The Greening of the Office Lease

Ellen Sinreich, President Green Edge, LLC reporting

 

In order for a commercial office building to achieve the most in terms of sustainability, the landlord and its tenants must partner in working toward that goal. In the case of the landlord and tenant relationship, the governing document is the lease. If the landlord and the tenant agree that the property subject to the lease should be constructed, operated and occupied in a sustainable fashion, that should be reflected in the lease.

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What Should a Green Lease Cover?

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A “green” commercial office lease should incorporate the agreed upon sustainability goals for the building and the rights and responsibilities of each party necessary in order to achieve those goals.  Typically, sustainability goals for a commercial office building would include one or more of the following:

 

- Goals for reduced consumption of energy, water, and other natural resources;

- Goals for minimizing waste and diverting both construction and operational waste from landfill – in other words, recycling goals;

- Goals for creation and facilitation of superior indoor and exterior environmental quality; and 

- Data collection, sharing and use as between landlord and tenant.

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After these goals have been agreed to, the lease should be clear about the level of commitment on the part of the parties to achieve them.  One suggestion is that landlord and tenant agree in the lease to make good faith, reasonable efforts to achieve the stated sustainability goals and to reevaluate each of the goals periodically during the lease term.

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Reduced Energy and Water Consumption

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In order to make the goals of reduced energy and water consumption realistic and achievable, the parties must be able to measure their consumption.  After all, if you can’t measure it, you can’t fix it.  Thus, the green lease should provide for metering or submetering the tenant’s consumption of energy and water in its premises and should address the cost and responsibility of installing and periodically reading the meters.  The party responsible for reading the meters periodically should also be responsible for promptly communicating the information gleaned from the meter readings to the other party to the lease. 

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Equally important in a green office lease, the economic costs and benefits of reduced resource consumption should be allocated between landlord and tenant in a manner that both facilitates the goal of reduced consumption and compensates the appropriate party(s) for the cost(s) (if any) incurred to get to that goal.  Thus the traditional office lease arrangement whereby the cost of the energy and water consumed by the tenant in its premises is included in the base rent, with the tenant possibly paying its share of building wide cost increases over base year costs, needs to be examined and modified.  In the traditional scenario, the tenant typically has no knowledge of what it is consuming and it has no economic incentive to minimize that consumption.

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Finally, the green office lease should set forth milestone dates around which the parties agree to discuss how actual consumption compares to the sustainability goals set forth in the lease and to use reasonable efforts to correct any discrepancies. 

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Diverting Waste from Landfills

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It is hard to imagine a “green” office building that does not have a recycling program, including a reasonably convenient space for the collection and separation of materials to be recycled, and arrangements with third parties to pick up the materials to be recycled.   Thus, a “green” office lease should obligate the landlord and tenant to recycle both construction and operational waste and to keep track of and share with one another the percentage of that waste that is recycled and the percentage that goes to landfills.   Ideally the landlord’s recycling program will be a profit center and entitlement to those profits as between landlord and tenant should be spelled out in the lease. 

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Indoor Environmental Quality

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The “green” office lease should also cover indoor environmental quality.  Both landlord and tenants should be “obligated” in the lease to use low or no VOC materials in the construction of the interior of the building, as well as materials that are rapidly renewable, regionally extracted and manufactured, contain recycled content and are themselves recyclable at the end of their useful life within the building.  In order to facilitate this and make “going green” easy - especially if the tenant is doing any construction or fit-out work in the premises - a green lease should include an exhibit or be accompanied by guidelines that will educate the tenant about the green options for materials, mechanical and utility systems and contractors in the geographic location of the building.      

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There is not much precedent in creating a “green” office lease. Therefore it is an opportunity to be creative and responsive to the goals and realities of the situation at hand, rather than an opportunity to follow a pre-determined formula.  In other words, this is a chance for landlords and tenants and their real estate attorneys to break new ground and really make a difference.    

 

Ellen Sinrich, LEED AP

President/ CEO Green Edge, LLC

1755 York Ave., Suite 18C

New York, NY 10128

212-828-3840

Ellen@greenedgellc.com 

www.greenedgellc.com    

 

 

 

Comments

[Ellen]

Thanks to Bronwyn Galletly for your thoughtful comment above. In answer to your question, I believe that the current economic climate will facilitate the adoption of "green" leases. As the tools for establishing the incremental value of "green" buildings as compared to their less sustainable "twins" become available, transparent and accepted in the marketplace, both owners and tenants will be more motivated to align their interests, and enter into green leases for example, in order to maximize the value creation potential of the buildings that they own and operate, especially in a tough economic climate.

[Bronwyn Galletly]

I work for a collaborative business platform geared towards green business called 2degrees (www.2degreesnetwork.com). There was a great discussion (in my opinion) regarding green leases on 2degrees recently where there were contributions from a range of solicitors, academics, large landlords etc. It was interesting to hear the talk of basic ‘green’ clauses potentially becoming standard and whether these would be in shades of green so to speak. I am interested to hear your view of how the current economic climate will affect the adoption of green leases.

[SweetBrick]

Great post. You mentioned recycling but it would be great to see more green office buildings take a larger role in making it easier for tenants to compost their food waste.