A well-crafted green lease provides an opportunity to improve landlord/tenant collaboration on sustainability issues, leading to increased building performance, including energy efficiency. Green commercial leases provide incentives to reduce energy use and water, and increase recycling and the use of sustainable materials. A green lease detailing the sustainable use of a building by landlord and tenant is critical to the performance of a green building.
by, Jessalyn Dingwell, Green Economy Post
As two recent studies point to the shortcomings of green buildings’ actual performance as compared to anticipated performance, the need for managing the behavior of building owners, operators, and occupants over time is increasingly important. Projected energy efficiency has become the Achilles Heel of the green building industry. Even buildings with outstanding design features, extensive modeling, and expert commissioning many times fail to meet expected energy efficiency targets. Frustratingly, the reason for this poor performance is in many cases not a scientific failure of design, but unanticipated occupant usage of the building. One problem is that builders may not know exactly who will occupy the building or how it will be used until construction is finished. Another, seemingly more solvable problem, is educating and motivating building owners, operators, and occupants to use the building in ways that maximize its energy efficient design.
Green leases are one critical tool that can be used to improve how humans interact with green buildings over a building’s lifecycle. Green commercial leases can provide incentives to reduce energy use and water, and increase recycling and the use of sustainable materials.
Landlord or Tenant: Who’s on the hook for green?
A well-crafted green lease helps ensure that both landlord and tenant contribute to the sustainable operation of a green building. First, it is important to understand how a lease motivates parties to act. A net lease requires the tenant to pay for expenses that may include utilities, repairs, maintenance, insurance, and real estate taxes. A gross lease places those expenses on the landlord, while the tenant pays the landlord a fixed rental fee. Obviously, the party paying for utilities has a strong economic incentive to reduce energy use. But other factors come into play; the desire to protect the investment in a green building, public relations issues regarding a company’s use of natural resources, or internal sustainability policies.
Currently, greater demand exists for green or LEED-certified buildings then is available to tenants seeking office space. This leads me believe that commercial tenants, even if they are not directly paying utility costs under a lease, have at least some incentive to act in ways that make the building more sustainable. And commercial landlords, who may have sustainability policies of their own, recognize that a better performing building can avoid public relations problems and often command higher rental rates. Even with economic uncertainty leaving much commercial space unrented or rented at lower than market prices, the pressure to find tenants should not force landlords to abandon green requirements for tenants in leases. The question is how to formally address the issue of building usage so that it is a priority for both parties.
How does a green lease help?
A green lease requires parties to agree upfront to act in ways that will make the building more sustainable by addressing energy use, water use, recycling and other issues such as those discussed below. LORD Green Real Estate Strategies finds that a dual-incentive green lease may result in a 20-40% reduction in energy demand for a commercial green building. Space leased to the federal government must comply with standard green lease requirements under the General Services Agency’s policy to implement energy and environmental business practice requirements for leasing.
A green lease simply refers to a lease that incorporates sustainable practices into the landlord/tenant contract to ensure the building is the building is improved, managed, and occupied in a sustainable way. A building does not need to be certified by LEED or any other third party to make positive use of a green lease.
The following is a list of basic areas to address when writing a green lease, although it is by no means comprehensive. Like any effective contract, a green lease must be carefully tailored to meet the specifics of the building, location, parties, and goals. There are several useful resources for drafting a green lease including BOMA’s Guide to Writing a Commercial Real Estate Lease, Including Green Lease Language, U.S. Green Building Council’s Green Office Guide: Integrating LEED Into Your Leasing Process and the Model Green Lease.
Energy Reporting: Understanding how much energy and water a tenant is consuming is critical to improving efficiency. Both parties need to be involved in monitoring and tracking. Separately metered tenant spaces provide a method for such accounting. The party receiving the utility bill should provide copies and ensure that both parties review the data on a regular basis. A tool such as the Energy Star Portfolio Manager tool can benchmark consumption patterns against an agreed upon baseline or other buildings in a landlord’s portfolio. Comparing data over time helps identify trends and areas for improvement.
Lighting: Consider requiring the use of motion sensors, daylighting sensors, timers, and energy-efficient light bulbs. The lease might include a schedule detailing occupancy hours. Review the security requirements for the building – is it necessary to leave interior lights on all night? Must the cleaning crew work during nighttime hours requiring light at night?
Interior Construction: If the tenant plans to remodel the space in a building, will they be required to achieve a third-party certification such as LEED for Commercial Interiors? What if a legitimate attempt to achieve that certification is unsuccessful? Third party certification is certainly not the only way to achieve a sustainable remodel. In its place, consider requiring important interior construction guidelines such as the use of sustainable materials, low-flow or touchless water fixtures, daylighting, etc.
Building Sustainability Goals: It might seem unnecessary, but setting a clear vision for building sustainability goals is vital to enlisting the help of building occupants, measuring success, and continuing to make improvements. Goals may be qualitative or quantitative, including building comfort and health, cost savings, marketability, and positive impacts on the local or global environment.
Entry: Consider when the landlord is permitted to enter the building to monitor building systems on an ongoing basis. This ensures systems operate at their highest possible efficiencies.
Indoor Air Quality: Require the use of low Volatile Organic Compound (VOC) paints, adhesives, and cleaning supplies to ensure the highest possible indoor air quality.
Recycling: A green lease often requires that the landlord provide all labor and receptacles for collection, storage, and disposal of paper, glass, plastics, etc. Requiring the tenant to use the receptacles is appropriate, and often required by local law. Additional terms might identify the party responsible for educating building occupants about the recycling program and ensuring it is followed. Is the recycling system convenient for occupants? Is it tracked?
Alternative transportation: Depending on the building’s location, a green lease might require that the landlord provide bicycle racks or indoor showers to reduce pollution associated with transit.
Enforcement Mechanism: The parties need to agree to the penalties if one party does not act in compliance with the green lease. For instance, if the tenant’s use of the building is inconsistent with its design as a sustainable building, does the landlord have the option to terminate the lease?
© 2010, Jessalyn Dingwell. All rights reserved. Do not republish.