Case study: using a new lease model to drive positive climate impact

As the need to decarbonise the built environment rises to the top of the agenda for most businesses, many occupiers are pushing hard to lower their carbon emissions and improve energy efficiency. However, few can allocate adequate capital to non-core sustainable projects at assets they do not own, as payback periods are often longer than the unexpired term of their lease. This leaves landlords to ‘grasp the nettle’ and act. 

Sustainability consultant Syzygy argues the key for landlords and occupiers is to explore new frameworks which instil more flexibility into current full repairing and insuring (FRI) lease restrictions. There are ways to generate an income stream for the landlord and provide immediate cost savings for the occupier. 

One of the many hurdles the commercial real estate industry faces for implementing low carbon solutions to meet net zero targets is the landlord and occupier relationship. In many cases, the only way for these projects to be delivered is for the landlord to fund the project and find common ground with the occupier within a commercial agreement.

To solve this, Syzygy developed an operating model to cater for the obvious restrictions that FRI leases impose on both parties, by providing an income stream to the funder (landlord), while bringing cost savings to the occupier, and for the project to be accepted by valuers and not to affect liquidity in the leasing and capital commercial real estate markets. 

Syzygy created a Deed of Variation for rooftop solar PV, and has since completed many projects with institutional landlords and UK tenants since. During the pandemic, Syzygy delivered two major solar PV installations at two of investment manager abrdn’s prime logistics assets at Optimus Point in Leicester. 

The objectives & challenges 

The project entailed working with two occupiers – DPD and Boden – within a very tight timeline. For abrdn, the main aims were to maximise carbon reduction whilst delivering a risk adjusted commercial return on investment. The occupiers, meanwhile, shared the goal of lowering carbon but had the additional objectives of operational cost savings and ensuring the safe management of the installations while minimising operational disruption. 

Syzygy’s role was to negotiate the operating agreements and lease variations with both abrdn and the occupiers in a way that would enable all their individual objectives to be met through the project. Doing so presented several obstacles; bringing the occupiers through the lease variation and procurement process in tandem to allow for one all-encompassing construction contract – a crucial factor for economies of scale. DBD and Boden had different sign off procedures and varying energy demands and both assets had restricted access and security protocols for site visits and construction. The teams also needed to adhere to the timelines for developing the project and connecting to the grid set by National Grid and the Distribution Network Operator.

Delivering clean energy and carbon offsets

So far, Boden has offset over 216 tonnes of carbon and is now able to meet a huge percentage of its annual power demand through the new PV provision, with the vast majority (almost 80%) of generated clean power being consumed on site. Alongside this, DPD has offset circa 60 tonnes of carbon. In total, the combined systems are on track to offset 5,568 tonnes of C02 over the next 25 years.

Syzygy’s asset management team had an 30MWp of solar PV under management at the end of 2022 and this is set to double by the end of this year.