Green leases – or ideology in contract law

Jürgen Brandstätter
BNA Law, Vienna
juergen.brandstaetter@bma-law.com

For several years, the topic of ‘green leases’ has been discussed in law firm and auditing companies’ publications, as well as in specialised legal literature, most recently in Austria, in the journal immo-Lex 2024/71.

According to this recent discussion, a green lease is one in which the landlord and tenant agree on the ‘sustainable’ use and management of the rental property. The publications then discuss which special contractual provisions can serve the goal of sustainable use and management.

The central theme of a ‘green lease’ is therefore the concept of ‘sustainability’. If one looks up the law in Austria, one will not find a provision defining ‘sustainability’ anywhere. It is a term originating from political debate without any legally standardised content.

In the primary law of the European Union, ‘sustainability’ is used in Article 3(3) and Article 21(2)(b) of the Treaty on European Union (TEU) and in Article 11 of the Treaty on the Functioning of the European Union (TFEU). Nevertheless, ‘sustainability’ is not defined in these provisions either.

In EU secondary legislation, ‘sustainability’ is often mentioned in the Regulation on the establishment of a framework to facilitate sustainable investment, also known as the Taxonomy Regulation, EU 2020/852. Quite apart from the fact that this regulation is not applicable to contract law regulations, it also does not contain a conclusive and precise definition of what is sustainable. It defines an ‘environmentally sustainable investment’ as an investment in one or more economic activities that are considered environmentally sustainable under this regulation. The Taxonomy Regulation is therefore about investments and not about regulating contractual provisions under civil law.

Directive EU 2022/2464 on corporate sustainability reporting also frequently uses the term ‘sustainability’. However, this Directive does not contain any regulations on private-sector contracts and would also have to be transposed into national law accordingly, in order to be binding for contracts under private law, which has not been done.

At a global level, ‘sustainability’ is mentioned in the UN 2030 Agenda and in the Sustainable Development Goals (SDGs). These are 17 different ‘goals to promote sustainable peace and prosperity and protect our planet’. The SDGs are also not binding for national contract rights and do not contain an abstract definition of sustainability.

Before we look at which specific contractual provisions should be used to achieve the goal of a green lease, it is also necessary to look at what a contract actually is.

According to the continental European understanding of civil law, a contract is an exchange relationship between two performances, a do ut des (eg, Schickmair in Fenyves/Kerschner/Vonkilch, ABGB (Klang) s 859 Rz 30), ‘I give so that you give’. Even under common law, a contract only exists if performance and consideration are defined in it.

Let us now discuss some specific provisions that sometimes appear in ‘green leases’:

• The tenant is obliged to minimise their energy requirements and, where possible, to obtain energy from renewable sources and to use only technical equipment (office equipment, computers, printers, televisions, radios and coffee machines) which consume as little energy as possible.
• The tenant shall use the rented property in such a way that as little waste as possible is produced, and any waste that is produced shall be disposed of by means of waste separation.
• Only ecologically harmless cleaning agents should be used to clean the rented property – mechanical cleaning is to be favoured over chemical cleaning.
• The employees of a company operating in the rented property should be required to use car-sharing or bicycles. The CO2 emissions and traffic volume caused by the employees of a company operating in the rented property should be determined and reviewed.

It is evident that regulations such as those described above have nothing to do with an exchange relationship between landlord and tenant. Even if the tenant fulfils all the obligations described, this does not benefit the landlord. Rather, these are political requirements that are included in a contract.

In addition, some of these regulations conflict with existing statutory regulations.

An obligation on the tenant to use only ecologically safe cleaning agents restricts the tenant further than the current legal framework. Every tenant has the right to assume that all cleaning agents on the market comply with the chemical regulations currently in force (see eg, the EU’s REACH Regulation, EU 1907/2006). If a tenant therefore uses a cleaning agent currently on the market, it is acting in compliance with the law. There is no legal basis for contractual provisions going beyond this to use only ecologically safe cleaning agents. Apart from this, the term ‘ecologically safe’ is just as vague from a contractual point of view as the concept of sustainability itself.

Regulations that impose obligations on employees of a company that has concluded the contract as a tenant are particularly critical. These are contractual provisions to the detriment of third parties which, according to general legal understanding, are inadmissible and ineffective because they are immoral. In addition, in the case of companies as tenants in which a works council exists in accordance with labour constitution regulations, general measures that oblige employees in many cases require the consent of the works council. Such regulations then encroach on the statutory powers of the works council.

Publications on the subject of ‘green leases’ often also discuss whether regulations such as those described above are mere declarations of intent or whether they are ‘hard’ contractual obligations.

If they are mere declarations of intent, in my opinion they do not belong in a contract. Landlords and tenants should then find other ways to make political declarations.

In general, we must warn against including political declarations of intent in contracts. In particular, if the landlord has a monopoly-like position as a contractual partner – think of local authorities that rent out social housing or large property funds – such landlords could come up with the idea of demanding that their tenants also fulfil other political requirements and behaviours.

However, if the regulations described above, for example, are clear contractual obligations, they often conflict with other statutory provisions and therefore run the risk of being invalid.

Ultimately, such ‘hard’ contractual obligations could even be contrary to fundamental rights. They could be a violation of the tenant’s fundamental right to the free exercise of their business and livelihood. Such contractual obligations could also violate the fundamental rights of a tenant’s employees.