by Meaghan Farrell — Originally published in the May/June 2015 issue of BOMA Magazine.
Tenants and landlords have long struggled to draft leases that motivate the other party to engage in environmentally efficient building operating practices. In a gross lease, a landlord often benefits more from sustainability investments and subsequent energy savings, while a net lease enables a tenant to capture more of the energy savings. The solution for both parties: a “green” lease. When properly structured, a green lease motivates both landlords and tenants to pursue sustainability strategies together. Sustainability programs have demonstrated impressive returns on investment for commercial building owners—particularly when tenants themselves champion these green measures from the inside out. Meanwhile, landlords can make great strides in environmental-impact and cost-saving goals, as well as tenant satisfaction, by incorporating green provisions into their leasing strategies and building operations.
Foundations of Green Leasing
Structuring a green lease puts a commitment to sustainability in writing and appeals to tenants who want the productivity, comfort, efficiency and reporting that a high-performing building delivers. Net-lease occupiers can reduce their utility spend by three to 13 percent simply from building easy-to-implement sustainability measures into their leases (and, subsequently, into their operations), while landlords potentially gain higher rents, higher occupancy, lower operating costs, higher return on investment and increased asset value. A green lease can include extensive provisions, or relatively few. A tenant might simply require the landlord to provide recycling services—or the tenant might want a wholly “green” build-out, from energy, lighting and water usage to construction materials and design. Standard areas for green-lease negotiation include alternative transportation arrangements, separate utility metering, indoor air quality, ozone protection, building commissioning, green cleaning supplies, water efficiency, heat island reduction, reporting requirements and recycling. By guiding behavior, as well as characteristics of the occupied space, green leases help bridge the gap between green building design and building performance. The fact that a building has expert commissioning and LEED certification or a Green Globe rating, for example, is no guarantee that it will meet anticipated energy-efficiency requirements. The problem is not in the design—it’s in how the building is actually used. A green lease can be a tool for educating and motivating owners, operators and occupants to optimize energy-efficiency features.
Six Hallmarks of an Effective Green Leasing Program
There is more to green leasing than tacking on a few new keywords and phrases to standard leasing forms. As with any lease, a green lease should be carefully structured to maximize effectiveness, success and cost savings. Following are six important considerations for building owners interested in preparing a successful green lease:
- Define a lease structure in which both parties benefit from reduced utility costs. The key is to drive sustainable cost savings for the building owner and tenant alike—while positively influencing building performance and comfort. By sharing the financial value of tax incentives and energy-saving tools, landlords can enhance the curb appeal of their commercial buildings, while tenants benefit from savings on their utility bills.
- Offer detailed access to resource information. Many corporations now seek sustainable workplaces with robust carbon footprint metrics. In fact, the majority of U.S. companies on the S&P 500 Index and the Fortune 500 list now publish sustainability reports, according to a study by the Governance & Accountability Institute. Green leases can outline the ways in which a building will help tenants document carbon footprint reductions and capture other sustainability metrics. In turn, contractual green initiatives will help building owners and managers improve the accuracy of carbon footprint data in their own portfolios.
- Use an assessment program to outline building sustainability features. Completing an in-depth site assessment and incorporating benchmarked green criteria is an important way to substantiate green claims for sustainability-savvy tenants. Green Globes offers a user-friendly self-assessment tool that scores integrated design process and performance goals in energy; metering and measurement; water; materials and resources; emissions; and indoor environment. A third-party assessor reviews and verifies the results of this self-evaluation and makes recommendations for certification.
- Outline sustainability practices and tenant responsibilities. The building orientation is not the only time to walk through operational efficiency opportunities and other important tenant-driven sustainability features. By clarifying a tenant’s role in activities like water use and waste reduction, landlords can resolve barriers to measurement success in advance. They also can establish a standard for communicating key energy and environmental ratings to current and prospective tenants in a timely manner.
- Promote benefits to the tenant from recruitment and productivity to cost savings. Sustainability features are becoming a core value for tenants seeking to attract and retain top talent. They also support productivity in the workforce, according to many sources, including a CoStar Group study that found that employees operating in offices with green leases are five percent more productive and have three fewer sick days per year. On the cost-savings front, benefits range from energy and material savings to waste reduction. For example, green lease provisions that encourage tenants to reduce paper and other waste by promoting recycling and even composting can achieve significant waste diversion rates.
- Seek expert guidance on commercial leasing and green lease terminology and regulations. Producing request for proposal (RFP) language that incorporates benchmarked green site-selection criteria applicable to both new leases and lease renewals or renegotiations takes in-depth knowledge of both green and commercial leasing terminology and regulations. Many building owners find that working with an experienced green leasing partner or referencing trusted industry resources can help them realize their combined real estate goals and sustainability targets.
PUTTING IT IN GREEN INK
According to the U.S. Environmental Protection Agency, energy use in commercial buildings alone accounts for nearly 20 percent of greenhouse gas emissions in the United States. Building owners and leasing managers can make an important difference in mitigating that impact by using green leasing to promote workplace sustainability. As commercial property teams strive to achieve the highest possible operational performance, it is important to remember that a building can only be successful in this venture if it has the commitment of its tenants. The first step in achieving that requisite tenant commitment—and, in turn, seizing all the operational cost-reduction and green-space possibilities that follow—is to give tenants a clear way to sign on the green dotted line.
ABOUT THE AUTHOR: Meaghan Farrell is a senior vice president and national director in JLL’s Strategic Consulting group, focused primarily on change management, process improvement, client relationship management and sustainability strategy. Her responsibilities include performing opportunity assessments, analyses and developing actionable strategies that align real estate activities with broader business objectives to enable corporate clients to measure and deliver value to the enterprise.