Green Lease Agreements: Tenants Push Back on ESG Obligations in Shopping Centers

The Polish Trade and Services Employers’ Association (ZPPHiU) indicates that green attachments to lease agreements and so-called green contracts in shopping centers can and should be negotiated. The new European ESG requirements for real estate concern the owners, not the tenants. Moreover, at this stage of legislation, they do not entail an obligation for modernization – they only constitute a requirement for reporting environmental impact. Therefore, this type of requirement cannot be transferred to rental contracts. Tenants have the right to influence the provisions of so-called green appendices – as well as to expect the necessary environmental information from landlords.

These issues were extensively discussed during the III Congress of ZPPHiU and PSNPH – threats and proposals for solutions protecting and limiting the risks of tenants in this area were presented. The main topic of the Congress was the so-called “green lease agreements” and reducing investment costs as a result of a well-thought-out strategy for negotiating contracts and comprehensive cost control. Moreover, for the first time, the results of research showing the actual expectations of shopping center customers were presented, and a new tool that facilitates the assessment of customer experience at the shopping center and store level was discussed.

“For several months, tenants in shopping centers have been surprised by annexes to lease agreements that establish new obligations in the area of ESG reporting. This is increasing pressure, aiming to create new contract standards that go beyond the legal requirements. As part of these actions, tenants are often forced to replace installations and equipment in their premises, in a manner inconsistent with the essence of ecological actions. Meanwhile, both reporting and any possible required modernizations of the center are exclusively the responsibility of the owners, and attempts to shift these obligations onto the tenants do not result from the applicable regulations. Tenants have the right to use data determining the environmental impact of shopping centers in their ESG reports, not vice versa. Reporting on ESG in relation to shopping centers is solely the responsibility of the property owners. No tenant, operating a shop or service point in a shopping mall can and should be engaged by landlords in providing information about the carbon footprint relating to the premises if such an obligation is not legally imposed on his or her company. Therefore, tenants not only have the right but should also protect themselves from imposed obligations and limit their risks – especially in the form of negotiating environmental provisions contained in lease agreements,” says Zofia Morbiato, General Director of the Association of Polish Trade and Services Employers (ZPPHiU).

It’s worth emphasizing that there are no separate regulations in Polish legislation governing lease agreements for premises in shopping centers. The peculiarity of these contracts is signing them in order to conduct business activities – thus generating profit, not only for the owner of the center but also for the tenant. This is a fundamental difference compared to residential leases. However, in either case, it is the property owner, not its user, who is obliged to carry out investment, legal, or reporting duties. The system for measuring electricity consumption also falls within the jurisdiction of the property owner. Similarly, the obligation to modernize all installations and equipment with which the property is equipped applies to the owner. When preparing a rental offer, the lessor should calculate and take into account all costs that may burden him during the term of the contract and accept the business risk associated with ownership.

Existing shopping malls require systematic new investments – both due to their aging and changes in standards required by the direction of EU law modifications. The law imposes duties related to real estate on real estate owners – these concern safety and compliance with current regulations. Landlords try to transfer their duties to tenants, who have been appealing for equality in lease agreements for years. This applies in particular to the proper distribution of business risk to the parties to the contracts. Retail and service point tenants in shopping centers cannot be forced to replace properly functioning devices or to install new ones, based on supposed requirements of ESG directives.