Hi Tam,

Submetering is one of the biggest issues in the green building industry today, particularly with respect to building sale transactions and negotiating leases to attract new tenants.

Building owners and landlords like submetering because they can pass ever-increasing energy costs directly to tenants. For instance, an owner of apartment buildings in New York City reduced energy usage at five properties by 26 percent—a total of 8 million kilowatt-hours per year—simply by installing sub-meters in units and charging the cost directly to renters.

Before submetering, many landlords included utility costs in the bulk price of the rent or divided the utility usage among the tenants through square footage. Submetering creates tenant awareness of utility costs, energy usage, and need for preventative maintenance while at the same time allowing building owners to provide a fair market rate for leasing their space.

Submetering and Commercial Green Building

In the commercial space for new and existing buildings, savvy owners and tenants can leverage their positions by negotiating the costs for submetering into their leases via tenant improvement allowances.

TI allowances are typically structured in two ways:

I. Turnkey Buildout: In this structure the landlord covers all of the cost of the tenant build out as part of the agreed rent (which in this case might include the costs of installing submeters)

II. Stated Dollar Amount: In this structure, the landlord provides an agreed dollar amount to use in building out the space which usually includes A-E fees (and which may or may not include submetering installation costs).

So the biggest question to ask before construction and before installing any submeter is who to pass the construction costs to: the tenant moving into the space or the building owner/landlord?

Another consideration when installing submeters is to decide how the actual power usage will be monitored and charged once the tenant occupies the space. This is usually done in one of two ways:

I. Allocation Basis method: The tenant individually pays the power bill directly to the utility company for their usage (usually separated by floor).

II. Selling Power method: The owner acts on behalf of the local utility company and bills the tenants directly for their electricity/water/gas usage. This method requires installation of utility grade meters and requires the building owner to monitor local utility rates. The lease transaction and the strategy selected by the prospective tenant will determine which type of meters are installed. Submeters placed on each floor in a commercial building will cost more to install but the energy costs will pass directly to the tenant. This method incentivizes owners to pay for the cost of installation while encouraging tenants to monitor and decrease their energy usage once they occupy the space.

One way to help offset upfront costs of installation is to approach the local utility and ask for energy efficiency incentive programs. One such program, called Measurement Based Persistence Commissioning (MBPCx) provides technical services and cash incentives to optimize the efficiency of HVAC, lighting, etc. and control systems in large commercial and institutional buildings.

If submeters are installed, building engineers will be able to monitor the building performance and actual energy use over time and the program will pay incentives as energy milestones are achieved.

Related Advice:

• Commercial Green Building Lease: 9 Provisions and Guidelines to Consider



• Green Lease Clauses - Part 1: Alterations and/or Tenant Improvements



• Negotiating a Green Lease: 6 Important Considerations for Tenant AND Landlord