Today, many tenants are “thinking green.” Compliance with sustainability standards can affect occupancy rates and, in turn, a property’s financial leverage capacity. The U.S. Department of Energy’s Better Buildings Alliance and the Institute for Market Transformation have just launched the “Green Lease Leader” certification program to recognize commercial landlords and brokerage teams that have successfully implemented environmentally friendly leases.
The Green Lease Leader designation can help the commercial real estate industry respond to market pressures to improve sustainability by providing a reliable method for landlords to signal their willingness to participate in such initiatives.
A new standard
Green Leasing has been a topic of discussion, and even execution, for some years now. Yet, a “Green Lease” remains to be clearly defined. As a result, landlords have struggled with the language to include in their leases to attract sustainability-minded tenants.
The Green Lease Leader program fills the gaps by setting a new standard with a uniform definition for “Green Lease.” To satisfy the qualifications of a Green Lease, a lease must include a tenant cost recovery clause that can be used for energy-efficiency-related capital improvements.
In other words, the lease should expand the list of operating expenses to include capital expenses intended to save energy. A Green Lease will require at least three of the following:
- A provision requiring tenant disclosure of utility data to facilitate whole-building energy benchmarking,
- Minimum standards and/or tenant improvement specifications for energy efficiency (for example, “Tenant will install only ENERGY STAR appliances”),
- Sustainable operations and maintenance rules and regulations covering restricted HVAC weekend operating hours, the provision of janitorial services during daytime hours, and the prohibition of tenant space heaters,
- Submetering of tenant spaces or separate metering of tenant plug load and equipment, including data centers (ideally, tenants will be billed according to actual use, not on a pro rata basis), and
- A landlord agreement to incorporate energy management best practices in building operations, such as regular benchmarking, energy audits or commissioning of building systems.
Note that a commercial landlord must have a Green-Leased portfolio that exceeds 50,000 gross square feet to qualify for the designation.
The application process
The 2015 application cycle is scheduled to open this fall. Applicants must pay a $250 fee and submit at least two signed and executed Green Leases. (Submitted leases may be redacted to protect sensitive or proprietary information.)
The application also requires a narrative description of the landlord’s internal Green Leasing initiative. The narrative portion will be scored based on the Green Leasing–related accomplishments. For example, developing a model Green Lease as an internal resource will earn 4 points, while holding meetings with decision-making executives to discuss incorporating green clauses into leases will earn 2 points. Developing and distributing a “Green Tenant Guide” scores 3 points.
A Green Lease Leader must earn 15 points. 10 will come from the leases, with each approved lease worth 5 points. A minimum of 5 points is required from the narrative portion.
Going green to get green
Going green may not be easy, but it can pay off. Adopting the changes required to get the Green Lease Leader designation could reduce costs, improve tenant satisfaction and provide a marketing boost.