The age of the “green” energy efficient building is upon us. Landlords and tenants must recognize the challenges and opportunities this movement brings, and rethink the lease that governs their relationship. Landlords and tenants negotiating a new lease or those whose lease term already is underway should consider whether to make their lease green.
Why Make Your Lease a Green Lease?
The leading reason for landlords and tenants to enter into a green lease is to achieve cost savings. A recent study by the U.S. Green Building Council found that 40 percent of total United States energy consumption, 72 percent of electricity consumption, and 13.6 percent of potable water consumption came from buildings. The study also found that green buildings consumed 24 to 50 percent less energy, 40 percent less water and produced 70 percent less solid waste. Reducing the amount of resources that a building consumes by going green can lead to significant savings for landlord, tenant, or both parties depending on how the lease is drafted.
There are many other reasons why parties to a lease may want to make a lease green. The Leadership in Energy and Environmental Design (LEED) standards, developed through the U.S. Green Building Council organization, are proving to be an effective method of standardizing and measuring energy efficiency. Case studies on green-designed spaces show an increase in worker productivity by 2-16 percent in a green building due to better indoor air quality and lighting.
Local, state and federal rules are also evolving which create incentives, or even requirements for green buildings. For instance, in 2007, President Bush signed the Energy Independence and Security Act (EISA), which set goals and standards to reduce energy use in federal buildings, including buildings in which the federal government leases space. Finally, the image created by a green building seems to have a significant business benefit. McGraw-Hill Construction reports that making a building green increases rent and occupancy ratios, returns on investment and the building’s value.
What Makes a Lease Green?
Although the term “green” is used frequently in pop culture and the news, a building that is accurately defined as green has some or all of the following characteristics:
-
Reduced use of energy and water resources
-
Reduced solid waste through integrated waste management practices
-
Usage of recycled materials
-
Healthy and comfortable indoor environments
-
A development process that reduces traditional construction waste
A lease is green if it engages the landlord and the tenant in a partnership to accomplish some or all of the characteristics listed above.
Making a Lease Green
There is no “one size fits all” green lease that can be applied to every situation. Many factors go into making a lease and a building green, including whether the space is in a new or existing building, the size of the building, the number of tenants in the building, and how green the owner intends for the building to be. Whether the lease is new, or whether the landlord and tenant are in the middle of the lease term will also determine how the lease is made.
There are several approaches to making a lease green, including modifying the terms of a traditional lease, starting with a new green lease form, or attaching an addendum to a traditional lease that will govern the green features and practices within the building.
Some of the many items to consider when making a new green lease or modifying an existing lease to make it green include:
-
Will the building obtain LEED certification or other similar certification?
-
Will the landlord or the tenant be responsible for implementing the green changes?
-
Will the landlord or the tenant be responsible for monitoring performance and compliance?
-
What’s the method for reducing energy usage and waste?
An individual assessment of each building is needed to determine the best form of green lease, and the necessary provisions to most effectively and efficiently meet the goal of making the building green.
Dividing the Costs and Benefits of a Green Lease
Going green involves capital costs that the landlord would like to pass on to the tenant. Conversely, going green may also provide lower operating costs that the tenant would like to benefit from. In an ideal world, both parties would be equally committed to the creation of the green lease and the willingness to pay for the costs of making the building greener. However, this is rarely the case, as going green is often more important to one party than the other. Landlords and tenants should ensure that their interests are being represented during the lease negotiation and in the lease documents. With good drafting and knowledge of the issues, the lease can be a win-win agreement for both the landlord and the tenant.
Brendan McPherson contributed to the content of this article.
About Polsinelli Shughart PC
With more than 480 attorneys , Polsinelli Shughart PC is a national law firm that is a recognized leader in the areas of business litigation, financial services, real estate, business law, labor and employment, construction, life sciences and health care. Serving corporate, institutional and individual clients regionally, nationally and worldwide, Polsinelli Shughart is known for successfully applying forward-thinking strategies for both straightforward and complex legal matters. The firm can be found online at www.polsinelli.com. |
