GREEN LEASING A LEGAL PERSPECTIVE. Overview Green Building & Evolution of Green Lease –What is...

GREEN LEASING

A LEGAL PERSPECTIVE

Overview• Green Building & Evolution of Green Lease

– What is “Green Building”?– Who Determines if a Building is “Green”?– What is LEED?– What is a Green Lease, and Why Do We Need It?– Green Lease Drafting Issues– Barriers to Green Leases

• Salient Green Leasing Issues– Regulating Behavior– Cost Recovery & Benefit Allocation– Compliance, Risk Allocation, Remedies & Dispute Resolution

• Green Leasing in LEED – EB Context• Summary & Conclusions

Green Building & Evolution of Green Lease

• What is “Green Building”– “The practice of increasing the efficiency with which buildings use

resources – energy, water and materials – while reducing building impacts on human health and the environment during the building’s lifestyle, through better siting, design, construction, operation, maintenance and removal.” – EPA

– “Design and construction that uses building techniques that minimize environmental impacts and reduce the energy consumption of buildings while contributing to the health and productivity of the occupants.” – USGBC


• Who Determines if a Building is “Green”?– Currently, no federally-legislated definition

– Voluntary rating organizations:

• USGBC – LEED

• Green Globes

• Energy Star

– Local ordinances (often by reference to rating organization standards)


• What is LEED?– Voluntary, consensus-based national

standard for developing and operating high performance sustainable buildings

– 9 rating programs (including pilots)• Most relevant: NC; CS; EB; CI• Inter-Relationships of Rating

Systems– Leading third party certification

program in U.S. (standard for many current and proposed governmental ordinances)


• Green Lease – What is it?– Lease which has additional provisions set out within it, whereby the

Landlord and Tenant undertake specific responsibilities and obligations with respect to the sustainable operation of a building (e.g., energy efficiency measures, waste reduction/management and water efficiency).


• Green Lease – Why do we need it?– New level of necessary behavioral regulations & control, as each

party’s actions or inactions impact performance of building and the ability to achieve/maintain LEED certification

– New cost & benefit allocation issues

– Risk Allocation

– Compliance, Default, Remedies & Dispute Resolution


• Green Lease – Drafting– Must define “Green”, and properly allocate responsibility for achieving

and maintaining sustainable objectives. Which LEED?

– Deal and building specific by nature, so doesn’t lend itself to a “form” lease, although some are starting to appear (e.g., BOMA)

– Approaches:

• Paternalistic: Obligations for reduced consumption of energy or resources, and environmentally responsible behavior, are mandated by Landlord or Tenant.

• Cooperative: Mutual objectives are set out in Lease for both parties to achieve, leading to responsibilities and liabilities for both parties.


• Barriers to Green Leases– Landlord Barriers

• Long pay-back periods for certain improvements

• Lack of skill or knowledge; risk aversion

• Indifferent tenants; lease restrictions (lighting; materials; building improvements)

• Inability to pass-through “green” costs


– Tenant Barriers

• Lack of skill or knowledge

• Fear of unfair rent increase based on “green cost” pass-throughs

• Inability to produce, or procure from Landlord, premises – specific water & energy consumption data (submeter)

• Energy & water costs assessed on p.s.f. basis, rather than direct consumption, so no savings incentive

• Lease restrictions (alterations; inability to compel recycling or energy management programs; inability to compel record-keeping)

Salient Green Leasing Issues

• Regulating Behavior– Importance

• Critical to achieving/maintaining LEED certification

• Direct impact on building performance (operating costs; building value)

• Ancillary impacts (tenants; financing; tax abatements or other incentives; reputation)


– Tenant Behavioral Controls• Build-Out; Future Alterations,

Improvements & Repairs– Enhanced need to restrict and control

Tenant’s build-out, and future alterations and repairs, to ensure compliance with green standards of building

• Construction waste management• Adherence to green features

(low-VOC paints; energy efficient appliances; water efficient fixtures; HVAC & lighting controls; energy management program)


– Ensuring Compliance

• Approval over Tenant’s plans & specifications

• Approval over Tenant’s design & construction team/contracts (LEED expertise/experience)

• Must use Landlord’s contractor (liability issue?)

• General compliance with certain LEED rating system

• Specify green standards & requirements in lease or in attached work letter

• Approval over all Tenant alterations, improvements and repairs (caution: carveouts for deminimus work)

• If casualty, Tenant must rebuild to certain LEED standard


• Operations

– Landlord must ensure tenant participation in any green measures applicable to the building

• Recycling/Energy Management Programs

• Energy conservation measures

– Utilities

• Landlord right to purchase green or renewable energy

• Ability to measure consumption, charge for overconsumption, regulate consumption

Salient Green Leasing Issues• Record-Keeping/Reporting

– Tenants must be required to provide the necessary energy/IAQ/water use data to Landlord for purposes of Landlord’s reporting requirements

• Rules & Regulations

– Landlord must have the ability to ensure tenant compliance with the “green” rules and regulations for the building

Salient Green Leasing Issues– Landlord Behavioral Controls

• Benchmarks & Targets

– Tenant must ensure “green” benchmarks and targets are clearly defined in lease.

• Performance Standards

– Specifications & procedures for measuring environmental performance should be set forth in lease.

– Caution in using of old standards to define Landlord obligations – e.g. “first class operations” or “reasonable landlord” standards

• Operation & Maintenance Obligations

– Landlord’s ongoing operation & maintenance obligations with respect to green features should be specified.

Salient Green Leasing Issues• Green Programs

– Any tenant-required green programs for the building should be set forth in lease.


• Cost Recovery & Benefit Allocation– Cost Recovery

• Breadth of Operating Expenses– Green features (e.g., vegetated roof, water

collection system)– Amortized costs of green equipment/systems

and operational enhancements– Costs related to LEED certification

• Lease Economics– Net Lease vs. Gross Lease– Allocation of benefit/risk of reduced

operating costs– Base year issues

Salient Green Leasing Issues– Benefit Allocation

• White Tags & Carbon Offset Credits

• Energy Savings

• Tax Rebates

• Reduced Insurance and Financing Costs


• Compliance, Risk Allocation, Remedies & Dispute Resolution– Compliance

• Specific obligation to obtain/maintain targeted LEED certification

• Definition/measurement of success

• Time period for performance

• Obligation of each party to perform

Salient Green Leasing Issues– Risk Allocation

• Failure to achieve targeted LEED certification

• Performance and durability of new technologies

• Insurance

– Coverage for green features

– Coverage for recommissioning & recertification fees

– Endorsement for upgrading conventional to “green”

– Available products:

• Fireman’s Fund – “GreenGuard” Insurance Program (Green upgrade coverage; Green certified building coverage; Building commissioning coverage)

• AON – “Green Building Property Program” (Green replacement and upgrade coverage; Covers costs to hire LEED-AP design professionals; Covers LEED certification costs)

Salient Green Leasing Issues– Remedies

• Termination of lease

• Self-Help

• Rent Reduction or Abatement

– Alternative Dispute Resolution

• Expedites resolution of disputes over why a particular target or objective is not being met (lack of compliance with policies & regulations; excessive energy use; failure of green features or technologies)

Green Leasing in LEED – EB Context

• 9 Prerequisites; Minimum 34 Points Required for Certification

• Applies to Whole Building, Including Tenant Space

• Building Must Be At Least 75% Occupied for 12 Months


• Credit Categories:– Materials In

– Materials Out

– Building Administration

– Green Cleaning

– Site Management

– Occupant Health & Safety

– Energy Metrics

– Operational Effectiveness


• Must File for Recertification At Least Every 5 Years– Must be able to demonstrate adherence to environmental policies &

procedures

– Must track occupants purchasing and waste streams to verify performance goals

– Must maintain minimum required occupancy, and track occupant satisfaction


• At Least 28 Points (Maybe More) Require Some Level of Tenant Participation (Excluding Cost Allocation Issues):– Alternative transportation– Light pollution reduction– Water efficiency– Sustainable purchasing– Solid waste management & reduction– Occupant comfort– Tenant construction IAQ and waste– Daylighting & views– Green cleaning

Summary & Conclusions

• Growing Need for Green Leases– Rising costs of energy, water, materials and insurance, as well as

increased governmental environmental and air quality regulation, will drive green buildings

– Tenants seeking to reduce carbon footprints and meet corporate sustainability reporting requirements

– Tenants and Landlords seeking to manage energy consumption costs

– Tenants need assurance that Landlords will provide what they need to meet green objectives, and vice-versa

Summary & Conclusions

• Green Lease is a Double-Edged Sword– Increased regulation & expense pass-throughs = share in cost savings

and additional remedies (cooperative approach)

– Should achieving higher levels of certification = higher rents?

– Landlord and Tenant held to higher standards with respect to features and performance of building

• Green Leases are Property and Transaction Specific; No Single Form Works for Every Deal

Robert E. Stanley, Esq. 1170 Peachtree Street, Suite 750

Atlanta, GA 30309(404) 835 - 6201

[email protected] www.seblaw.com

mailto:[email protected]

http://www.seblaw.com/

GREEN LEASING A LEGAL PERSPECTIVE. Overview Green Building & Evolution of Green Lease –What is...

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