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Commercial property – greening the lease

LAW

Kate Hatwell
Kate Hatwell
Kate Hatwell is a partner at Tompkins Wake, Tauranga and Hamilton. She can be reached on kate.hatwell@tompkinswake.co.nz
It’s easy to think of climate change as a distant challenge, something for governments, scientists or activists to tackle. However, it’s a local issue too. It’s present in the buildings we work in, the leases we sign and the investments we make in our own backyard. Tauranga’s commercial property market must catch up with climate goals.

One of New Zealand’s fastest growing urban areas, the commercial property sector is booming locally. New developments line Cameron Road and the city’s CBD is undergoing a significant transformation.

But there’s a calculated silence in the background. The property sector is responsible for around 20 per cent of our country’s carbon emissions and most of that comes from completed buildings.

Roughly 80% of the buildings standing today will still be here in 2050, but fewer than 3% meet the environmental standards needed to reach our national goal of net-zero emissions by mid-century.

So, how do we bridge this gap? Increasingly, the answer lies in our lease agreements. In my work, advising landlords and tenants across the Waikato and Bay of Plenty, I’ve seen the tension first hand. Landlords are under growing pressure – from government policy, market expectations and, increasingly, from tenants – to upgrade buildings with energy efficient lighting, low emission HVAC systems, and even solar power. But who foots the bill?

This is a classic split incentive dilemma reflected in traditional lease structures whereby landlords make a capital investment in sustainability upgrades but tenants reap the immediate rewards through lower power bills and more comfortable working environments. Upgrading a building’s efficiency blurs the line between maintenance and enhancement and, without shared benefit, the willingness to invest falters.

While we wait and see whether the law will evolve to ease this tension, ‘green leases’ are helping fill the gap. These are lease agreements that specifically include sustainability goals, share costs and benefits, and they promote collaboration. In my experience, they’re not common in New Zealand yet but they are gaining traction. This is particularly so in such cities as Auckland and Wellington where high profile developments (including the ASB North Wharf and NZI Centre) have pioneered this approach.

Here in Tauranga, we’re beginning to see a similar shift. New builds in The Lakes and Tauriko Business Estate are increasingly constructed with energy efficiency in mind, responding to demand from forward thinking tenants. But retrofitting older buildings remains a challenge, especially when cost recovery mechanisms aren’t clearly agreed upon.

Smaller landlords, such as family trusts and private investors, who own the majority of commercial property in this region and throughout the country, may lack the resources or incentive to make green upgrades unless tenants are on board. Meanwhile, larger tenants – including retail chains, banks and government agencies – are coming to the table with strong sustainability policies and expectations that their premises reflect these values.

This isn’t just about compliance, it’s about resilience. Green buildings attract better tenants, command higher valuations and future proof our cities against rising environmental and financial risks.

The solution starts with better conversations. Landlords and tenants need to engage early, be transparent about their goals and consider lease structures that reflect the realities of climate change as well as the shared benefits of sustainable practices. The lease, once an afterthought in climate conversations, might just be one of our most powerful tools for change.

If you’re a landlord or tenant in Tauranga, and you have questions about how green leases could work for you, get in touch! At Tompkins Wake, we’re helping clients navigate this evolving landscape to find practical, balanced solutions.

You can reach me at our Tauranga office – we’re here to help make sustainability not just a vision, but a reality.

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