ARE REITS GREEN?

Citation(2007) 19 SAcLJ 47
Date01 December 2007
Published date01 December 2007

AN ENVIRONMENTAL ANALYSIS OF REAL ESTATE INVESTMENT TRUST LAW IN SINGAPORE

This article is a first attempt at systematically considering the environmental impact of the real estate investment trust (“REIT”) legal framework in Singapore. It begins with an overview of the existing regulatory framework for promoting “green” property development and management. While there are mandatory standards that property developers and managers must comply with, these only set the minimum requirements for selected aspects of a development’s environmental performance, and aside from some new financial incentives, property developers and managers are merely encouraged to voluntarily strive to go beyond what is legally required. On the other hand, an examination of the legal framework in which REITs operate suggests that it produces strong disincentives towards green property development and management. Recognising that REITs are likely to emerge as a significant property investment vehicle, there may be a need to consider measures to counteract these inadvertent potentially adverse environmental effects.

I. Introduction

1 In order to achieve desirable environmental objectives, it is often not sufficient to introduce the necessary environmental legal and administrative framework alone. For individuals and organisations to act appropriately towards the achievement of these goals, it is important that

related laws and policies that are not typically characterised as “environmental” reinforce rather than undermine these objectives.

2 This article is a first attempt at systematically considering the environmental impact of one aspect of the legal regime for property investment, namely the real estate investment trust (“REIT”) legal framework in Singapore. Its aim is modest: to explore the effect of the rules regulating REITs on the behaviour of REIT managers and, in particular, whether these rules are likely to constrain environmentally-friendly real estate investment strategies in respect of the management of REITs.

3 I begin with an introduction on the environmental impacts of buildings, then a quick overview of the existing regulatory framework for promoting environmentally-friendly property development and management. This is followed by an examination of selected aspects of the regulatory and private legal framework in which REITs operate, and an analysis of the likely effect of the framework on the behaviour of REIT managers in terms of pursuing a green agenda. Recognising that REITs are likely to stay regardless of their potential environmental impacts, I conclude with a consideration of some legal measures for mitigating the REIT’s built-in bias against going green.

II. The environmental impacts of real estate development and management

4 The built environment produces a significant impact on the natural environment in the form of land clearance, materials use, energy consumption, pollution, and waste production. In developed countries, the construction and operation of buildings consume a great amount of energy, require a large amount of materials, and generate a considerable amount of construction and demolition waste.1 Health problems resulting from indoor air pollution have also become one of the most acute environmental problems related to buildings.2 Many buildings in

cities around the world have “sick building syndrome”, a combination of ailments that are typically associated with time spent in a building, characterised by skin irritations, headaches, and respiratory problems, and thought to be caused by indoor pollutants, micro-organisms, or inadequate ventilation.3

III. Green property development and management

5 As late as the 1990s, the green building movement was still considered “a small fringe activity on the periphery of construction”.4 Since then, it has quickly entered the mainstream, and is starting to have a major impact on the development and real estate markets.

6 While there is no definitive view of what constitutes a green building,5 most writers agree that green buildings are characterised by an integrated approach to their design and management; they seek to minimise their environmental impact by considering all aspects of the building’s design and post-occupancy management.6 A green building is one that applies ecological thinking to the business of creating places for people to live and work.7 Ideally, it integrates with local ecosystems, closes the loop on materials systems, maximises the use of passive and renewable energy, optimises its hydrologic cycles and fully implements indoor environmental quality measures.8

7 In practice, seven general areas commonly form the foci of green development. These are site selection and building orientation, energy consumption, material selection, indoor environmental quality, water

consumption, construction methodology and life-cycle costing.9 The key to green buildings is to seek to minimise environmental impacts in an integrated and holistic way by looking beyond the short-term costs and incorporating life-cycle analyses and resource conservation measures into the site planning, design, construction, operational and demolition stages of the building.10

IV. The legal framework for the environmental performance of buildings

8 Recognising the potential adverse environmental impacts of real estate development and management, it is not surprising to find aspects of the environmental performance of buildings regulated in Singapore. What is surprising though is that, until recently, so little legal attention has been given to a sector that, in the case of an almost fully urbanised Singapore, clearly has a more than disproportionate impact on the environment. What follows is a summary of the hotchpotch of laws that directly influence the environmental performance of buildings.

9 The siting of buildings is regulated under the Planning Act; any development of land must have the written permission of the competent authority.11 Applications for permission are determined with reference to the country’s land use master plan in so far as it is relevant.12 Administratively, the Pollution Control Department of the National Environment Agency is consulted on the siting requirements and to ensure compatibility with the surrounding land use. Buildings works are subject to the requirements of the Building Control Act13 and the Building Control Regulations 2003.14 The Regulations require, inter alia, that residential buildings, other than those built by owners for their own use, be provided with adequate natural lighting and natural ventilation, and are designed and built with energy conservation measures for energy efficiency.15 The Act also provides, inter alia, that before any building works can be carried out, the Commissioner of Building Control must

approve the plans for the works and grant a permit for the works.16 The Building Control Authority as a matter of administrative practice consults the Pollution Control Department of the National Environment Agency for confirmation that the sewerage, drainage, environmental health and pollution control requirements have been complied with.17 In addition to checking for compliance with the provisions of the Environmental Pollution Control Act18 and the relevant subsidiary legislation, the Pollution Control Department also refers to its own non-statutory Code of Practice on Pollution Control for guidance on the use of premises for industrial purposes.19 Pollution from the actual construction works20 and post-construction occupation of premises are also subject to the provisions of the Environmental Pollution Control Act and its regulations.

10 Resource conservation is also mandated, albeit to a more limited extent. Thus, buildings must be designed and constructed to reduce (a) solar heat gain through the roof and building envelope; (b) air leakage through openings on the building envelope; (c) energy consumption of lighting, air-conditioning, and mechanical ventilation systems; and (d) energy wastage through adequate provisions of switching means.21 Wasting water is an offence,22 and water fittings must conform to requirements which stipulate the permitted material and construction.23

Except with the written permission of the Public Utilities Board (“the Board”), no person may use water supplied by the Board to water any garden, lawn or other land by means of a hose or fixed or movable sprinkler.24 Specified water fittings that exceed the capacity or flow rate stipulated by the Board may also not be installed.25 The Board may also require a consumer of water supplied to it to clean, repair, replace or otherwise deal with a water service installation that is causing or is likely to cause wastage, pollution, or contamination of the water supplied by the Board.26

11 Singapore strives to be a “garden city”, so it is not surprising that the enhancement of the greenery surrounding building has not been left out. Planting areas of prescribed dimensions must surround all premises on which building works are to be carried out.27 The Commissioner of Parks and Recreation (“the Commissioner”) must approve these planting areas before building works commence.28 Subsequently, it is the duty of the occupier of the premises to maintain the planting areas according to the specifications of the Commissioner,29 and no person may interfere with the planting areas except with the approval of the Commissioner.30 Trees with a girth exceeding one metre growing on a designated tree conservation area or vacant land may not be felled except with the approval of the Commissioner.31 Trees and plants in designated heritage road green buffers may also not be damaged, or be cut without the approval of the Commissioner.32

12 While command and control laws are good at prescribing what must be done and must not be done, they are not very good at prescribing innovation. For this, some economic incentives exist to...

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