The use of a “green lease”, as opposed to traditional lease, is essential to any commercial green building operation. Green leases are becoming more common as sophisticated real estate operators clearly see the benefit of making sustainability a part of their investment strategy.

Commercial green leases have a more positive effect on NOI than traditional commercial leases. Why? By requiring both the landlord and tenant to act responsibly in terms of the most efficient use of materials and resources, regardless of the cost of energy, results in lower operating costs for both parties.

Not only are commercial leases often long term commitments, but also it may be very difficult to predict energy costs for the foreseeable future… energy costs that may be low in one year (say the first year of a commercial lease, when it is negotiated), may then spike next year or more gradually increase only to stay high for an extended period of time.

According to Mychele R. Lord, Founder of LORD Green Real Estate Strategies, a dual-incentive green lease may result in a 20%-40% reduction in energy demand for a commercial green building.

Brandon-Boswell-Bryce-Spivey-tankpondandjames150To develop an effective, thoughtful green building lease, an operator must preemptively create a lease structure that contains negotiable and non-negotiable items that are designed to impact a building’s energy and environmental goals.

Ideally, the green lease aligns the landlord’s goals with those of his tenants.

5 Green Lease Items to Consider:

The following are popular items that can have the most positive impact on a green lease:

  1. Define your commercial green building operating program through a third party certification standard such as LEED, BRREAM, Energy Star or Green Globes and align your commercial lease to be complimentary to the chosen standard.
  2. Define common area maintenance (“CAM”), pass through costs and/or recoverable operating expenses to include the costs of green building capital expenditures and repairs and maintenance-related items such as commissioning.
  3. Make sure lease terms contemplate incorporating smart lighting technologies such as motion sensors, daylighting sensors, timers and other solutions to reduce unnecessary electricity use for lighting. Require tenants to provide copies of utility bills to the landlord for use with the Energy Star Portfolio Manager tool to benchmark energy consumption patterns against a baseline and make the building’s Statements of Energy Performance available to tenants who want to review them. Also require tenants to use only Energy Star compliant equipment and appliances.
  4. Include important environmental terms in standard lease definitions to clearly reference items such as “Carbon Tax”, “Carbon Offset Credits”, “Renewable Energy Credits”, “Greenhouse Gases” and other items and define a realistic but challenging building standard kWh consumption level per square foot for the building. Include language that clearly levies additional fees or penalties on tenants that do not comply with the kWh consumption levels.
  5. Develop clearly defined, easy to follow and hard to avoid recycling programs that are convenient for tenants. Such program would require that tenants properly dispose of compact fluorescent lamps in recycling containers, and dispose of cardboard, metal, glass, paper and plastic in designated areas.

See this article for additional examples of green lease terms and definitions.

CONTRIBUTING EXPERT

imageClaire Moloney

A recent graduate of Cornell University, where she studied Environmental Science and concentrated in Sustainable Development. Her interest in green building and LEED stems from her project-based coursework at Cornell, where she proposed design strategies for sustainable developments in Helena, MT and Ithaca, NY. Claire also exercised her passion for sustainability and energy conservation through extracurricular activities at Cornell, such as Solar Decathlon, Lights Off Cornell and Sustainability Hub. For the last three summers, she worked on energy projects at a town government, including an on-site hydrogen station and EECBG-funded activities.

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