Green leases unite owners and tenants to reduce the carbon footprint of a building | Novack and Macey LLP

A green commercial building benefits not only the environment, but also owners and tenants. The promises of lower utility costs, better indoor air quality, higher real estate value, better employee morale, and goodwill that come with helping out planet have pushed so-called green leases into the mainstream. In the wake of the COVID-19 pandemic, which has frequently pitted landlords and commercial tenants vs as demand for commercial space has faltered, green leases have the potential to unite tenants and owners towards a common goal of making their space more sustainable.

Green leases

A green lease is a rental agreement in which landlords and tenants agree to certain sustainable practices. The deal can provide financial incentives for tenants to reduce their energy use, save water, recycle, or engage in other sustainable actions. Green leases also specify who will pay for energy-efficient renovations and how tenants and landlords will benefit from the savings.

Rather than a specific type of document, a green lease refers to a series of provisions that can be added to a standard lease document. Like any lease, it can be adapted to the needs and objectives of the owner, the tenant and the building. When negotiating a green lease, both landlord and tenant need to come to a consensus on their sustainability goals, how they will measure progress, and what will happen if one of the parties does not live up to their fair share. of the contract. Here are some common elements of a green lease.

Transmission clauses

Green leases are particularly effective in creating change because they align the incentives for landlords and tenants to make environmental improvements and operate more efficiently. With traditional net leases, landlords pay for capital expenses, such as HVAC system upgrades, while tenants pay for utilities and other operating expenses. This creates little financial incentive for homeowners to invest in energy efficient upgrades, since tenants would reap most of the cost savings. On the other hand, with a full or gross service lease, in which the landlord bears the costs of the utilities, the landlord has an incentive to improve energy efficiency, but the tenant does not derive any financial benefit from limiting the amount. the consumption.

Designing the lease so that landlord and tenant share the costs of energy efficiency improvements and the benefits of lower utility bills will create a win-win situation for both parties. A transfer clause could be incorporated to allow the landlord to pass part or all of the costs of the improvements to the tenant as an operating expense, provided the costs are less than the savings expected from tenants.

Important purchasing provisions

The lease may include a provision that the landlord and lessee will agree to purchase environmentally friendly products, such as Energy Star rated or other office equipment and appliances; products containing Forest Stewardship Council certified wood; products from a certain number of kilometers from the property; low or no VOC paints, furniture and carpets; and non-hazardous cleaning products.

Operational clauses

Operational clauses, which focus on the operational parameters of buildings, can be used to support owner and tenant sustainability goals. For example, an operational clause can describe the formal hours of operation of the building and the acceptable temperature ranges during and outside these hours. Operational clauses can also specify how owners and tenants will collaborate on recycling and water conservation programs.

Measure and communicate data

The lease can also specify how data on energy and water use and progress towards goals will be measured and shared between landlord and tenant.

As with any commercial real estate lease, it is crucial that green leases clearly specify which party is responsible for which obligations in order to minimize the risk of litigation during the term of the lease. Depending on the situation, it may be advisable to consult with other experts, such as design and construction professionals with expertise in sustainable building practices.