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Green Leasing: The Commercial Landlord’s Way to Save Cash and Energy

By 3p Contributor

By Jenna Cyprus

Sustainability has officially worked its way into the formula for commercial real estate appreciation. Sustainability in commercial real estate has transformed landlord-tenant relationships across the world. This organized effort has been dubbed green leasing.

If you own commercial property, adopting a green lease structure can make your property more desirable attract responsible tenants who understand that saving energy affects their bottom line.

Traditional leases don’t encourage saving energy

With most net and modified gross leases, the building owner is responsible for all capital upgrades. Neither the tenant nor the landlord has an incentive to save energy. The landlord doesn’t have a reason to invest in costly energy-saving systems because operating costs are passed to the tenant. Any reduction in energy usage benefits only the tenant.

At the same time, the tenant doesn’t have an incentive to save energy because in a shared space without a separate meter, they’re charged a portion of the entire energy bill, based on their square footage. Unless everyone in the building is also consciously saving energy, their efforts won’t make a dent in their bill.

Green leasing turns the frustrations of a traditional lease into a partnership between the landlord and tenant. It’s a groundbreaking concept that promotes energy efficiency through lease structures that “equitably align both costs and benefits of efficiency investments between building owners and tenants.”

Your tenants will put in the effort to save energy when they know their efforts are going to save them money. By creating this partnership-style lease, everyone benefits. Equitably aligning costs and benefits requires taking on a bit more responsibility than other landlords, but it saves everyone money and fosters a better overall landlord-tenant relationship.

Components of a green lease

Every green lease will be different based on the building’s improvements, design, construction, and certifications. Every green lease, however, should include clauses that require both parties to adhere to (and not violate) its sustainable building certifications (like the LEED certification). If your building has achieved a certification, violating that certification in any way can create big problems.

Your green lease should cover everything necessary for your building to maintain its certifications. For instance, the lease should detail the requirement of using an energy efficient HVAC system, having renewable energy sources, reusing stormwater, using motion sensors, and having low-flow plumbing fixtures. Your lease should also specify that any work performed by the tenant should conform to existing certifications and require contractors to recycle their construction waste.

For a detailed description of more energy-saving changes you can make, read this thorough energy saving guide. This guide describes how to apply for solar energy tax credits, and why you should hire an energy auditor. It also provides practical advice like installing a faucet aerator to increase water flow and reduce water consumption. The guide suggests incorporating clauses into the lease that requires the use of environmentally-friendly cleaning supplies, and maximum operating hours for the thermostat.

The guide also emphasizes the mutual benefit to a green lease: “Green leases can improve your relationship with your tenant. They are designed to have mutually beneficial provisions inside of them. They can make your tenant feel like he or she is working with you for a common goal not against you in lease negotiations or in an attempt to get repairs made.”

Green leases are successful – they’re saving money

The Institute for Market Transformation (IMT), along with the U.S. Department of Energy, recognizes landlords and tenants who maximize energy performance through green leasing.

Resistance to cost-sharing arrangements between a landlord and tenant is common. To break through this barrier, IMT recognizes businesses successfully utilizing a green lease through the Green Lease Leaders Program. This yearly award demonstrates existing success to those who are on the fence about green leases.

To be considered for the award, the entity must:

  • Align with the EPA’s new ENERGY STAR for Tenants recognition program

  • Implement green lease language in foundational corporate policies and lease forms

  • Have green leases in action
IMT explains, “A green lease, also known as an energy-aligned lease, is a proven tool that breaks the boundaries set by traditional leases, helping owners and tenants lower their operating costs and opening the door to deeper saving on utilities. IMT estimates that green leases can help reduce utility bills by up to $0.51 per square foot  (11-22 percent) in office buildings, and if all leased office buildings executed green leases, the U.S. office market could save over $3 billion in annual cost savings.”

Jenna Cyprus is a freelance writer from Renton, WA who is particularly interested in travel, nature, and parenting. Follow her on Twitter.

Image source: Pixabay / mastersenaiper


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