The New Wave in Building Sustainability and Efficiency: Green Leases

Despite a troubled economy, developers are exploring the opportunity for new Leadership in Energy and Environmental Design (LEED) certified energy efficient buildings. Likewise, many tenants are also bent on reducing their carbon footprints and meeting emerging corporate sustainability requirements demanded by their customers and encouraged by their employees. As a result, many tenants today desire to be in buildings that truly manage their energy, water and resource consumption. The bottom line is this: Building “green” requirements into commercial leases can result in growing dollars in your pocket.

But what are “green” leases? Under one definition, green leases encourage sustainability in the construction, renovation and operation of commercial buildings. Sustainability is best viewed as a journey — a process of continued improvement to achieve higher efficiencies in water and energy usage, as well as recycled materials, waste minimization, healthier indoor air, and ever more efficient transportation options for the tenant’s employees and customers.

The regulatory environment affecting new development is rapidly evolving as well. Dozens of local governments in California have recently adopted green building ordinances. So, by all measures, the trend toward green leasing is accelerating and unmistakable.

So what are the basic elements of a green lease? They include:

1. Allocation (between landlord and tenant) of:

  • energy credits,
  • the costs of exceeding energy and carbon emission thresholds,
  • the costs of purchasing credits,
  • the benefits of selling these credits,
  • the costs to comply with carbon reduction requirements imposed by government,
  • revenue generated from the sale of excess energy generated from solar panels or other alternative energy sources that can also result in substantial benefits or savings to landlords and tenants.

2. Limits on wastes produced by tenants both in initial fit-out and ongoing operations.
3. Obligations to cooperate and implement multiple waste streams for recycling.
4. Repair and maintenance standards that are matched to environmental standards — not simply to base building standards, prudent tenant or comparable buildings standards.
5. Building maintenance standards that are targeted to a green lease standard, such as LEED certification or its equivalent.
6. Tenant improvement standards tied to LEED CI (Commercial Interiors) certification or its equivalent that allows the use of recycled materials, among other things.
7. Efforts to avoid volatile organic compounds and other harmful chemicals.
8. Linkage of capital and operating costs with retrofits to achieve government sustainability guidelines, LEED certification, existing building (EB) or equivalent standards that can be passed through in operating costs.
9. Rules that allow the recovery of certification costs paid to independent “Green Building” certifiers.
10. And, finally, rules that allow landlord inspections and testing to determine when and if environmental objectives are breached.
All told, building owners and developers should carefully consider efforts to improve energy efficiency and help landlords and tenants better manage their resources through green leases. Doing so will help reduce costs for all and, as an added benefit, will address the growing concerns of consumers and employees over climate change and limited resources.

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