Taming the elephant: Helping landlords to invest for tenants benefit

Over the past two decades, the sustainability of buildings has grown in importance as part of a strategy of carbon reduction. However, the impetus for change has created a significant gap between the environmental performance of existing and newly built stock. New stock meets stringent building standards and, in many cases, has to meet rigorous standards for environmental certification. Without substantial refurbishment, the performance of existing stock can only be improved by behavioural changes in the way buildings are used. Yet it is clear that relatively modest investments by building owners can make a significant difference to the carbon footprint of an existing building. This may still fall some way short of a new build, but is significant nevertheless. For owner occupied space, the rationale for investment is clear, but for leased space there is a dilemma. The tenant is unwilling or unable to invest in the fabric of a building, albeit to his advantage the landlord is unwilling to invest in the fabric of the building to reduce the tenants operational costs. This is the Elephant in the room. One might expect that, given the greater economic utility offered by the reduced operating costs post such an investment, the rent paid for the space would be higher. This may well be the case over time, but there is insufficient evidence yet to persuade building owners to invest. Yet if they don’t invest there will be no benefit! One way round this impasse is to share the benefits that accrue between landlord and tenant by establishing a jointly owned company that buys utilities on behalf of the building the ESCO model. This paper: • looks at examples of the ESCO and MUSCO in action; • Models the impact of an ESCO on different types of building; and Establishes the likely returns to landlords and tenants.