What is a Green Lease?

The US General Services Administration (GSA), the largest property owner in the U.S., promotes government-wide efforts to create green, sustainable buildings.

To support this work, GSA has issued two Realty Services Letters, one on the topic of Green Lease Policies and Procedures for Lease Acquisition and the other on Energy Star Requirement for Lease Acquisition.

These policies, along with a final Sustainability Update, incorporate modified and additional "green lease" language in all federal leases, and require buildings to earn the Energy Star label.

When structured properly, a green lease can be mutually beneficial for the tenant and the landlord. However, there are a few barriers to making green leasing ubiquitous in the private sector.

One of the biggest barriers to green leasing is tenant feedback and measuring the return on investment (ROI). A tenant occupying a small portion of a large commercial building might make certain efficiency upgrades, but if the building is not submetered, there is no way for the tenant to receive recognition for its accomplishments or to accurately measure its savings.

Also, some sustainability strategies may be difficult or impossible to pursue depending on whether the tenant or landlord is in control of portions of the building. For instance, a tenant might want to insulate the roof to provide for more energy savings, but might not have the ability to make such an improvement.

While green leasing adoption still lags behind conventional leasing, it is clear that green leases are becoming an established strategy for enabling more environmentally and financially efficient operations in all types of buildings.

Split Incentive and Other Barriers to Green Leasing

In many commercial leases, the tenant is typically responsible for paying its rent, plus expenses, plus additional pass through costs, such as its proportionate share of the property taxes, building insurance, and maintenance costs.

Capital expenditures are typically the landlord's responsibility, not a pass through cost to tenants.

This results in what is often referred to as the "Split Incentive".

As such, landlords often have little incentive to make green investments because they may not be able to charge the tenant incrementally for the upgrades and make a return.

In other words, if the landlord invests in green building efficiencies, the landlord pays, but most of the benefits go to the tenant in the form of enjoying the improvements, lower maintenance and operations costs.

If, instead, a gross lease is used, the tenant pays some of the costs usually absorbed by the landlord, such as green capital expenditures (aka "CapEx"). The result is incentives that align better for successful green design.

In such a structure is set-up, the landlord can recoup its investment through the tenants and the tenants benefit from a better building and reduced operating costs.

For instance, landlords could require tenants to achieve LEED for Commercial Interiors certification, participate in recycling programs, specify green improvements and disposal of waste, use of energy efficient light bulbs, motion sensing light timers, low-flow toilets, or Energy Star rated appliances in their leases.

Important Aspects of Green Lease Clauses

The following are aspects of popular lease clauses that can help make a green lease successful for both the landlord and tenant:

1) Certification: 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) Definition of CAM: 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) Definition of Smart Technologies: 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) Common Terminology: 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) Easy Recycling: Develop clearly defined, easy to follow and hard to avoid recycling programs that are convenient for tenants. Such programs 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.

The following graphic from the Institute for Market Transformation, provides a simple overview of how a green lease works:

Green Lease Language Examples

The following are examples of standard "Green Lease" language found online and suggested by organizations such as the U.S. Green Building Council, the Building Owners and Managers Association (BOMA), the Institute for Market Transformation (IMT), ENERGY STAR, the NYU Green Lease Guide, Better Buildings Challenge and others.

These examples are provided for informational purposes only... As green building technologies and rating systems are changing constantly, you would want to adapt any of these standard clauses to suit your particular situation.

In some cases, landlords may incorporate LEED certification, or other green building certification concepts, into lease language, but this is not necessary to have a green lease.

Water Efficiency Requirements

LEED CI: WE prerequisite 1: Water Use Reduction - Select fixtures that, in the aggregate, use 20% less water than the water use baseline calculated for the building.

LEED CI: WE credit 1: Water Use Reduction - Select fixtures that, in the aggregate, use 30% less water than the water use baseline calculated for the building, except for leased space and buildouts which only include pantries with sinks, in which case Tenant must only comply with a 20% water reduction.

Energy and Atmosphere

LEED CI: EA prerequisite 1 – Fundamental Commissioning - For all tenant fit out work, tenant shall identify and engage either a commissioning authority or members of the design or construction team to oversee that construction is performed in accordance with the design. The minimum requirements are to verify that the installed mechanical and electrical systems match the design and operate as intended, that the test and balance report is acceptable, and that all previously noted deficiencies in the test and balance report were corrected. This is typically performed and included in the design and construction team’s scope of work.

LEED CI: EA prerequisite 2 – Minimum Energy Performance - The Leased Premises must comply with ANSI/ASHRAE/IESNA Standard 90.1-2007, as well as with all other requirements contained in this credit, including the installation of ENERGY STAR qualified equipment.

LEED CI: EA prerequisite 3 – CFC Reduction in HVAC&R Equipment - Zero use of chlorofluorocarbon (CFC)-based refrigerants in tenant scope of work.

LEED CI: EA credit 1.1 – Optimize Energy Performance: Lighting Power, option A - Reduce connected lighting power density 16% below that allowed by ANSI/ASHRAE/ IESNA Standard 90.1-2007.

LEED EBOM: EA credit 3 – Performance Measurement: Building Automation System - Tenant must install heating, cooling, ventilation, lighting systems, fans, HVAC equipment, and thermostats that are compatible with the base building automation system (BAS).

Efficient Buildouts

Tenant perspective:
 Any and all Tenant Improvement Work and/or Alterations will be performed in accordance with Landlord sustainability practices that the Tenant has accepted as part of the lease agreement, including any agreed upon third-party rating system concerning the environmental compliance of the Building or the Premises, as the same may change from time to time.

Landlord perspective:
 Landlord's approval of Tenant's proposed Space Plan, Working Drawings, or Change Order shall not be unreasonably withheld, conditioned or Delayed; provided, however, that Landlord shall not be deemed to have unreasonably withheld its approval of any Space Plan, Working Drawings or Change Order that: Does not reflect a ten percent (10%) efficiency improvement in tenant buildout lighting efficiency over minimum code.

Tenant further agrees to engage a qualified third party LEED or Green Globe Accredited Professional or similarly qualified professional during the design phase through implementation of any Tenant Improvement Work and/or Alterations to review all plans, material procurement, demolition, construction and waste management procedures to ensure they are in full conformance to Landlord’s sustainability practices, as aforementioned.

Right to Relocate

Landlord’s relocation of Tenant shall be to a relocation Premises that meets or exceeds the green certification rating of the Premises and meets or exceeds the energy and carbon efficiency of the space, as determined by the U.S. EPA’s Energy Star® performance rating tool, Portfolio Manager.

Utility Data Sharing

The Landlord and the Tenant will share the Environmental Performance Data they hold relating to the Premises and/or the Building. This Environmental Performance Data will be shared on a regular basis [but not less frequently than monthly/quarterly/annually] with each other, with the Managing Agent and with any third party who the Landlord and the Tenant agree needs to receive such data.

Save where they are under a statutory obligation of disclosure, the Landlord and the Tenant will keep confidential the Environmental Performance Data shared under this clause, and will only use such data for the purposes of:

a) Monitoring and improving the Environmental Performance of the Premises and/or the Building and/or

b) Measuring the Environmental Performance of the Premises and/or the Building against any agreed targets.

The Landlord will procure that the Managing Agent is placed under a similar obligation to keep any shared data confidential and to use it only for the purposes listed above. Where the Landlord or Tenant discloses any shared data to a third party, they will procure that that third party is placed under a similar obligation to keep any shared data confidential and to use it only for the purposes listed above.

Permitted Use

Tenant shall not use or operate the Premises in any manner that will cause the Building or any part thereof not to conform with Landlord’s sustainability practices or the certification of the Building issued pursuant to the [the U.S. EPA’s Energy Star® rating, the Green Building Initiative’s Green Globes TM for Continual Improvement of Existing Buildings (Green GlobesTM-CIEB), the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system, or ______ standard].

Landlord & Tenant Maintenance: Sustainability Best Effort

Tenant perspective: Landlord shall use best efforts to help meet building-wide energy use reduction goals and minimize unnecessary use of electricity, water, heating, and air conditioning. The operation of common spaces and core building systems will be conducted in reasonable according with the sustainability goals mentioned herewith and with Landlord and Tenant sustainability goals.

Landlord perspective:
 Tenant shall use best efforts to help meet building-wide energy use reduction goals and minimize unnecessary use of electricity, water, heating, and air conditioning, including recommended use of window shades and curtains to keep out summer heat and keep in winter warmth.

Trash & Recycling Management:

Tenant perspective:
 Landlord shall set up a building-wide infrastructure for materials recycling and supply a “Single Stream” bin to Tenant for paper, metals, and plastics, including polybags and hangers. Landlord shall also provide electronics disposal bins for computers, etc. Tenant shall use best efforts to recycle by separating waste stream into Single Stream (paper, plastic, metals), and dispose of all electronic items (cell phones, computers, etc.) in designated bins.

Landlord perspective: 
The Tenant shall place all refuse and recyclables in the receptacles provided by the Tenant in the Premises or in the receptacles (if any) provided by the Landlord for the Building, and shall otherwise keep the Lands and the Building and the sidewalks and driveways outside the Building free of all refuse

Rooftop Access and Control: Solar Panels

Tenant perspective:
 Tenant may install solar panels on the building and Tenant is entitled to all benefits to be derived from such installation including any incentives and credits and any revenues resulting from power generation.

Landlord perspective: 
 Tenant shall be entitled to place electrical generating equipment on the Building’s roof pursuant to the terms and conditions set by the Landlord. All of the terms of this Lease shall be applicable to Tenant’s Generating Equipment as if the Generating Equipment were part of the Premises, but Tenant acknowledges that the Generating Equipment is not part of the Premises.

The Generating Equipment and rooftop shall not be used for any other purpose without Landlord’s written consent. Tenant shall bear all of the cost and expense of designing, purchasing, installing, operating, maintaining, repairing, removing and replacing the Generating Equipment, and for repairing and restoring any damage to the Building or to Landlord’s or any other person’s or entity’s property arising therefrom.

The Generating Equipment shall be installed and maintained by Tenant in a manner reasonably acceptable to Landlord. Nothing herein grants Tenant any right to access the roof of the Building unless accompanied by an employee of the Building Manager or other representative of Landlord, except that access shall be permitted in emergencies. Tenant’s rights to place Generating Equipment on the rooftop are non-exclusive.