Green Leases Require Careful Negotiation
March 19, 2014
The decision to “go green” may be the result of many considerations. The building owner may be working for LEED® (Leadership in Energy and Environmental Design) certification or to reach sustainability goals. There may be local building codes that require green construction. Tenants themselves may have goals and commitments to going green.
Many lease clauses can be impacted by green provisions, but there are several areas that I pay particular attention to when negotiation on behalf of a Bayshore client. The following generate the most pitfalls for tenants:
1) Tenant improvement design and construction. In negotiating the lease, it’s crucial to specify which sustainability certification applies and how this will affect tenant improvements. Also pay attention to whether the landlord expects the tenant to build out and maintain the space in compliance with LEED specifications, or requires that a LEED-certified professional be involved in the space design and construction.
2) Maintenance and operation. There may be requirements related to solid waste sorting and recycling, the type and kind of light bulbs that tenants can use, and whether use of specific certified equipment and products is required. There may also be language that requires the tenant to conform to the landlord’s “sustainability practices,” which can be interpreted in a number of ways. All of these issues need to be negotiated and spelled out explicitly in the lease.
3) Cost and expense allocation. In any lease, operating expense pass-throughs need to be carefully examined and understood. With a “green” lease, these issues are particularly important because there are higher upfront equipment costs. These expenditures are expected to create greater operating efficiencies that will lower costs over time. It’s important to allocate these costs and savings fairly, balancing the interest of the landlord and tenant.
The “Energy Aligned Clause” has been developed by the Urban Green Council as a way to handle this issue in a manner that is fair to both tenant and landlord.
A green lease can work for both tenant and landlord, but only if these and other pertinent issues are effectively negotiated. If you have questions about how going green, we’d be happy to be of service.
< Return to News