Add a green tinge to your documents
A green tinge by Quinn Pocock
Drafting a contract provides a perfect opportunity to impact climate change. It is not difficult either. This article looks at everyday practical steps for property lawyers and their clients do exactly that.
This year has seen the release of the New Zealand Climate Clause Bank. Published by New Zealand Green Investment Finance and created with the cooperation of 11 law firms from throughout the country, it comprises example clauses for use in a range of contexts. The clauses are based on the work completed by the Chancery Lane Project and are the brainchild of Ian MacKenzie, Head of Legal at NZGIF.
Ian recognizes the impact of multiple individual actions “No one clause is going to remove tonnes of CO2 from the atmosphere, but if every contract a business signs bakes in the idea of sustainability, that can help with a really important cultural shift. Organisations that are serious about climate action can now contractually bind themselves to it. That is a really powerful signal about your intent.”
Those less motivated to take positive climate action will still find useful material in the clauses. As Ian says, the clauses “are for all businesses, and all business can use them to improve their sustainability characteristics a little or a lot (as appropriate to their circumstances). In short, you could be the country’s largest emitter, or its smallest, and there is still something in these clauses to contractually build in better climate outcomes. “
Boilerplate provisions
Some of the precedent clauses are boilerplate provisions, relevant to a range of contracts. They are clauses that can easily be substituted for those commonly used in precedents and templates. They set out how the parties can deal with each other in ways that minimize emissions. For example they require notices to be electronic, reasonable endeavours to be made to meet virtually, electronic documents and signatures to be used. Where paper is to be used, standards relating to the type of paper and ink, and its disposal are also included. These are provisions that are easy to implement, and frankly given our propensity to do everything electronically now, probably reflect what happens in many circumstances anyway. That will make them easy to implement.
The dispute resolution clauses go a few steps further. These provisions require each party to use reasonable endeavours to measure emissions relevant to the dispute resolution and subsequently to offset those emissions. These obligations extend to procuring the lawyers, advisors and other third-party consultants involved in the dispute resolution to do the same.
Hopefully the standard of the obligation set (i.e. to use reasonable endeavours) is such that clients find it easy to agree to be bound by this requirement. It is not absolute, but it does form a background standard against which behaviour can be measured and the principle of reducing emissions discussed. It puts the topic on the table if nothing else, and including the clause could hardly be described as oppressive or disadvantageous to a party. It is fair to both parties.
Rather than negotiating for these clauses to be included in each document that is drafted, I encourage property lawyers to include these boilerplate provisions in the firm’s precedents, so they become the usual standard throughout property practices. They are not contentious provisions and could easily be set as a standard that is opted out of rather than opted into. These boilerplate terms make it easy for people to have a climate conscious element in their own documentation.
An additional provision requires each party to take the “reasonable steps that it considers necessary to minimize” greenhouse gas emissions that result from the performance of that party’s obligations under the contract. Once again, the standard of what is to be done might help in having the clause agreed to. That standard is set by the party undertaking the minimizing steps. It is a general clause that puts the issue of carbon emissions on the table, while at the same time enabling the emitter to determine what it considers reasonable action to limit those emissions.
For the truly green this provision will not go far enough, but for those wanting to introduce the issue and the thinking to their clients, or those with whom they have a contractual relationship, the clause presents an excellent and inoffensive opportunity.
Embedding Climate Thinking in Structure Documents
Documents that govern the structure and operation of entities provide plenty of opportunity for climate conscious lawyering. Those wanting to go beyond the boilerplate provisions, and to set obligations around carbon neutrality will find helpful precedents in the clause bank.
There are provisions for use in shareholder agreements, but the themes to these provisions, and the issues addressed can be relevant to other arrangements too - arrangements that property lawyers may work with more commonly such as joint ventures, company constitution, partnership agreements, even trust deeds. Although the precedents are not drafted for use in those circumstances, they provide food for thought for practitioners drafting any of these documents.
The precedents offer varying degrees of obligation. One “requires the shareholders to work towards operating the company in a carbon neutral manner. However, it does not set specific targets for when this should be achieved”.
Another “enables shareholders to embed environmental, social and governance matters at the highest level of the company, and prioritise them over short term fast growth to deliver better performance and long term value.” (New Zealand Green Investment Finance, 2023)
Opportunities in Leases
Climate change is increasingly relevant to lease negotiations. Michelle Hill, a property law partner at Dentons Kensington Swan in Auckland who specializes in lease work says climate change clauses are becoming common place for institutional landlords.
“Typically they will prohibit the lessee from doing, or allowing to be done, anything in connection with their use or occupation of the premises which may adversely affect any certification that has been obtained for the building pursuant to any rating tools such as those issued by the New Zealand Green Building Council or NABERSNZ and may also require the lessee to do everything within its control to enable such certification to be obtained and maintained.”
There are other good reasons that parties to a lease might address climate issues in the lease terms. These include:
managing risks associated with increasingly common severe weather events (loss of access to sites, inability to obtain insurance, damage to premises and chattels);
anticipating future carbon emission requirements under New Zealand’s published carbon emissions budget, and Emissions Reduction Plan;
understanding that our built environment contributes 20% of the nation’s carbon emissions and a willingness to play a part in changing that;
the long-term nature of a lease in contrast with climate action timeframes;
for certain tenants (and those wanting to attract government tenants), the Carbon Neutral Government Programme;
directives from international parent organisations;
to support a climate conscious image;
the possibility of challenges from the public and activist groups. (A group of students from the Equal Justice Project is focused on challenging council-controlled organizations to ensure the inclusion of green provisions in their leases.);
increasing knowledge about how to address climate issues e.g. earlier this year the New Zealand Green Building Council issued a guide on how to transition existing commercial buildings away from the use of fossil fuels.
Those interested in climate action would do well to use lease negotiations as an opportunity to take positive climate action. As Ian Mackenzie from New Zealand Green Investment Finance says “If an organisation is serious about a Net Zero commitment it has made and isn’t using these clauses to drive change inside its organisation and throughout its supply chain, it is missing a huge opportunity. “
Irrespective of whether the client raises the issue themselves, lawyers need to be raising climate as a matter of course when taking lease instructions. Given:
the long-term nature of leases,
the rapid change in our climate, and
the pending changes both to both regulatory requirements and to social licence around climate change,
the risks alone mean that for legal advice to be competent the subject must be addressed.
More to Come
The intention is that the clause bank will be added to overtime. As the use of the clauses grows hopefully there will be an appetite for a greater range of more ambitious provisions. In the meantime the New Zealand Climate Change Clause Bank, and the clauses produced internationally by the Chancery Lane Project, form an extreme useful resource for New Zealand property lawyers.
You can access the clause bank at https://nzgif.co.nz/investing/new-zealand-climate-clause-bank/#:~:text=NZGIF%20has%20developed%20the%20New,big%20impact%20on%20emissions%20reductions.
You can access Chancery Lane Project clauses here https://chancerylaneproject.org/
A version of his article first appeared in The Property Lawyer in August 2023 and is published with the consent of the NZ Law Society, Property Law Section.
© Debra Dorrington 2023.