Leasing & Operating Green

Leasing & Operating GreenLeasing & Operating GreenAn Overview of Issues in Leasing and Managing An Overview of Issues in Leasing and Managing

Green Commercial Real Estate SpaceGreen Commercial Real Estate Space Michael Kerwin

Christopher StevensonWilliam AmannGinny Carita

Brian BanaszynskiJesse Nash

The material provided herein is for informational purposes only and is not intended as legal advice or

counsel.

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Sustainable Somerset

A Quality of Life Found in Somerset County, New

Jersey

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The Mission of the Somerset County Business Partnership

is to Lead a Business Community that is Prosperous

and Sustainable

Somerset County Business Partnership

Mission Statement

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Legislative Advocacy: • “Making NJ Affordable” Campaign: www.MakingNJAffordable.com

Emerging Industries:• Support the Freeholder Initiative to Develop a Business Plan to

Attract Emerging Industries Shared Services

• Support Recommendations to Consolidate Local Services, i.e., Construction Code Officials, Municipal Courts, Police Dispatching

Business Retention• Work with Local Municipalities to Implement Local Efficiency in the

Private Sector Sustainability

• Source for Comprehensive Solutions that Improve Mobility, Reduce Traffic and Reduce Energy Consumption within the Private Sector

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The Somerset County Business Partnership Sees Sustainability as One of the Key Strategies to Make Somerset County More Affordable,

Competitive, and Improve Our Quality of Life.

Somerset County Has an Opportunity to Become a Leader in this Area.

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RideWise is the Transportation Affiliate of the Somerset County

Business Partnership; the Source for Sustainable Travel Solutions that Improve Mobility, Reduce Traffic Congestion & Decrease Carbon

Emissions

RideWise

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Somerset County Energy Council

• Created January 2008 to Support Policies Promoting Energy Efficiency

$1M Energy Audit Grants for Somerset County Public Agencies

Somerset County Renewable Energy Initiative

Making Connections: Somerset County Circulation Element

• Match Investments to Smart Growth

Somerset County Waste Water Management Plan

• Update- Required by DEP• Match Zoning Build Out to Plan

Capacity• Sets Septic Density Limits

Snapshot on Redevelopment• Regional Agenda for

Redevelopment Natirar Agricultural Initiative

• Work with Sponsors of the NAI to provide incentives and awards for schools who successfully implement wellness programs

• Forming a Network of NJ Farmers from around the state (and country) to source food for school cafeterias

• Being Totally Self Sufficient for Operations of Restaurant & Cooking School

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Open Space Preservation• Open Space Tax Initiated in 1989• Somerset County has Acquired 11,054 Acres of Dedicated Open Space to Date.

Duke Farms• 2,700 Acre Estate Offering Greater Public Access & Educational Programs with

Focus on Land Stewardship & Sustainability Willow School

• Platinum Rated LEED Certified School Building Natirar

• Natirar ‘s Virgin Spa – A Luxury Destination that Upholds the Agricultural Authenticity of the Surrounding Environment – Goal of Being Totally Self Sufficient for Operations of Restaurant & Cooking School

• Formed the Natirar Agriculture Center in Conjunction with Somerset County Ferrera Construction

• Created the First Commercial NetZero Electric Building in the US Carrier Clinic

• 14 Acre Use of Solar Energy Farm to Offset Percentage of Electrical Use

The Emerging and Evolving The Emerging and Evolving Green Leasing Market Green Leasing Market

Chris Stevenson

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The Emerging and Evolving Green The Emerging and Evolving Green Leasing MarketLeasing Market

• Energy Demand/Cost - Buildings account for almost 40% of U.S.

primary energy use (and carbon emissions)- NJ Energy Master Plan projects energy expenditures will almost double between 2005 and 2020 and describes a business as usual approach to energy as unacceptable- USEPA: Demand for all energy sources forecast to grow 57% worldwide and 31% in U.S. during the next 25 years

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The Emerging and Evolving Green The Emerging and Evolving Green Leasing Market Leasing Market

• GHG Reduction Goals (80%+ by 2050)- American Clean Energy and Security Act of 2009 “Waxman-Markey Bill” (H.R. 2454,

passed House June 26, 2009)

- Clean Energy Jobs and American Power Act - “Kerry-Boxer Bill” (S.1733, introduced Sept. 30, 2009)

- NJ Global Warming Response Act (July 2007)

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• Green Buildings- Energy Independence and Security Act of

2007 – goals for zero-net-energy commercial buildings- American Clean Energy Leadership Act

(S.1462; pending) - establish national model building energy efficiency codes, goals for zero net energy or “carbon neutral” buildings, and energy performance labels for

commercial buildings

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• Green Buildings (cont.)- Waxman-Markey & Kerry-Boxer Bills propose

national energy efficiency building codes- USDOE Zero-Net Energy Commercial Building

Initiative- EPA’s “ENERGY STAR” program- US Green Building Council – Leadership in

Energy and Environmental Design (“LEED”) Green Building Rating System

- Green Building Initiative’s “Green Globes” system

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The Emerging and Evolving Green The Emerging and Evolving Green Leasing Market Leasing Market

• Green Buildings (cont.)- ASHRAE – improve commercial building energy codes 30% by 2010- Architecture 2030 - “The 2030 Challenge” to

make all new buildings/renovations 50% more energy efficient now and carbon neutral by

2030- BOMA Sustainability Initiatives- Clinton Climate Initiative Energy Efficiency

Building Retrofit Program

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• Sustainability Concerns

- Reduce energy and resource use

- Reduce operating costs

- Economic, environmental and social responsibility

- Going green saves green

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• Model Green Leases & Guidance

- BOMA – “Guide to Writing a Commercial Real Estate Lease, Including Green Lease Language”

- Real Property Association of Canada (“REALpac”) – “National Standard Green OfficeLease for Single

Building Projects”

- USGBC – “Green Office Guide: Integrating LEED Into Your Leasing Process”

- Corporate Realty, Design & Management Institute – “Model Green Lease”

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• Key Green Lease Provisions

- Energy & Water Use, meters and data exchange

- Apportion operating costs & CAPEX

- Green Improvements

- Green/sustainable materials

- Green rating systems – LEED, etc.

- Green cleaning

- Recycling

- Indoor environment

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• Benefits of Green Building Space

- Reduced energy, water and resource use

- Reduced operating costs

- Improved indoor environments

- Potentially higher property value and rents

- Lower absenteeism and higher productivity

William Amann, P.E., LEED APChairman: USGBC, NJ ChapterChairman: Somerset County Energy CouncilPresident: M&E Engineers, Inc.

Green Leasing –

Technical & Performance Issues

So what is a Green building?

CONTINUALLY STRIVINGTO MAKE THE GOOD PRACTICE OF TODAY,

THE STANDARD PRACTICEOF TOMORROW

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REGULATIONS

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DEGREE OF GREEN

MARKET SHIFT

typical buildingpractices

market leadersinnovators

& risk takers

20%5% 5%

• Erosion and Sedimentation Control

• Age of Building

• Green Site and Building Exterior Management

• High Development Density Building and Area Alternative Transportation

• Reduced Site Disturbance

• Stormwater Management

• Heat Island Reduction

• Light Pollution Reduction

SUSTAINABLE SITES

WATER EFFICIENCY

• Minimum Water Efficiency

• Discharge Water Compliance

• Water Efficient Landscaping

• Innovative Wastewater Technologies

• Water Use Reduction

ENERGY & ATMOSPHERE

• Existing Building Commissioning

• Minimum Energy Performance

• Ozone Protection

• Optimize Energy Performance

• On/Off Site Renewable Energy

• Building O&M

• Additional Ozone Protection

• Performance Measurement

• Documenting Cost Impacts

• Source Reduction & Waste Management

• Toxic Material Source Reduction

• Construction Waste Management

• Optimized Use of Alternative Materials

• Optimized Use of IAQ Compliant Products

• Sustainable Cleaning Products

• Occupant Recycling

• Additional Toxic Material Source Reduction

MATERIALS & RESOURCES

• Outside Air Exhaust

• Tobacco Smoke Control

• Asbestos/PCB Removal

• Outdoor Air Delivery Monitoring

• Increased Ventilation Construction

• IAQ Management Plan

• Documenting Productivity Impacts

• Indoor Chemical & Pollutant Source Control

• Controllability of Systems

• Thermal Comfort

• Daylighting & Views

• Contemporary IAQ Practice

• Green Cleaning

INDOOR ENVIRONMENTAL QUALITY

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waste cost savings

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Reduced Enviromental impact.

Optimal Performance.

Increased OccupancyRates.

Lower Operational Costs.

Increased Asset Value.

Increased Tenant Satisfaction.

Improved Productivity.

Reduced Absenteeism.

Build Green. Everyone Profits.

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COMMERCIAL REAL ESTATE

Occupancy Rate

Operating Cost

Tenant Retention

Tenant Satisfaction

Asset Value

Shareholder Value

CORPORATE

Operating Cost

Employee Relations

Shareholder Value

GOVERNMENT

Environmental Stewardship

Operating Cost

Employee Satisfaction

Stakeholder Relations

3green improvements pay forthemselves in years

annual return on investment is 25-40%

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The Getty Center

The J. Paul Getty Trust

Los Angeles, CA

Museum/Office

LEED-EB Certified

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LEED EB Gold Certification

Johnson & Johnson HQNew Brunswick, NJ

An energy audit in 2002 yielded an initial ENERGY STAR score of 52. Major upgrades to Lighting, Controls & HVAC, reduced the buildings overall energy consumption by 25%, improved ENERGY STAR score to 85. Obtained LEED Gold Certification in 2009.

What about multi-tenant commercial office leases?

What are the main goals of the Landlord/Operator, the Architect/Engineer, and the Tenant?

Main goal of the Landlord/Operator is to maximize profits by maximizing rents as the market allows, minimizing costs, and attracting and retaining tenants to minimize vacancies.

Main goal of the Architect and/or Engineer is to not get sued.

Over-sizing systems and using VAV reheat is safe. Maximizing energy efficiency is risky.

Most important factors for the Tenant are the comfort and quality of indoor air, the acoustics, and the quality of the building management , according to ULI Study.

Who pays for improvements?

Who controls expenses?

Who benefits from savings?

Who pays for improvements?

Improvements are often based on a $/Sq. Ft. fit-up allowance determined prior to lease signing, and has no real connection to performance or life-cycle cost.

Who controls expenses?

With a triple-net lease, operating costs are passed through to tenant.

Tenant has only marginal control over operations, and generally has little expertise.

Who benefits from savings?

The Tenant can obtain better productivity, reduced absenteeism, less employee turnover. But this can very rarely be quantified and directly associated to IEQ.

Gross Lease

Financial risk/reward for operating costs returned to or shared with Landlord.

Intelligent building controls allows Landlord to monitor and limit occupant manipulation of controls.

Green Leasing

LEED is a collection of best practices for building design, construction and operation.

Market supply for Green Buildings depends upon the demand.

Mission:“To be NJ's foremost coalition in the public and private sectors promoting the planning, design, construction, and operation/maintenance of buildings that are environmentally responsible, cost effective, productive, and healthy places to live, learn and work”

USGBC-NJ14 Maple AveSuite 201Morristown NJ 07960Chapter Coordinator: Marianne [email protected]

www.usgbcnj.org

US Green Building Council – New Jersey Chapter

www.advancerealtygroup.com

Ginny Carita Vice President, Property Management

LEASING AND OPERATING GREENA Property Manager’s Perspective


What is a Green Building?

A “High Performance Building” that follows a set of operating practices and commitments that are aligned with a triple bottom line:

– Financial

– Environmental

– Social

It’s a Sustainable Building!


To what level has your company implemented green initiatives into your daily operations?

• Fully

• Moderate

• Very little

• None


Without Visibility

Green is more expensive!

Green is too complicated!

Green is too much work!

This May Be Your Reality…


What are Property Managers Doing?

Developing Sustainable Goals

Creating Baseline Building Operations

Identifying Opportunities & Executing

Educating Staff & Tenants

Measuring Success


Develop Sustainable Goals

Identify who should be involved with creating the sustainable goals.

Write down all goals even if their success can’t be measured today.– Green Purchasing Program– Energy Management– Water Consumption– Recycling– Green Cleaning– Building Certification


Baseline Building Operations

Energy Performance

Water Efficiency

Green Purchasing Policy

Recycling

Lighting

HVAC


Identify Opportunities & Execute

Capture Savings from No and Low Costs Initiatives First– Product Changes– Green Cleaning– Recycling– Lighting Retrofits– Energy Management Protocols– Energy Audits– Educating Staff and Tenants– Green Leases


Greening Our Service Contracts

Green Cleaning

Integrated Pest Management

Snow Removal

Landscape Management

Recycling of Lamps/Ballasts

Trash Services - Recycling


Did You Know?

Office Building can generate over 380 pounds of waste per employee per year.

A typical office building with 500 workers could save about 40 metric tons of carbon equivalent if they recycled a year’s worth of office paper.



Engage employees, tenants and service providers.– Host meetings to discuss

building goals– Create a sense of ownership

and consensus– Demonstrate how the

success of meeting a goal affects the building financially, environmentally and/or socially



One idea can snowball into many ideas and opportunities!


Measuring Our Success

Benchmark

Energy Consumption Reduction

Water Consumption Reduction

Operating Cost Reduction

Waste Stream Management

Tenant & Owner Satisfaction


What’s Next

Maintain your sustainable building by challenging yourself to perform better!

Seminar Break


Brian BanaszynskiVice President - Leasing

LEASING AND OPERATING GREENA Leasing Professional’s Perspective


GREEN LEASING

The process of integrating “green” elements into lease negotiations.

What is Green Leasing?

Examples Include:Resource Efficient Building Design,

Equipment, Appliances, Materials, and Operations


What is Green Leasing?

Green leasing dictates that building performance become transparent to all parties involved in the lease transaction.

This performance includes:

• Efficiency in which the main engineering plant operates (HVAC, plumbing, lighting, etc.)

• Environmental standards of building materials, as well as the effectiveness of the building operations and management programs.


What is Green Leasing?Green leasing has also altered the traditional relationship between the landlord and tenant.

– TENANT DEMANDS:• Alterations in core and shell improvements.• Landlords perform their operations and maintenance duties in specific

ways. – LANDLORD DEMANDS:

• Type of materials and equipment a tenant can use in its office space.• Compliance around programs such as recycling and conservation.

These are rather new circumstances and ultimately a new set of processes and negotiation points are developing within commercial leasing – green leasing. Majority of green leasing work occurs months before the tenant has selected a suitable space. In other words, green leasing is much more than the negotiation and drafting of lease language.


What to Incorporate in a Green Lease

Key sections of a lease incorporate the building’s environmental standards:

– Operating Expense Charges– Building Use Section– Maintenance & Repairs– Services and Utilities– Building Rules and Regulations– Alterations and Improvement– Contractor Rules and Regulations– Building Standard Tenant Fit-Out


Benefits to a Green Lease

Building owners and managers can better communicate to brokers and prospective tenants the roles of all parties involved in the sustainability program.Demonstrate how your building is going green, which provides a serious marketing tool to prospective tenants.Encourage learning and interaction of your tenants and property staff.Enhances business productivity and employee well-being.


Green Lease Process

LeasePortfolioLease

PortfolioPortfolio

CharacterizationPortfolio

Characterization

Establish Green Criteria

Establish Green CriteriaNew LeasesNew Leases Existing Leases

& RenewalsExisting Leases

& Renewals

Negotiate:Green Criteria for Tenant & Common

Space. Core & Shell. Operations.

Negotiate:Green Criteria for Tenant & Common

Space. Core & Shell. Operations.

Green LeasesGreen Leases Measure AndMonitor

Measure AndMonitor

Site SelectionSite Selection


Portfolio Characterization

“Portfolio Characterization”

Grouping properties or leases within the portfolio by common characteristics so standardized strategies can

be developed for certain types of leases. These strategies are aligned with the likelihood of a successful

negotiation and thus are realistic and achievable.

Portfolio characteristics that can be used to identify specific green leasing strategies are as follows:



Size of Leases as percent of Total Rentable Space in Building

– Indicative of the amount of influence a single tenant is likely to have in decisions:• Building retrofits and operation.• Maintenance issues.

– Majority tenant of the building• Greening opportunity is greatest and the

most stringent criteria should be used in establishing green objectives.



Lease Term – The longer the lease term the more feasible

investments in building upgrades become.

– Many green building upgrades related to core and shell improvements have higher payback periods than interior upgrades (lights and controls), and thus are typically only attractive to tenants and landlords who take more of a life cycle cost approach.

– Leases that have terms longer than 10 years are potential candidates for more comprehensive sustainability options.



Year Building was Placed In-Service

– Vintage of a building is a general indicator of energy and water efficiency.

– Depending on the landlord’s maintenance practices, older buildings would likely have more greening opportunities.

– Older buildings should have specific criteria related to commissioning and technology upgrades when developing specific goals and objectives for these sites.



Lease Structure

– Lease structure, or the type of operating expense clause, is an important indicator of the type of green leasing strategy that should be undertaken.

– The lease’s structure defines the responsibilities for paying the operating expenses, including utilities.



Single-Tenant vs. Multi-Tenant

– From both the tenant and landlord viewpoint, there is greater flexibility to implement green programs when there is a single building occupant, due to the simpler negotiation process.


Green Leasing Scorecard

A scorecard that includes a building’s green attributes will allow for more informed decisions around a company’s green leasing decisions.


Sample Tenant Green Indicator Score Card

QUESTIONS Yes (1)/No (0)

Does the building have any LEED certifications?

Are there any tenants in the building who have achieved LEED certification for space in this building?

Have you calculated the ENERGY STAR score of the building?

If the ENERGY STAR score has been calculated, does the building have a score of at least 60?

Are there mass transit options near the building?

Have the building's mechanical/electrical/plumbing systems been commissioned within the last three years?

Does the building have any special energy efficiency features such as night cooling, passive stacks, chilled beams, geothermal or renewable energy sources?

Have renewable energy certificates (RECs) been purchased to offset energy use in the building?

Does the roof minimize heat island effect by using highly reflective materials and/or vegetation (have a "green roof")?


Sample Tenant Green Indicator Score CardQUESTIONS Yes (1)/No (0)

Are tenants' spaces separately sub-metered for utilities?

Does the building have an indoor air quality management program in place?

Is the building non-smoking and is smoking prohibited next to the outside air intake louvers?

Does the building use low-flow plumbing fixtures (<1.6pf for toilets and <2.5 gpm for lavoratories and sinks)?

Does the building or site utilize high efficiency irrigation technologies?

Is at least 50% of parking underground or is the parking surface permeable?

Will tenant be permitted to build out its own space and select its own architect and general contractor?

Does the building provide a tenant recycling program for paper, cardboard, cans and bottles?

Are waste and recycling volumes and/or weights tracked for this building?

Are green cleaning practices used in the building and made available to tenants?

Are integrated pest management practices used at the building?

TOTAL


Green Work Letter

Landlords who are striving to create high performing interior environments as well as core and shell systems will need to standardize the work letter which specifies the design and construction of tenant’s office space.

A green work letter should specify the building materials and systems that should be used, demolition and construction recycling practices as well as the type of lighting and plumbing fixtures to be installed.


Green Marketing Materials

As green leasing requirements from tenants become more common, landlords are becoming increasingly more transparent in regards to promoting their buildings’ environmental attributes.

Key performance data such as energy, water and carbon use and intensity, recycling operations, as well as key green building programs are being made readily available to tenants and their architects and brokers.


445 South Street, Morris Twp., NJC

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320,000 SF Class A Office Building located in Morris County, NJ. Redeveloped to be a headquarters quality office building.

Multi-million dollar, state-of-the-art capital improvement was completed -- comparable to new construction.

– New dramatic three-story entry way

– New two-storey interior lobby

– New low-e glass windows

– New roof

– New HVAC with variable air distribution

– New modernized common areas and bathrooms

– New on-site amenities including full-service cafeteria, fitness center and conference facilities

– New covered executive parking, surface parking lot and site landscaping

44 5 South Street, Morris Township, NJC

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Original Exterior ViewC

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New Dramatic EntrywayC

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Original LobbyC

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NEW Two-Story LobbyC

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Original WindowsC

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New Low-E Glass WindowsC

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New HVAC EquipmentC

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New Modernized Common AreasC

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New Full-Service CafeteriaC

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D Y


New On-Site Fitness CenterC

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New Conference FacilitiesC

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New Parking Lot & LandscapingC

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D Y


445 South Street - Morris Township, NJ

445 South Street offers headquarters-quality space and energy-efficient design.

– New HVAC units with variable frequency drive-controlled motors to help reduce energy usage and costs.

– High efficiency double-pane windows to help control internal temperatures.

– All bathrooms have been updated to include water conservation installation, reducing the amount of water used throughout the building.

– New lawn irrigation system to help conserve water in comparison with outdated sprinklers

– Installation of bike racks– Located near multiple transportation modes

C A

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Due to considerable improvements to Advance@Southgate and repositioning the building to be a headquarters quality office building, Advance Realty was able to attract a new long-term anchor tenant:

An internationally recognized owner and operator of large-scale, environmentally sound energy-from-waste

and renewable energy projects.

445 South Street – Morris Township, NJC

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Covanta Energy will relocate its US headquarters to the entire fourth floor, as well as additional first floor space.

Covanta Energy will build out their space LEED Certified to keep in line with its corporate culture and company focus.

445 South Street – Morris Township, NJC

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Covanta Energy Score CardC

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D Y

QUESTIONSYes (1)No (0)

Does the building have any LEED certifications? 0

Are there any tenants in the building who have achieved LEED certification for space in this building? 0

Have you calculated the ENERGY STAR score of the building? 0

If the ENERGY STAR score has been calculated, does the building have a score of at least 60? 0

Are there mass transit options near the building? 1

Have the building's mechanical/electrical/plumbing systems been commissioned within the last three years? 0

Does the building have any special energy efficiency features such as night cooling, passive stacks, chilled beams, geothermal or renewable energy sources?

1

Have renewable energy certificates (RECs) been purchased to offset energy use in the building? 0

Does the roof minimize heat island effect by using highly reflective materials and/or vegetation (have a "green roof")? 0

Are tenants' spaces separately sub-metered for utilities? 1

Does the building have an indoor air quality management program in place? 1

Is the building non-smoking and is smoking prohibited next to the outside air intake louvers? 1

Does the building use low-flow plumbing fixtures (<1.6pf for toilets and <2.5 gpm for lavoratories and sinks)? 1

Does the building or site utilize high efficiency irrigation technologies? 1

Is at least 50% of parking underground or is the parking surface permeable? 0

Will tenant be permitted to build out its own space and select its own architect and general contractor? 1

Does the building provide a tenant recycling program for paper, cardboard, cans and bottles? 1

Are waste and recycling volumes and/or weights tracked for this building? 1

Are green cleaning practices used in the building and made available to tenants? 1

Are integrated pest management practices used at the building? 1

TOTAL 12


Works Sited

"Green Leases Toolkit." California Sustainability Alliance. Web. 1 Apr. 2010. <www.sustainca.org>.

Ginny Carita and Carlos Santamaria. "Course 2: Strategies for Reducing and Reusing Building Resources." Lecture. BOMA's Sustainable Operations Series. 18 May 2009. www.BOMA.org. Web. 1 Apr. 2010. <www.boma.org>.

Practical Solutions for Greening Practical Solutions for Greening the Commercial Leasethe Commercial Lease

Jesse Nash

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Green Standards andGreen Standards andLeasing GenerallyLeasing Generally

• One Time Obligation vs. Continuing Obligation - LEED 2009 and amplified focus on ongoing performance.

• Energy Star/Energy CodeCompliance

• Status of Green Leasing: To date, LEED certification has occurred mainly with owner-occupied and governmental projects. There will be a shift over time to tenanted buildings once the commercial real estate industry adjusts.

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An appropriately drafted lease is a major component of any “Green” project – Impacts all major LEED qualification areas:

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• Different issues in different leasing contexts: – Single tenant/multiple tenant– New construction/retrofitting– Office/retail/manufacturing/warehouse

• LEED ID&C (Interior Design and Construction): Provides tenants with the opportunity to obtain LEED certification with respect to operations within the four corners of the leased premises only.

• LEED CS (Core & Shell): A green building rating system designed to address sustainable design for new core and shell construction, covering base building elements such as structure, envelope and the HVAC system.

http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1829

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• Efforts at Industry Standard:

– Building Owners and Managers Association International (BOMA) form Green Lease

– Real Property Association of Canada (REALPac)

http://www.boma.org/

http://www.realpac.ca/splash.asp

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Green leasing generates a much higher level of Landlord/Tenant interaction and need for mutual

accountability.

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Where Does the Green Go?Where Does the Green Go?• Green Goals: Include broad aspirational provisions

that provide context and clarity to lease’s green objectives.

• Building Use: Uses inconsistent with building certification or environmental goals should be expressly prohibited.

• Work Letter: contractor rules and regulations– Acknowledgment of green standards– Engagement of LEED Accredited Professional(s)– Sustainable Purchasing Policy

• Default/Remedies: Notice and Cure rights and perhaps rent abatement, but no lease default with termination right.

• Lease Term: At least 10 years.

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Where Does the Green Go?Where Does the Green Go?

Operating Expenses - The Split Incentive Problem generally

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• A Few Possible Solutions:– Amortization of green-related capital costs– Individual metering– “Modified gross lease” with expense stop

• Certain expenses should be expressly subject to pass-through:– Cost of LEED certification process– Green-related insurance– Monitoring/reporting costs, and other costs

of maintaining certification 111

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• Maintenance and Repairs– Landlord Obligations– Tenant Obligations– Utility provisions– The BOMA Approach

• Assignment and Subletting• Landlord entry and inspections rights.

(Cont’d)

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The “Environmental Management Plan”The “Environmental Management Plan”

• Goal: Maintain qualification for relevant building certification, tax credits, etc.

• Rules re: energy use• Rules re: water use• Recycling and Waste Management• Landlord access• Monitoring and Reporting Obligations• Ability to make reasonable changes

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Practical StrategiesPractical Strategies

• Consider what your lease already says about “going green”.

• Insert “green concepts” into lease even if no current plans to preserve flexibility.

• Manage expectations and foster cooperation.

Question & Answer Question & Answer SessionSession

Thank you for coming!

Leasing & Operating Green

Real Estate

Transcript of Leasing & Operating Green