.

The approach is highly flexible with the option across most clauses to select either ‘comply with’ or ‘use reasonable endeavours to comply with’. Flexible language throughout allows more or less responsibility to be placed on the landlord, tenant, or shared equally. This is particularly evident in the clauses that deal with payment for capital works, where it can be elected that the parties either share or a single party wholly fund the works.

The guidance notes at the start of the document include a Clause Matrix which describes what clauses should be included to meet ‘good practice’ and what clauses should be included to meet ‘best practice’, as well as what clauses are suitable based on the building grade.

The total document is 66 pages in length, however this covers an expansive range of topics similar to the BBP Model Clauses. The document is highly user friendly and written in plain English. The document has graphical guidance, drafting notes and comments throughout to increase usability and ease of implementation.


‘Master classes’ were held within New Zealand upon the release of the guide to improve understanding and awareness.

4.1.2 Canada – National Standard Green Office Lease for Single Building Projects

The industry association for landlords, the Real Property Association of Canada (RealPAC) released a ‘Green’ version of their popular National Standard Office Lease for Single Building Projects, a main lease template in 2008. There is no policy mandating green leases and no reliable data could be found on the use and effectiveness of the National Standard Green Office Lease for Single Building Projects (Green Office Lease). However, it is worth investigating from the perspective of the approach taken.

The Green Office Lease is an amended version of the RealPAC National Standard Office Lease for Single Building Projects where additional, but largely inconsequential, references to energy use and the environment have been added throughout the body of the lease. The bulk of the environmental provisions are included in Schedule E - Environmental Management Plan. The schedule is attached to the body of the lease with options for failure to comply with the schedule to either constitute a breach of the lease or not.

The Green Office Lease states that it takes a Landlord-centric lease structure, where the Landlord ‘drives the environmental objectives, environmental decision making and compliance’ (RealPAC, 2010). The schedule is primarily focused around the landlord maintaining a rating and the tenant supporting this (including meeting annually to discuss environmental efforts). The tenant is also responsible for the cost of installing smart metering for energy and water which is worded as a compulsory part of the schedule (where other elements have the options of not being compulsory).

The scope of the schedule is broad and includes: indoor environmental quality, base building energy use (as well as optional limits on tenant energy use), base building water consumption (with optional limits on tenant water use), fit-out, recycled materials usage, and waste.

Despite the broad scope the schedule is only eight pages in length including all optional clauses (and six pages in length if these are excluded). The language is neither overly complex nor as simple as others. The Real Property Association of Canada have produced a Green Lease Guide (RealPAC, 2010) which contains a number of checklists and educational material to support tenants when choosing a building and considering upgrades.

4.1.3 California Sustainability Alliance Green Leases Toolkit

The California Sustainability Alliance (CSA) represents a group of private and public Californian organisations with the goal of working together to meet California’s aggressive energy and environment goals. One of a number of focuses of the CSA is green leasing and the development of tools and resources to support this.


The CSA developed an online Green Lease Toolkit before 2008 which contains educational resources and illustrative templates for landlords and tenants. One such template is the Lease Provision Database which gives examples of lease language and concepts in a table of sample clauses. The provisions included in the database cover a broad range of topics including: building certifications, alternative transportation, water use, energy use, maintenance and monitoring, and recycling.

The clauses are highly mutual throughout in that they do not favour the tenant or the landlord, however the responsibility of installing separate metering is stated to be borne by the landlord.

All 23 sample clauses are included in a five-page table. The clauses are simple and undetailed; however, they are designed only as samples and would likely need further detail to be used.

The Green Lease Toolkit provides a number of supporting tools for tenants. They published a Green Tenant Guide in 2012 which outlines every stage of developing and implementing a green leasing strategy, from confirmation of targets to development, enactment and reporting of green leasing progress. The CSA recommend and provide a sample Green Options Matrix for inclusion of different clauses to best cater to the specifics of different lease types. They also provide a succinct Due Diligence Scorecard, a sample Green Request for Proposal, and a template for developing a green leasing policy for tenant’s organisations. For landlords, they provide links to online assessment tools and marketing material to promote transparency around a building’s environmental performance. The CSA ran annual sustainability awards from 2008 to 2011 which promoted the achievement of organisations who had, among other things, organised or employed successful green leasing strategies.

4.2 Government Property Group comparisons

The National Green Leasing Policy (NGLP) was developed as a nationally consistent green leasing policy by the Council of Australian Governments Ministerial Councils on Energy and the Government Property Group (GPG) of the Australasian Procurement and Construction Council. The NGLP was based on, and is similar to, the GLS under the EEGO policy.

As a consequence of the inability to agree on a green leasing template, the states/territories have developed their own clauses and schedules to operationalise their green leasing policies. Specifics of various green leasing approaches are summarised in Table 3 below. Significantly, the documentation used by the various states are simpler yet address a broader scope than the GLS in the EEGO policy and are generally less specific around elements such as the BCMs in their approach.

Generally, the states follow a similar process to Commonwealth agencies when using their green leases. They are included upfront when approaching the market and then modified during negotiations. States face the same challenges to green leasing as Commonwealth agencies; most significantly supply barriers and a low incentive to comply. However, all States consulted had a coordinated office accommodation function which meant they were regularly dealing with the green leases. Consequently,


the median rating they gave for their understanding of the relevant State policy and templates was twice as high (median was 100%) as the Commonwealth agencies’ representatives (median was 50%). As expected, they also demonstrated a higher technical understanding of building management and the commercial office market, and were more aware of the challenges and opportunities that impact green leasing.

In some states, agencies are also formally encouraged to seek out possible building energy improvements in addition to meeting minimum performance ratings (NABERS) and independent of the requirements of their green leasing apparatus.

Under the NSW Government Resource Efficiency Policy (GREP) agencies must identify and scope projects including ‘energy efficiency retrofits, energy management and optimisation, demand management, distributed generation or a combination of these types of measures’ that produce either a 10% reduction in billed energy use or 12% rate of return over the life of the project. There is a separate GREP policy element that mandates agencies self-assess suitability of sites for solar leasing opportunities which are then voluntary to introduce.

The Victorian State Government will invest $33 million under the Greener Government Buildings program through Energy Performance Contracts. These transfer cost risks to contractors who scope, design, and implement energy efficiency measures and guarantee savings to be made within five years.


Table 3 - Summary of different green leasing approaches taken by four different States benchmarked against the EEGO policy

JURISDICTION FORMATSCOPE SUPPORTED

SUPPORTING ELEMENTS COMMENTS

Commonwealth (EEGO)

Green Lease Schedules (31 pages for the B1 GLS to 20 pages for the C1 GLS)

NABERS Energy

Building Management Committee

Environmental Management Plan

Separate digital metering

Remedial action and dispute resolution process

4.5 Star NABERS Energy rating; requirements vary for portion of building occupied as follows:

o 100% of building – Whole Building rating

o 50-100% of building – Tenancy and Base Building ratings

o <50% of building – Tenancy rating only

Metering is the cost and responsibility of the landlord

No GreenPower may be used to achieve the ratings

Optional GLS provided for under 2000m2

NSW

(GREP)

Schedules for either 1000-2000m2 (11 pages) or >2000m2

(14 pages)

NABERS Energy

NABERS Water

Tenancy lighting under 7W/m2 (if currently over 12W/m2)

Green Lease Committee


Separate metering


4.5 Star NABERS Energy ratings for Base Building or Whole Building

4 Star NABERS Water required

Metering is the cost and responsibility of the landlord

For 1000-2000m2 achieving required rating is ‘reasonable endeavours where cost effective’

GreenPower may be used to achieve ratings if required

VIC Green Lease Schedule (nine pages)

NABERS Energy

NABERS Water

NABERS Waste

GreenStar


Separate metering

Quarterly meetings to support achievement of

4.5 Star NABERS Energy ratings Base Building for new buildings

4 Star NABERS Energy ratings Base Building for existing buildings

5 Star NABERS Energy Tenancy rating for new fit-outs in leased offices

Ratings are landlord’s cost and responsibility

Stipulates ‘existing’, ‘required’ (5% improved over existing within first year),




Indoor Environmental Quality (natural light and external views only)

GreenStar Interiors

schedule targets

and ‘target’ (agreed upon as ‘endeavour to achieve’ over the term) NABERS Energy ratings

Contains clause for landlord improvement works committed to be achieved by the end of the first year to reach ‘improved’ target

Minimum 25% GreenPower must be used

If ratings are not achieved by landlord GreenPower must be purchased for the following two years at twice the amount that would have been required to achieved the required rating. If still not achieved after two years GreenPower must be continued to be used and the tenant is to receive a rental rebate (if gross lease) or credit for outgoings (if net lease)

QLD

‘Green’ version of standard lease with Green Provisions (seven pages)

NABERS Energy

NABERS Water

NABERS Waste

NABERS Indoor Environmental Quality

GreenStar Design

Building Environmental Management Committee

Building Environmental Management Plan


4.5 Star NABERS Energy Whole Building rating

4 Star NABERS Water rating

3 Star NABERS Waste Whole Building rating

3 Star NABERS Indoor Environmental Quality Whole Building rating

Landlord responsible for obtaining audited NABERS ratings and meeting targets, tenant responsible for NABERS Tenancy ratings to support this

Breach of green provisions not a breach of the lease

Ratings goals may be adjusted if approved by an expert

SA Three pages of clauses pertaining to lessor and lessee

NABERS Energy

GreenStar Design and As-built

None Gives ‘preference’ to office accommodation that meets 5 Star NABERS Energy rating for Base Building

Ratings are Base Building though tenants must not exceed plug load and lighting intensity maximums specified

Penalties included in some leases which affect rent review amount




NABERS and GreenStar obligations

Annual South Australian Government Buildings Energy Efficiency Report published showing NABERS Energy ratings, energy intensity and greenhouse gas emission across the entire portfolio.


4.3 Industry comparisons – Better Buildings Partnership

Most recently, the efforts of the industry have been combined into the documents and approach of the Better Buildings Partnership (BBP).

The BBP is a joint initiative launched in 2011 that represents a number of leading public and private sector landlords including Investa, The GPT Group, DEXUS Property Group, City of Sydney, and University of Sydney. Associate members include industry member organisations such as the PCA and the Green Building Council of Australia, and private leasing agents such as Jones Lange LaSalle.

The BBP’s primary objective is to improve the sustainability of Sydney’s commercial and public-sector buildings and to help facilitate achievement of the Sustainable Sydney 2030 goals. One manager of the BBP program stated that the BBP “solves a difficult problem that could not be solved individually”, recognising the importance of a consistent approach to green leasing. The BBP develops collateral and openly distributes this online.

The BBP has been influential, with documentation used by many landlords across Australia, as well as inspiring approaches taken in other jurisdictions such as New Zealand. Most agencies’ property managers were, however, not aware of the BBP nor utilised the resources they provide. Those that were aware, as well as a number of state coordinated procurement representatives, had used it as an information resource. Any new approach to green leasing developed by the Department will likely be compared to the clauses developed by the BBP. These are detailed below.

4.3.1 Leasing Standard Template Clauses

The BBP Leasing Standard Template Clauses (BBP Clauses) is the most significant piece of collateral produced by the BBP. The BBP Clauses are a set of voluntary, standalone clauses designed to be easily inserted into existing lease documents, and over 62 pages cover 23 topics under four main headings:

Cooperation and Works Management and Consumption Reporting and Standards Compliance and Costs.

The documentation is well presented and includes the clauses and guidance information to support their inclusion. This guidance information includes determining the presence of a clause that aligns with the intent of the BBP Clause desired, instructions for drafting, common concerns/risks and mitigations to these, as well as general supporting educational notes.

The BBP Clauses were developed after industry consultation in 2012 by Sparke Helmore Lawyers and Mills Oakley, and aim to achieve the following:

reduce the cost of legal drafting establish a common standard for negotiations


provide a framework for a broad scope of environmental and social measures to be included and actioned through a lease.

The BBP Clauses include similar elements as the GLS in the EEGO policy. This includes the establishment of a Sustainability Management Committee and Sustainability Management Plan, as well as dispute resolution provisions; however, these are all optional, concise, and flexible. For example, the documentation suggests three possible configurations for the Sustainable Management Committee that may be:

one-on-one meetings between representatives of the landlord and the tenant, meetings with the representatives of the landlord and all tenants of the

building, or incorporation of agenda items into the general building management

meetings.

Unlike the GLS in the EEGO policy, the BBP Clauses also include a clause relating to the rent review, whereby achievement of a target NABERS rating that matches or exceeds that set out in the lease may be taken into account at rent review.

The BBP Clauses have been well received for their simplicity, scope, and perceived even-handed treatment of tenant and landlords. The clauses provide flexibility for inclusion and the degree to which they will be enforced, with options for ‘comply with’ or ‘use reasonable endeavours to comply with’ throughout.

4.3.2 Leasing Standard and Lease Scoring Tool

The BBP Leasing Standard (Leasing Standard) project was launched in late 2016 to provide a recognisable logo to promote organisations committed to collaboration and sustainability outcomes through commercial leasing. The Leasing Standard is facilitated by an online self-rated Lease Scoring Tool. The Lease Scoring Tool enables landlords or tenants to rate their lease and benchmark it against better practice and other leases. A rating may be achieved and the resulting scorecard and logo used in promotional material.

There are five core topics that are required to meet the minimum Leasing Standard. These were determined after five years of examining green leasing practices across public and private industry, both locally and worldwide. The five core topics are:

Environmental Initiatives Enabling Upgrade Works Energy Management Information Sharing Performance Rating.

Significantly this only partially overlaps with the elements of the GLS. It does not include clauses relating to the Sustainability Management Collaboration (the Sustainability Management Committee and Sustainability Management Plan), dispute resolution, or metering.


It focuses solely on the principles of agreeing to a collaborative approach, supporting upgrade works, agreeing to minimise energy, sharing data for transparency and accountability, and achievement of any (or all) NABERS or GreenStar rating(s) chosen.

The Lease Scoring Tool rates a lease on a point based system based on the number of topics covered and the extent of the clauses that relate to each topic. The clauses need not be the exact BBP Clauses, and points are received equally for their application to both landlord and tenants based on ‘Presence’ (one point each), ‘Actions’ (two points each), and ‘Commitments’ (one point each) as long as it complies with the intent of each topic. Points for ‘Presence’ are awarded when clauses are included in any form in the lease. Points for ‘Actions’ are awarded when some form of commitment to action is made by either or both parties. Points for ‘Commitments’ are awarded if there are consequences if a party or parties do not comply with the clause. A rating of compliant, bronze, silver or gold is awarded depending on the above cumulative scores against each of the topics and scoring elements. Clauses similar to those used in the GLS achieve a bronze rating.

4.3.3 Other BBP leasing tools

The BBP have also produced additional green leasing tools to support their objectives. Their Leasing Lifecycle Tool is an online repository of information to educate and support a range of stakeholders involved in green leasing and covers all stages of the process including:

consideration – provides links to a substantial body of literature that articulates the benefits of green leases and checklists to support the production of a brief to an executive

site selection - contains links to registers of rating schemes (PCA grade, NABERS, GreenStar) as well as guides and templates for building selection based on grade desired and new or existing status

heads of agreement and lease - outlines how to establish a heads-of-agreement and contains the BBP Clauses

fit out design and construction – provides links to ratings schemes and articles on technology that can be used to improve building performance

ongoing management – contains links to supporting programs, case studies, guidelines, and templates.

The BBP website also contains a standard memorandum of understanding (MOU) template that it recommends for use when introducing green elements to existing leases or at early stage negotiations to capture the intentions of both parties. However, MOUs are not common in Australia due to a lack of desire to reopen negotiations in the middle of the lease term.

In 2013 the BBP, in collaboration with the Fifth Estate, published The Tenant and Landlord Guide to Happiness which covers in detail the path to ‘best practice’ leases.

Additionally, the BBP undertook a study in 2014 that looked at a number of leases from the Sydney CBD and analysed the inclusion of best practice clauses. As shown below in Figure 3 the uptake of green clauses has increased from 15% before 2009 to 62% in 2014. Both the breadth of clauses and the strength of clauses have also


increased over this period, with clauses breadth increasing to over 10 times the rate seen before 2009. Additionally, Figure 4 shows the changes in green lease breadth and strength in relation to the implementation of major developments in green lease policy. As expected given the sample set of leases (Sydney CBD) the strength and breadth can be seen to undergo advancements following changes in 2008 with the release of the NSW GLS.

Figure 3 - Performance of Sydney CBD green leases over time showing breadth (number of green clauses), strength (enforceability of clauses), and Model Lease Scores (now BBP Leasing Standard). Additionally, includes market uptake of best practice Green Lease clauses between 2009 and 2014 in the Sydney CBD office sample.

Figure 4 - Performance of Sydney CBD green leases over time showing breadth, strength and Model Lease Scores. Significant milestones in the development of GLS are signified in tooltips.


4.4 Better practice

In considering the practices of other jurisdictions, three themes emerge which indicate better practices, namely documentation, scope and flexibility.

4.4.1 Simple documentation

The current length of the GLS (31 pages for the largest – B1 GLS) is approximately two to three times larger than green lease schedules or clauses of other jurisdictions, despite having a narrower scope. Whilst the BBP Clauses are 62 pages in length, this includes substantial guidance notes and the actual total length of the clauses is closer to nine pages (while covering a much larger scope than is currently included in the GLS in the EEGO policy).

Feedback from state coordinated procurement officers and landlords suggested that the BBP is also written in a way better aligned with contemporary, plain English approaches to drafting than the GLS, making the documentation simpler to work with.

4.4.2 Broad scope

In almost all other jurisdictions, green leasing provisions have been used to achieve a broader array of environmental benefits than solely improving energy efficiency. These provisions include water efficiency, waste minimisation, and fitout improvements. Additionally, the BBP Clauses and New Zealand’s Performance Leasing Guide and Model Clauses provide a framework not only for additional environmental targets but also for social initiatives where desired.

4.4.3 Flexibility

The approaches taken by other jurisdictions and the BBP allow for greater flexibility for clauses and targets to be modified to best suit the potential of the building and reflect the bargaining power of the tenant. Some of these approaches are also less prescriptive in the management elements of the green leases. In these instances, clauses are standalone and can be implemented in part or as a whole. Choice is also given between “may” and “must” (“comply with” or “use reasonable endeavours to comply with”) as well as what targets, milestones and frequencies are agreed upon.

While flexibility in some instances may encourage clauses to be watered down, if the targets remain strict there is no dilution of the outcomes while allowing the landlord and tenant to agree on the most effective way to reach these, and the cooperative ideal of the GLS may be better realised.


5 Improving the effectiveness of current GLS

The review identified opportunities to improve the effectiveness of current GLS. Improved effectiveness is defined as a higher level of engagement with GLS and greater levels of compliance leading to achievement of EEGO policy objectives.

In addition, improved effectiveness will result in a higher level of stakeholder participation, working cooperatively to drive further improvements to the energy efficiency of office space leased by the Australian Government.

The improvements to the current GLS identified from the review have been grouped into the following three broad themes:

improved incentives to use GLS - improvements aimed at increasing the motivation of stakeholders to implement and manage leases with GLS

reduced GLS complexity - improvements aimed at motivating greater adoption of GLS by making the process easier to implement and simpler to manage

improved GLS flexibility - improvements aimed at motivating greater adoption of GLS and making compliance easier by improving flexibility in the application and use of GLS.

For each proposed improvement, we have summarised:

the issue impacting effectiveness as identified by stakeholders the recommended improvement(s) to address the issue, how the

improvement could be implemented, and how it will address the issues.

Finally, we have identified a set of improvements which are not necessary aimed at improving the current GLS. They are however, improvements that surfaced from the consultations and literature review that focus on the intent of the EEGO policy and offer alterative pathways to improved environmental performance of Commonwealth office accommodation. These improvements sit either in part, or in whole, outside of the functioning of the current GLS.

5.1 Improved incentives to use GLS

“Everyone now sees the policy as dead” – Agency property manager

The key issues identified included:

there is currently little incentive for agencies to comply with the EEGO policy requirements and include a GLS

there are no penalties for non-compliance and no incentive for senior stakeholders to drive compliance

there is a perception that the cost of the GLS does not deliver sufficient financial benefits to justify its inclusion


the cessation of centralised reporting sent a signal to the market and agencies that the EEGO policy was of reduced importance to Government.

The two recommended improvements aimed at addressing these issues are:

resuming annual reports of agency performance to motivate compliance promotion of the EEGO policy and the GLS to reinforce the message of

importance.

5.1.1 Resume centralised monitoring and reporting

The resumption of centralised monitoring and reporting involves the monitoring of agencies’ compliance and subsequent publication of a consolidated report on the inclusion of GLS and targets achieved. The publication of annual reports will signal the importance of the EEGO policy to the market and Government. This transparency will incentivise senior stakeholders in agencies to engage with the EEGO policy and support GLS. Tenancy ratings are in turn more likely to be met, which will improve the current dynamic between landlords and tenants.

Scope of reporting

A centralised team with the Department should monitor the inclusion of GLS in leases and the target ratings agreed upon in negotiations, as well as the ratings attained and energy used. There should be options for reporting on other metrics including NABERS Waste, NABERS Water, Green Star Design and As-built, or Green Star Interiors ratings schemes, to capture the performance of agencies going beyond the requirements of the EEGO policy.

Reporting options

The data may be from a separate report that agencies submit or alternatively, the Department may investigate the capacity of existing reporting tools such as PRODAC for possible expansion to include the additional metrics of energy use as well as other NABERS and Green Star ratings. The OSCAR system was well regarded for the depth of the data however the administrative burden was seen to be considerable and any future reporting process should be streamlined wherever possible.

An online tool should be considered as it will support ongoing sharing of data between tenants and landlords, while also recording the relevant audited rating results. Ultimately, an online tool could be integrated with smart metering to provide continuous data that would feed into a digitised EMP.

The system could then be used to support other elements of the GLS including automated reminders for BCMs and a repository of information on green leasing.

The importance of publication

The regular and timely publication of the performance of agencies against the EEGO policy requirements is key to incentivising agencies to prioritise inclusion of a GLS and achieving rating targets. This could be expanded to include specifics around the


inclusion of GLS by building, and the meeting of additional NABERS and Green Star ratings.

The role of media

The EEGO Policy End of Term Review (ACIL Allen, 2011) also noted the potential for the media to be a watchdog. The article ‘Government fails to meet own energy policy – and it could cost us $20 million a year’ (The Fifth Estate, 2017) from May of this year validates this point. A robust monitoring and reporting system should present opportunities for positive media coverage, celebrating the achievements of leading agencies which provides them with a strong incentive for engaging with the EEGO policy and GLS.

Additional incentives through more novel means, such as an annual awards system that recognises the top performing agency, building, property manager or service provider, should also be considered.

Tenancy performance

Publicised reporting on the performance will incentivise tenants obtaining ratings and meeting targets. Tenancy energy use is significant and can account for 50% or more of the energy use of a building. Also important is the feeling of mutual accountability between landlord and tenant.

As landlords have little power to motivate Government tenants, mandatory reporting of tenancy ratings will significantly improve the dynamic between landlord and tenant.

5.1.2 Promote the EEGO policy and GLS

The second recommended improvement aimed at incentivising participation in GLS is to actively promote GLS and the benefits to stakeholders.

Promoting the EEGO policy and GLS will signal to the market the continued importance of the EEGO policy, and can be used to explain benefits.

A top down message should come from the Commonwealth on the importance of the EEGO policy. This should focus on the financial, environmental and employment branding for the Commonwealth attributable from green leasing to overcome the perceived lack of benefits relative to the effort required to manage a property under the GLS.

Promote productivity benefits

The CitySwitch identifies $4.8M of possible savings for a 5000m2 high performing building. Of this, only $18,200 is attributable to energy savings from lighting. The remainder is due to reduced absenteeism, greater staff retention and increased productivity.

Staffing benefits should be highlighted as a major driver when articulating the benefits of adopting a GLS. Creating the link between employee attraction / retention and green


leasing will have a far greater impact on motivating senior executive engagement than cost reductions alone.

Makeover the GLS

The GLS and supporting documentation requires a stronger, more energetic visual design and branding. Given the low priority placed on the GLS in the scheme of broader leasing consideration, GLS documents should be as visually exciting and engaging as possible to encourage use.

Rebrand the GLS

The opportunity should also be taken to brand the GLS from ‘Green’ to ‘Building Performance Schedule’ or “Energy Management Schedule”. ‘Green’ has a mixed reputation and doesn’t sufficiently convey the technical nature of the GLS.

Using a more appropriate name, in line with the approaches taken by the BBP and other jurisdictions, reduces the likelihood that stakeholders who do not sufficiently value environmental initiatives will dismiss the GLS on that basis.

5.2 Reduce complexity

“The gains are so minimal with GLS, why would we put more red tape over the process” – Agency property manager


the current GLS is seen as overly complex and as a result, intimidating for many stakeholders

because of this complexity many stakeholders ‘tune out’ and as such are uninformed about GLS

in the 10 years since the GLS were first developed, greater market adoption has resulted in simpler forms of green leasing emerging, making the current GLS even less attractive.

The two recommended improvements aimed at addressing these issues are

simplify GLS documentation improve understanding of GLS across stakeholder groups.

5.2.1 Simplify GLS documentation

Simplifying the documentation by reducing the content and presenting it in a more readable manner will help overcome barriers to understanding, and will reduce costs and time associated with lease establishment.

Shorten the GLS


A State coordinated procurement officer attributed positive feedback on their green clauses due to them being “not too big, not too onerous…simple and support landlords and tenants by making it easy to read and achieve tangible benefits”. Better practice examples are also significantly condensed.

The BBP Clauses cover the Sustainability Management Committee in 368 words. The B2 GLS in the EEGO policy covers the Building Management Committee in 1263 words.

The documentation, including the GLS and the EMP templates, should be streamlined to focus on the targets and core requirements. Supporting information ancillary to this should be provided in separate guidance material.

Remedial action and dispute resolution clauses are generally unused and add unnecessary complexity and length. A simpler process should be adopted involving an initial escalation to senior executives on both tenant and landlord sides and, failing satisfactory remediation, reference back to the dispute resolution provisions of the base lease.

Use plain English

GLS should be redrafted using plain English. The New Zealand Performance Leasing Guide and Model Clauses are a good example and use primarily the same language as the BBP Clauses, but are presented in a less cluttered format.

A simpler GLS that is more readily understood will reduce uncertainty. This will contribute towards greater inclusion of GLS, particularly when dealing with landlords who are less familiar with the GLS. This will also lead to a reduction in modifications to manage down perceived risk during negotiations.

5.2.2 Improve understanding of GLS

The provision of educational material to address specific gaps in understanding for different stakeholder groups identified throughout the review is required.

Many stakeholders consulted were aware of the EEGO policy but not familiar with the specifics of the GLS. Enhanced understanding of the important aspects of the policy will help stakeholders on both sides more confidently negotiate and manage the GLS.

Table 4 below details where gaps in understanding have been identified and where stakeholders may benefit from the provision of educational material, such as case studies, fact sheets, guidelines, checklists or templates.

Table 4 – Summary of topics to address in future educational material by stakeholder group.

GROUP TOPICS TO ADDRESS

Agency sustainability / property managers and/or their

EEGO policy aims and GLS intent Challenges to inclusion of GLS and possible mitigations Costs and benefits of recommended building improvements Costs and benefits of recommended tenant use improvements


GROUP TOPICS TO ADDRESS

leasing agents

Driving tenant engagement within their organisation Latest metering options (smart metering, metering as a service) Analysing business cases from landlords Case studies of successful inclusions What ratings systems exist and what they mean Reporting protocols for the GLS

Landlords

EEGO policy aims and GLS intent Costs and benefits of recommended building improvements Costs and benefits of recommended tenant use improvements Latest metering options (smart metering, metering as a service) Preparing business cases for tenants Case studies of successful inclusions

Property Lawyers EEGO policy aims and GLS intent Challenges to inclusion of GLS and possible mitigations Case studies of successful inclusions

Facilities management providers

EEGO policy aims and GLS intent Costs and benefits of recommended building improvements Costs and benefits of recommended tenant use improvements Role of FM providers in GLS Latest metering options (smart metering, metering as a service) Reporting protocols for the GLS

Update EEGO policy materials

The current supporting documentation available on the EEGO policy website is largely unused and in some instances outdated. Service providers and landlords have developed their own internal educational collateral, as have promoting organisations such as the GBCA, BBP and CitySwitch.

The Department could facilitate improved understanding of the EEGO policy and GLS by leveraging and consolidating existing collateral already available.

The provision of support and training for stakeholders would be well received by all parties. This could include workshops or development of a series of short online training modules.

Additionally, a single point of expertise within the Department similar to those available to State agencies through their respective coordinated procurement functions is recommended. The familiarity with the GLS, as well as knowledge on what is possible and reasonable in negotiations and during ongoing management, can help to address the unavoidable issue of staff inexperience, particularly for agencies who infrequently acquire new leases.


5.3 Improve flexibility

“Needs to be more flexible and more outcome focused” – Agency property manager


the inability to apply a GLS due to office accommodation supply issues or operational barriers

a lack of flexibility in the framework resulting in administrative burden in management of GLS

lack of flexibility in GLS when dealing with a lower level of understanding on GLS, typical of smaller landlords

The two recommended improvements aimed at addressing these issues are:

create greater flexibility for how GLS are included in leases create greater flexibility in the use of GLS and targets.

5.3.1 Flexible inclusion of GLS

Supply constraints are a major barrier to the incorporation and use of a GLS.

Using a matrix of requirements will enable better practical outcomes regardless of whether the agency is searching for accommodation within a metropolitan market with a supply of new, premium buildings, or searching in a regional location with older, lower grade buildings.

Differential application of targets

The required target ratings should be applied differentially based on the location of the building, and its age. A recent submission to the Government Property Group (GPG) from Property NSW proposes this approach with a matrix of ratings for NABERS Energy, NABERS Water, Green Star Fitout, and Green Star Design and As-built.

This provides a good starting point for development of a matrix for the application of the EEGO policy. The GPG matrix also includes the PCA grade of the building. In this matrix, the ratings are lower (half a star for an existing building and a full star for a new building) for a premium or A grade building in a regional location as opposed to a CBD/Metro location.

This concept of flexible targets may be applied for the EEGO policy to help agencies more readily find suitable accommodation in areas where they are constrained by supply and then use the GLS to drive further improvements.

Tenancy and base building ratings

Even where a base building rating is relatively low, opportunities exist to encourage tenancies to strive for a higher rating.


In the GPG matrix, the NABERS Energy ratings targets for a tenancy never exceed the ratings targets for the base building, which discourages a tenancy from striving to achieve a higher rating. As the EEGO policy seeks to demonstrate Government leadership it should stipulate a high tenancy rating, regardless of the requirements for the base building.

Robust exemption process

Operational challenges to the inclusion of a GLS when leasing should be considered in the exceptions process. The exception process must not be a source of delay for agencies who may be time pressured in lease negotiations.

Standing exceptions should be developed in collaboration with agencies who are subject to complicated operational challenges such as security issues and location within transport hubs to determine the most practical and beneficial outcome.

5.3.2 Flexible use of GLS

A more flexible framework for the ongoing use of the GLS will reduce costs and impost to agencies and landlords, thereby increasing GLS adoption. Agencies and landlords are already taking a more pragmatic approach to the GLS which should be formalised in future documentation. This is particularly significant where elements stipulated are redundant due to good building management.

Focus on targets

Further supporting the simplification of the GLS, the Department should reduce the core requirements to obtaining and maintaining target ratings. The only supporting clause absolutely necessary to achieve this in most instances (except for whole building ratings) is that of separate metering. The BCM and EMP can be useful tools to support attainment of ratings but achieve little after the initial meeting and plan development.

Removing the specified frequency of the BCMs is consistent with the EEGO Policy End of Term Review (ACIL Allen, 2011) and providing flexibility for inclusion of the BCM to instances only where they are of value will go a long way towards reducing perceived impost and costs to both parties.

Dynamic requirements

Dynamic requirements should be considered whereby an initial BCM is compulsorily held for all leases and an initial EMP developed that sets out the targets, data sharing requirements, and plans for future works. The BCMs may then be held as required, subject to continual reciprocal data sharing between parties and attainment of agreed targets.

Reduce specificity


Greater flexibility around what constitutes an EMP will also reduce impost to both parties.

The specifics of an acceptable EMP should be limited to metrics such as desktop NABERS ratings to monitor ongoing performance, the data sharing requirements to support these, status of ongoing plans, and details of the key stakeholders on both landlord and tenant sides. This will also enable building management plans that are increasingly common in new buildings to comply and be recognised as compliant EMPs, reducing cost.

5.4 Improvements to achieve the intent of EEGO policy

“Focus should be on how to make the building better, not the document” -Property Lawyer

“The EEGO started the thinking of green leases as a common approach – that was important, but it is out of time now”- Promoting Organization Representative

These improvements were surfaced from the consultations and literature review and offer alterative pathways to improved environmental performance outside the functioning of the current GLS.

They have been provided separately as they represent different ways of achieving EEGO policy outcomes, rather than improvements to the current GLS structure.

5.4.1 Use of green lease clauses instead of a schedule

There is no definitive answer on whether the use of green clauses or an attached schedule is a superior structure for green leases. For the development of future GLS the important consideration is that they are presented in a readable and simple manner that supports understanding and flexibility.

This may be achieved in a manner similar to the BBP Leasing Standard Template Clauses. This approach bundles the clauses into a schedule which may be attached while drafting clauses in such a manner that they may be inserted into existing leases if this is preferred.

The ability to insert clauses may be preferred when trying to give greater weight to the GLS. Clauses in the base contract have the same legal weight as those in an attachment/schedule, but there is a general perception that those in the body of the lease are more important.

The Commonwealth National Lease (CNL) used by all agencies consulted as part of this review has a provision for the attachment of the GLS. Including the key clauses of the GLS in the body of the CNL would help overcome the view that they are of less importance than the base lease, and make it harder to negotiate their removal.


5.4.2 Additional clauses

Consistent feedback received during the consultation process was that future clauses/GLS should avoid terms that add stipulations not directly related to a ratings target. This includes clauses that specify hours of operation or temperature set points. Terms such as these are seen to compromise tenant comfort and add further complexity, contrary to the principle of simplification that is preferred.

Conversely, additional terms that broaden the scope of the GLS would be welcomed by many agencies and landlords and bring the GLS in line with better practice, as well as the original intent of the EEGO policy.

These should be developed and provided within the framework to support agencies that already apply them on a voluntary basis and encourage those that are considering doing so.

Table 5 below summarises the most common optional elements to consider supporting. However, better practice now has an even broader scope with terms relating to social improvements. These may be outside the intent of the EEGO policy, but would be easy to include based on those developed by the BBP without diluting the focus of the EEGO policy.

Table 5 - List of elements to consider in line with better practice

ELEMENT SUMMARY

NABERS Water

Not a great impost Cheap to obtain at the same time as NABERS Energy Benefits are not as environmentally or economically substantial as

energy or waste

NABERS Waste Weighing and processing problematic in older buildings Easily achieved in some newer buildings NABERS currently conducting pilot of new waste ratings scheme

Lighting Intensity

Tangible and achievable. An easy win to start discussions on further improvements.

Defensible from a cost/benefit point of view Should match Building Code of Australia maximum 5W/m2

Green Star Interiors

Well-liked and adopted in many jurisdictions

Green Star Design and As-built

Used in some instances, mainly where State Government are responsible for a new building

Well regarded

Green Star Indoor Environmental Quality

Not as commonly used Mixed views from stakeholders on both landlord and tenant sides;

some strongly support it, others see it as unnecessary.


5.4.3 Transfer accountability of ratings

The GLS operates on the principle of cooperation which does not necessarily reflect the dynamic that characterises commercial office leasing arrangements. The landlord’s commercial imperative is maximum rental and improving the long-term value of their building. This means that whilst not necessarily adversarial, the relationship positions the tenant as a customer for the landlord to satisfy.

In light of this, there is an opportunity to transfer the accountability of obtaining ratings, including tenancy ratings, to the Landlord. This will improve accountability and ease of management as it becomes easier to enforce.

Landlords are likely to charge a fee for the obtaining of the ratings. If done as a combined rating (where the Base Building and tenant spaces are rated in the same audit – currently being piloted by NABERS for likely rollout towards the end of 2017) the costs are significantly less. Landlords will also encourage other tenants in shared buildings to get ratings at the same time, creating a broader impact from the EEGO policy.

5.4.4 Publication of cost benefit analysis

The Department should consider undertaking analysis to determine the average costs of implementing the GLS including time and effort spent on negotiations, BCMs and EMPs covering both internal costs and those of lawyers and service providers.

This will allow the Department to make a stronger case for value and better decide upon the degree of flexibility needed. This should be conducted with sensitivity testing for rising electricity prices and compared to other improvement works.

5.4.5 Promote Smart Metering

The absence of separate digital metering is a recurring challenge when agencies are negotiating the inclusion of a GLS. More broadly, the ability to measure is vital to reducing consumption.

In August 2016 the British Department for Business, Energy and Industrial Strategy published a report on Smart Meter Rollout Cost-Benefit Analysis that concluded there was a net cost benefit in their evaluation of a potential nation-wide roll out of smart meters. A similar study (though focused on implementation in a single building) should be undertaken locally to inform part of the educational packages to be delivered to the market.

Driving awareness of the cost of smart metering and the associated benefits will promote inclusion and subsequently facilitate attainment of Base Building and Tenancy ratings where they are currently limited to Whole Building ratings.


5.4.6 Adoption of a consistent national approach

Every stakeholder group was unanimous in their support of a consistent national approach to green leasing, to be achieved through a common framework adopted in all States and across the private sector.

Under such an approach, each jurisdiction could specify targets according to the relevant policy but still utilise a common framework to measure and report outcomes. This would involve working with the various state GPG members, representatives from the PCA, a small number of key service providers, the BBP, CitySwitch, GBCA and NABERS to develop a nationally consistent approach.

A more consistent approach will:

improve awareness - a common framework will send a very clear and strong signal to the market and enhance adoption of green leasing far greater than could be achieved by individual stakeholders

enable leveraging of collateral and knowledge – there is an opportunity to share resources when producing a common framework, splitting the cost across all organisations who will benefit

improve understanding – a common framework will enhance understanding and reduce confusion as stakeholders will only have to familiarise themselves with a single set of documents and processes

improve engagement – as a result of wider recognition and a consistent framework greater buy-in will arise from landlords and internal sustainability teams have cited that it will improve their ability to push changes internally

reduce costs – a recognised and common framework will decrease costs of property lawyers as they become more familiar with the documentation.

The Department should consider reviewing the BBP Clauses and using these as a base to develop future clauses as these are already well accepted by many landlords and seen as better practice.

The final form may be a list of clauses in a single schedule with the specification of targets clearly described up front. The core elements of the GLS that are compulsory should form the minimum with a range of additional clauses provided for agencies that want to include things like water or waste.

A common framework may be incorporated into a lease rating system like the BBP Leasing Standard. This system would rate and approve existing leases to certify their inclusion of a set of clauses to a variety of standards. This will facilitate easier comparison of leases. Agencies could then request lease documents to a certain rating without specifying the specific clauses included (beyond the compulsory core clauses), leaving the choice of clauses up to the landlord.

Additionally, if an agency wanted to go beyond the rating of the base lease or include specific clauses, a gap analysis could be undertaken between the base lease and agency’s schedule. Clauses from the common framework in the base lease may then be removed from the agency’s schedule, while the remaining schedule of clauses are attached.


6 Bibliography

Abacus Property Group. (n.d.). Sustainability Protocol. Retrieved from http://www.abacusproperty.com.au/sustainability/sustainability-protocol

ACIL Allen. (2011). EEGO Policy - End of Term Review. Report to The Department of Climate Change and Energy Efficiency (DEE supplied).

Aliento, W. (2016, June 23). JLL on how to be green and achieve wins for investors and tenants. Retrieved from The Fifth Estate: http://www.thefifthestate.com.au/business/investment-deals/jll-on-how-to-be-green-and-achieve-wins-for-investors-and-tenants/82919

Better Buildings Partnership. (2014). Progress of Best Practice Leasing: Better Buildings Partnerhip Leasing Index Results Sydney CBD. Sydney: Better Buildings Partnership.

Collins, D., & Junghans, A. (2015). Sustainable Facilities Management and Green Leasing: The Company Strategic Approach. Procedia Economics and Finance Volume 21, 128-136.

Collins, D., Junghans, A., & Haugen, T. I. (2016). Greenleasing in theory and practice: A study focusing on the drivers and barriers for owners and tenants of commercial offices. CIB World Building Congress 2016. Tampere, Finland.

Department of Resources, Energy and Tourism. (2013). Energy Use in the Australian Government Operations 2011-2012. Retrieved from Department of Environment: http://www.environment.gov.au/system/files/energy/files/eago-2011-12.pdf

DEXUS Property Group. (n.d.). Preparing our customers for the future through enabling flexibility, productivity and growth FY16 Financial Report. Retrieved from http://www.dexus.com/who-we-are/corporate-responsibility-and-sustainability/sustainability-performance/future-enabled-customers

Energy Efficiency Council (COAG) (2012). The Green Lease Handbook. COAG.

Green Building Council Australia. (2016, April 21). Cbus Property shakes up the sustainability space. Retrieved from http://new.gbca.org.au/news/gbca-news/cbus-property-shakes-sustainability-space/

Investa. (2007). Green Lease Guide for Commercial Office Tenants. Retrieved from http://cfsites1.uts.edu.au/find/isf/publications/mcgee2007greenleaseguide.pdf

Janda, K. B., Bright, S., Patrick, J., Wilkinson, S., & Dixon, T. J. (2016). The evolution of green leases: towards inter-organizational environmental governance. Building Research and information 44.5-6, 660-674.

JLL and WSP | Parsons Brinckerhoff. (2015). An Overview of the Rating Tool Landscape in Australia. Jones Lang Lasalle.


Jones Lang Lasalle. (2012). Green buildings driving employee productivity.

Jones Lang Lasalle. (2015, October). Green Leasing - Energy and Environmental Services. Retrieved from http://www.joneslanglasalle.co.jp/japan/ja-jp/Documents/Energy%20and%20Sustainability/JLL_GreenLeasing_Oct_2016_EN_web_p.pdf

Kaplow, S. (2008). Does a Green Building Need a Green Lease. University of Baltimore Law Review.

Pivo, G. (2010). Owner-tenant engagement in sustainable property investing. The Journal of Sustainable Real Estate, 184-199.

Rameezdeen, R., Zuo, J., & Stevens, J. (2017). Practice, drivers and barriers of implementing green leases: lessons from South Australia. Journal of Corporate Real Estate, Vol 19 Iss: 1.

The Fifth Estate. (2014, November). Westpac to sign up for green lease clauses. Retrieved from The Fifth Estate: http://www.thefifthestate.com.au/business/public-community/westpac-to-sign-up-for-green-lease-clauses/69943

The Fifth Estate in collaboration with The Better Buildings Partnership. (2013). The Guide to Happiness: Tenants and Landlords in the Private Sector.

The GPT Group. (n.d.). Climate Change and Energy. Retrieved from http://www.gpt.com.au/Sustainability/Our-Environment/Climate-Change-Energy


7 Attachments

1 Methodology

2 Literature Review extracts

2.1 Green leasing drivers

2.2 NGLP details

2.3 Green leasing in private industry


Attachment 1: Methodology

The evaluation of the current use and effectiveness of the GLS was principally informed by consultations with stakeholders from tenant, landlord and third-party groups. Findings are based on the responses of key stakeholders from these groups and are generally more qualitative, or anecdotally quantitative, in nature.

Consultations typically lasted one hour and were conducted face to face and over the phone according to the preference of the stakeholder. Consultation notes were kept for each stakeholder and have been included in a de-identified collation in Attachment B.

Tenants were represented by the property and/or leasing managers of various agencies. In most cases their service providers (leasing agents and property managers) attended the consultations and provided significant input. Landlords were represented by their sustainability managers and leasing officers. The views of a number of major landlords were captured in a workshop held in Sydney and organised by the PCA. Those who were unable to attend and smaller landlords were approached individually. Most of the smaller landlords had little familiarity with the GLS and expressed no strong views on the tool.

A number of third parties who are familiar with various aspects of the use and effectiveness were consulted, including representatives from promoting organisations such as the BBP, CitySwitch and NABERS, and property lawyers.

State coordinated procurement officers were consulted from New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory. On average, these representatives were very familiar with green leasing and offered insight from lessons learned in their jurisdictions. Where elements of the GLS overlapped with similar tools from these States the observations of State representatives have been included to expand the breath of the findings and contextualise where changes to the tools have, or have not, led to different use or effectiveness.

Desktop research was undertaken from March to June of 2017 to inform the literature review. The focus of this was an analysis of academic and grey literature published since 2011. All sources were tested for quality, relevance and reputability.

As the administration of the EEGO changed in 2013, the Energy Use in the Australian Government's Operations 2011-12 report (Department of Resources Energy and Tourism, 2013) was the last report published covering energy use across the whole of Government. In response to this, the examination of effectiveness has largely been focused on implementation aspects.

The project methodology is illustrated overleaf.


Prepare final report

• plan and schedule consultations

• undertake consultations and other data collection activities for e.g. surveys meetings workshops

• collate findings• interrogate against

review questions and scope

• Identify early themes and better practices

• identify and close data gaps

• meet with the Project Team (PT)

• confirm project objectives approach deliverables timelines

• develop project reporting and communication protocols

• establish project governance structure including: roles /

responsibilities Reference Group

(RG) make up and purpose

• identify risks and mitigations

• prepare Project Plan

• develop ‘soft’ boundaries for literature review scope validity / quality

of literature • collate relevant

documentation for e.g. policy &

explanatory memoranda

previous reviews existing data sets grosvenor IP future initiatives

• understand key themes, better practices and data gaps

• document outcomes and present to PT

• collate outcomes from steps 2 and 4

• draw conclusions against review objectives and questions policy – history

and future program issues /

effectiveness lessons learned impact analysis

for policy changes better practice

analysis• develop and analyse

options for future ‘model’

• draft findings / conclusions / recommendations and test with PT / RG

• Identify stakeholders• draft review

questions to: close gaps on

understanding of current state

draw out issues currently experienced as well as lessons learned

understand future state(s) incl. policy changes, stakeholder needs and issues

explore possible impact of changes

• confirm consultation methodology

• document review strategy and plan, test with PT

Conduct literature review

Project Inception

Collect data and conduct consultations

Step 1 Step 2 Step 4 Step 5Step 3 Step 6

Analyse against objectives and develop conclusions

Develop consultation plan

• Collate feedback on draft from PT

• Close gaps, update and refine

• Develop final report executive summary background approach findings (literature

review, better practices, stakeholder themes)

Conclusions (against review questions and objectives)

Recommendations• Present to PT and RG


Attachment 2: Additional literature review elements

2.1 Green Leasing Drivers

Though hard to quantify, there is a consensus from the literature on a number of drivers across both the public and private sectors that broadly underpin green leasing practice and as a result, the adoption and adherence to GLS themselves. The drivers can be broadly categorised as ‘financial’ or ‘organisational’ in nature. An understanding of the drivers provides important context in the development of new policy supporting documents, including the schedules themselves or negotiation guidance materials, as it casts light on which motivating levers may be best utilised to enhance uptake and drive outcomes.

Internationally, a green lease is generally considered to be a tool of, and led by, the building owner. Government tenants in Australia have been cited as the exception to this rule where the EEGO policy and NGLP drives demand for green leases from the tenant side (Rameezdeen, Zuo, & Stevens, 2017). The major institutional building owners have taken the reins over the past decade and are driving green leasing through their own green lease guidelines and standard contracts. Though these are used by non-government tenants it highlights the evolution of the space and provides important context for the development of future GLS.

1 below depicts the drivers for green leasing at a high level. Unsurprisingly the drivers are often weighted differently by the tenants and building owners. Greenleasing in Theory and Practice (Collins, Junghans, & Haugen, 2016), highlights the importance of understanding both the owner and tenant’s perceptions of ‘value’, which is often ignored in literature. They found the asymmetry between the focus of literature and empirical studies has skewed perceptions of drivers, crucially understating the non-financial, such as organisational culture. Drivers in both categories are supported by a series of promotional programs which help facilitate the awareness and uptake of green leases.


Figure 1 - Drivers for adoption of Green Leasing practices. Organised by category (horizontal) and whether the driver or promotional organisation is more important to building owner or tenant (vertical).

Financial drivers

The financial benefits of green leases have historically been key drivers to the adoption of green lease practices and green leasing schedules. Broadly, it is well accepted that long and short term economic benefit is a primary driver for local and international uptake of green leases for both tenants and building owners (Collins & Junghans, 2015).

Reduced operating costs

The natural corollary of reduced energy use is decreased electricity expenditure and this has often been articulated as a key driver for the adoption of green leases. A report by Investa estimated that the energy saving lease elements reduced their energy bills by almost 50% (Pivo, 2010) and it has been intimated that this is the most important driver for tenants (Collins & Junghans, 2015) for the introduction of green leasing practices.

The importance of cost savings as a driver for the adoption of GLS was supported in the report Practices, drivers and barriers of implementing green leases: lessons from South Australia (Rameezdeen, Zuo, & Stevens, 2017). Through a series of interviews conducted with tenants and building owners, the report found strong agreement among tenants that green clauses assist with energy savings, referencing the potential for ‘huge savings in outgoings’. Despite this, building owners were less confident in these savings, citing potential for hidden administrative costs, some of which are embedded in the current


GLS such as the frequency of building committee meetings, that could diminish the overall savings.

Long term economic benefits

There is substantial evidence to suggest that achieving GLS compliance and investing in measures prescribed by green lease clauses provide long term economic benefit by way of premium in value and rent to building owners (ACIL Allen, 2011). An Overview of the Rating Tool Landscape in Australia (JLL and WSP | Parsons Brinckerhoff, 2015) confirms that there is a higher capital return for 4 to 6 star NABERS Energy rated offices compared to the average1.

Similarly, a 2016 report by the American engineering firm AECOM estimates rental premiums above 4.5 stars NABERS ratings to be an additional $42 per m2 for a 6 star NABERS rated building 2. There is also an increased focus on green investing, and JLL on how to be green and achieve wins for investors and tenants (Aliento, 2016) summates that adoption of greener leasing practices improves the standing of properties as seen by investors. Awareness and promotion of this fact is a valuable lever to encourage uptake of GLS by building owners who may otherwise see the added contractual complexity of a GLS as being of little long-term value beyond securing a Government tenant.

Lower cost of achieving compliance

Changes in the property market and growing familiarity with GLS has reduced the cost of sourcing suitable accommodation and maintaining compliance, as a result building owners for both private and government tenants have been more willing to adopt GLS.

The increased availability of highly rated NABERS buildings has lowered premiums and the Commercial Building Disclosure (CBD) program means that potential tenants are informed up-front about the NABERS rating of prospective sites. The CBD program has ensured that buyers and tenants have access to the information they require to choose buildings that align with their leasing practices at an early stage with no real cost imposition (Janda, Bright, Patrick, Wilkinson, & Dixon, 2016).

Additionally, greater familiarity through experience, as well as the work of promotional programs, has meant the process of incorporating a GLS into a contract and operationalising it is more widely known by agents, property lawyers, and facilities management service providers, on both building owner and tenant sides. This has reduced the cost of implementing GLS and highlights the importance of awareness and consistency across the market for future GLS development.

1 Perth shows the highest additional capital return of 7% for a 6-star rated building.2 From a review of the Sydney CBD market of rental premiums above 4.5 stars: $21 per m2 at 5 stars, $30 per m2 at 5.5 stars and $42 per m2 at 6 stars (Department of Environment, 2016).


Organisational drivers

The second group of drivers covers all other non-financial aspects. These are prioritised differently to the financial drivers, though a shift to property being seen as more of a strategic asset has increased the value placed on these by many organisations. The evolution of green leases: towards inter-organizational environmental governance (Janda, Bright, Patrick, Wilkinson, & Dixon, 2016) report states that the drivers may be both external such as regulation, and social and internal such as management style, organisational culture and organisational structure.

EEGO Policy - End of Term Review (ACIL Allen, 2011) found that despite the financial drivers articulated above, the absence of an enforcement mechanism resulted in the need for the agencies to recognise the benefits of compliance (Janda, Bright, Patrick, Wilkinson, & Dixon, 2016). While government policy has traditionally been the main driver, increased corporate social responsibility values in the private sector have been of growing importance and prompted the larger building owners to expand their green leasing practices, in turn making it easier to include a GLS in lease contracts.

Compliance with government policies

Mandates by government have historically been a strong top-down driver for adoption of green leasing practices by public sector tenants which, due to the significant size of government procurement in the market, have then had flow on impacts across the broader property industry.

The role of the EEGO policy in establishing Green Leasing practices is undisputed within local and international literature. Practice, drivers and barriers of implementing green leases; lessons from South Australia (Rameezdeen, Zuo, & Stevens, 2017) confirmed that the government's role as a facilitator, regulator and major tenant was a ‘major driver’ of green leases in South Australia, with all interviewees unanimous on this point. While the study noted that the views of the tenants often drive interactions, the findings suggested that some building owners are starting to take a more active role in green leases, actively approaching tenants.

Culture and reputation

The last decade has seen a growing awareness in the importance of the triple bottom line and the role of corporate social responsibility and ecologically sustainable development in the culture and reputation of an organisation. This has been identified as a key driver in the uptake of green leases.

The report, Greenleasing in theory and practice: A study focusing on the drivers and barriers for owners and tenants of commercial offices (Collins, Junghans, & Haugen, 2016) notes that ‘company policy/culture’ has consistently been reported as a high priority driver in private adoption of green clauses. Stakeholder consultations from the study in South Australia provide strong empirical evidence to support this, with environmental leadership and CSR frequently presented as key drivers3 (Rameezdeen, Zuo, & Stevens, 2017). The report goes on to state that this is an international trend, with the leadership role that Government as a tenant has played in pushing adoption of

3 One interviewee from the study stated “...Government took on the policy of being more sustainable…we all embrace it and the leasing team want to go down this path”.


green leases being praised by both building owners and tenants (Rameezdeen, Zuo, & Stevens, 2017).

The reputation of the organisation, which reflects its CSR and environmental performance has been listed in numerous reports as a powerful driver for both building owners and tenants. For example, the 2011 EEGO Policy End of Term Review noted that a reputation of being a ‘“green” department is important to secretaries of departments or agency heads’ and that competition due to this has been a powerful unofficial driver of green lease adoption (ACIL Allen, 2011).

On the building owner side being ‘green’ is now synonymous with quality4. This was emphasised by the JLL Sustainability Director who noted the company’s familiarity with green leases is something that appeals strongly to clients (Aliento, 2016). This aligns with international themes; Does a Green Building Need a Green Lease (Kaplow, 2008) found that a common driver for companies to adopt green practices were the marketing and public relations opportunities.

Staff benefits

There is a large body of evidence from occupancy studies (The Fifth Estate in collaboration with The Better Buildings Partnership, 2013) (Jones Lang Lasalle, 2012) that link productivity and sustainable buildings. The ability to drive indoor environmental quality benefits through the adoption of a GLS has been noted as a driver for both staff and management in the public and private sectors. Practice, drivers and barriers of implementing green leases: lessons from South Australia (Rameezdeen, Zuo, & Stevens, 2017) found that all tenants identified a correlation between Green Leasing and an improvement in staff wellbeing and satisfaction. It was identified as a ‘significant’ driver to increase engagement in green leases and there is anecdotal evidence from the same report that this has led to higher staff retention rates, in turn providing a strong financial driver. The EEGO Policy End of Term Review found that demands for environmental improvements had come from Government staff (ACIL Allen, 2011) and Westpac have also cited staff demand as being a factor in their adoption of greener leasing (The Fifth Estate, 2014).

2.2 NGLP details

Continual evolution in green leasing led to the development of the National Green Leasing Policy (NGLP) in 2009. The NGLP was based on, and is similar to, the Green Lease Schedules under the EEGO policy.

The primary differences between the NGLP and GLS in the EEGO policy relate to the use of GreenPower, NABERS Water and the specification of metering. Unlike the GLS in the EEGO policy, the NGLP allows buildings to use GreenPower to contribute to a maximum of one star improvement to their NABERS Energy rating, adding a mechanism for existing buildings to improve their overall ratings where is not have been cost effective to undertake improvement works. The NGLP also makes allowances for optional 4 star NABERS Water ratings targets to be included. Additionally, the NGLP mentions only ‘adequate’ separate metering where the GLS in the EEGO policy are more prescriptive,

4 A building must achieve a 5 star NABERS rating (amongst other things) to be qualified as A grade (Lee, et al., 2016)


requiring the building owner to install NABERS compliant electricity, water and gas meters.

The NGLP policy was intended to be reviewed every two years to ensure its ongoing relevance. The original NGLP policy document mentions future investigations into lowering the applicable threshold to 1000m2 and introducing NABERS Waste and Indoor Environmental Quality ratings. However, if these reviews have been carried out, the reports are not readily available and no changes to the original policy document are evident.

2.3 Green Leasing in Private Industry

The past decade has seen a strong rise in the leadership role being played by private industry, mostly the major building owners, in the green leasing space. Investa Property Group published one of the first Green Lease Guides for Commercial Office Tenants in 2007, which informed a lot of development and was pivotal in the evolution of organisations like the BBP. More recently, Dexus Group has also incorporated a standard green lease clause into new leases across the portfolio, from their monitoring activities, there was a 14% increase in uptake from 2015 to 2016 across its portfolio of office, industrial and retail leases. In 2016, 88% of Dexus’ tenants have complied with their green clauses.

Three other major landlords that have publicly released information on their sustainability related policies throughout their business strategy are the GPT Group, Abacus Property Group and Cbus Property. GPT have published a Climate Change and Energy Policy document that highlights GPT’s carbon reduction strategy. Abacus Property Group has published their Sustainability Protocol highlighting their commitment to sustainability in their investments, property management and other development activities. Finally, Cbus Property have published their sustainability approach to create one of the highest Green Star and NABERS rated portfolios in Australia.

Since 2011, Colonial First State has included a GLS for all of its wholly owned A grade and upper B grade buildings as part of the new lease. Since November 2011, 70% of leases signed with Colonial First State had agreed to work with the building owner to achieve better sustainability outcomes for the building. This is compelling evidence that with good understanding and a building owner that is willing to educate tenants on the benefits of a GLS, compliance and uptake will follow. Note that the management of Commonwealth Property Office Fund and Colonial First State was transferred to DEXUS Property Group in 2013 and hence no longer operates a standalone GLS, this was incorporated into the best practice lease guide by BBP and the subsequent BBP model green clauses.


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