We all know there are many direct financial benefits to reducing one’s energy usage or to otherwise conserve resources and be “green”. However, there is one segment where these advantages are less obvious, and that is the leased community. In many cases, such as comfort, if a landlord invests money to make a building more efficient or “green”, the tenants benefit (reduced need for electricity and/or fuel usage) with, reduced costs, but the landlord does not get directly compensated for the initial investment. Examples include improving the building envelope or upgrading the A/C system. Thus, there is little motivation for a landlord to invest in energy upgrades.
As a result, there is a recent growing concept of “green” leases which incentivize energy and related upgrades. According to a recent study issued by the Institute for Market Transformation called “What’s in a Green Lease? Measuring the Potential Impact of Green Leases in the US Office Sector” (http://www.imt.org/resources/detail/green-lease-impact-report), green leases have the potential to cut energy consumption by 11 to 22% (or $0.26 to $0.51 per sq. ft.) in US leased office buildings.
The intention of “green” leases is to provide direct financial benefits for energy conservation measures to both the tenant and landlord for their investment.
The report provides ideas to consider to make a lease more “green”, such as:
• Savings Pass-Through: This allows landlords to pay for the investments in energy efficiency by directly adding a portion of the energy cost savings from their tenants in the rent over a period of a few years until the original investment is recouped.
• Energy-Efficient Tenant Buildout: This mandates that tenants meet certain basic “green” guidelines in the lease to ensure that the space (which the landlord owns) is high-performing. Taken to an extreme, it could mean that the space meets a certification program, such as LEED. However, since this can be quite expensive, minimal standards of lighting power density (watts/sq. ft.) or only using energy- and water-efficient equipment may suffice. The tenant saves money in the long run; the landlord has made no initial investment and the building is potentially more desirable upon re-sale or when the tenant moves out; and both meet sustainability goals. For example, ASHRAE 90.1-2013 recommends a lighting power density for an office of 0.82 watts/sq. ft. (and lists recommended power densities for other functions).
• Submetering: As discussed in other blogs, installing sub-meters for tenant spaces and having the lease re-written to mandate that tenants pay for electricity, gas, water, etc.is a proven way to make tenants aware of their utility usage. After a bill or two comes in and tenants see the correlation between usage and cost, they are incentivized to reduce energy and water usage.
Please note that this is a technical only evaluation about the topic of “green” leases, and not a legal one. Please speak to a qualified legal professional if you wish to develop “green” leases. CCES can help you assess your energy and water usage and develop smart, cost-effective ways to reduce your usage and costs without impacting and, in fact, enhancing your operations. Contact us today at 914-584-6720 or at karell@CCESworld.com.