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Green Leasing
The Green Lease has a pivotal role in sustainable buildings. Not only from an economic perspective (either favoring landlord, tenant or both), but also for continuing compliance with USGBC’s LEED[1] rating and/or any other certifying body requirements.[2] Furthermore, with the advent of local municipal requirements[3] for property owners to benchmark, meter, monitor and reduce energy and potable water consumption, landlord’s face potential fines and other penalties if the requirements are not met. But absent the local law requirements, it is interesting to note which party directs the greening and why, whether it be the tenant or the landlord. Negotiation postures differ depending upon the nature of the transaction (new lease or renewal), size of tenant (large or not large), green or not green (tenant or landlord) and how a mix of the above may determine the “green” effect taken on by a property and maintained by same.
The green lease provisions in a green landlord building may include: negative use covenants (for tenant “not to use or operate the Premises in any manner that will cause the Building or any part thereof not to conform with LL’s sustainability practices or the certification of the Building”), operating expense subprovisions (which may require any system replacements to be with Energy Star equipment), recommissioning for recertification (and meeting reporting, maintenance and maintenance requirements for the applicable rating system of a building or the local municipality regulations). Other lease provisions such as landlord sustainable building practices can be devoted to expansive policies. The services and utilities section of a lease may now provide for purchase of green or renewable energy. Also cropping up in the services provision of a lease, cleaning performed by the landlord will now be done during the day instead of at night (which often wastes electricity by having lights on primarily for the cleaning crew).
In the alterations section of a lease, now all tenant improvements could have the requirement to be performed in conformance with any rating system for the Building and have tenant affirmative obligations that the tenant will engage a 3rd party LEED Accredited Professional or other similarly qualified party to review plans, material procurement, demolition, construction, waste management, etc. Another hot button for a tenants is the restoration provision. Here the landlord’s are now requiring tenants at the expiration or earlier termination of a lease to dispose of their alterations, fixtures and furniture in an environmentally friendly manner, to salvage, recycle or reuse such materials in accordance with landlord’s sustainability practices, and with reporting requirements as well.
Where landlord consent is required in the lease, this is another area in which the lease can get green.In some leases there are now explicit restrictions against assignments or sublets to tenants whose use or operation of the premises would cause the building or any part thereof not to conform with the green building clauses in the lease. Similarly, with building recycling and waste management policies, failure to comply with these rules could constitute a default under the lease. Some practitioners believe it would be imprudent to make such defaults a default with a capital “D” where a reasonable notice an cure period may not be available, however if the sustainability provision is tied to local law, material defaults may be the rule instead of the exception.
The easiest catch-all for a green landlord to promulgate sustainable features into its leases is through its Building Rules and Regulations where it is quite easy to prohibit items such as space heaters due to their excess energy consumption or other environmentally-unfriendly acts. The Rules and Regulations section may also have the tenant acknowledge the landlord’s sustainability practices and compliance therewith and with said acknowledgment, the tenant would then not be able to claim ignorance of the green building practices. Lastly, the contractor rules and regulations exhibit to the lease may contain many additional sustainability requirements set forth by the landlord.
Although in many cases the landlord starts the sustainable building dialogue and drafts the green lease provisions, there are many tenants (both large institutional ones and those who just “get it”) directing the incorporation of sustainable lease provisions into their leases. For example, since many building systems are out of a tenant’s control, the only way to get the building to be more sustainable is by forcing the landlord to make the capital expenditures necessary to upgrade the building to a green building. In many cases, two of the only questions being asked is who pays for the upgrade and when. Furthermore, with many tenants now opting to obtain their own LEED certification for Commercial Interiors[4], tenants are beginning to drive the green building train. Here the tenant has embraced sustainable occupancy and unless its landlord jumps on the bandwagon, the tenant will not be able to obtain nor maintain certification. A large tenant has the negotiating posture to get more things done than a small one. However, with more property owners going green and more governmental bodies (federal, state, local) requiring sustainable practices, there will be fewer roadblocks to either the tenant or landlord to go green.[5]
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[1] US Green Building Council Leadership in Energy and Environmental Design Rating System
[2] Green Building Initiative Green Globes, Ashrae, Energy Star to name a few
[3] Local Law of 2009 (Benchmarking the energy and water efficiency of buildings), Local Law 85 of 2009 (The Establishment of
New York City Energy Code), Local 87 of 2009 (Upgrading lighting systems and the installation of sub-meters), Local Law 88 of 2009
(Energy audits and retro-commissioning of base building systems of certain buildings and retro-fitting of certain city-owned buildings)
[4] GBCI Certification Rating for interior premises of commercial buildings
[5] Richard J. Sobelsohn is an Associate with the law firm Moses & Singer LLP. He is a LEED Accredited Professional, Fellow of the
Institute of Green Professional, and an Adjunct Professor of Law at both Brooklyn Law School and New York Law School where he t
teaches Sustainable Building Law