Green leases are the next step in the evolution of green buildings. Beyond the four basic legal requirements; names of the parties, description of the leased property, term, and rent – a lease defines the duties of the parties, who does what, when, and how. A green lease goes further by addressing key environmental issues such as: indoor air quality (IAQ), energy use, carbon credits, recycling, insurance, maintenance, operating costs, tenant improvements, green cleaning specifications, building regulations, and annual environmental performance reporting.
Do you need a green lease to occupy a green building? No. Still, a green lease addresses a harsh reality of the commercial real estate industry. One does not get what is right or fair – but what is negotiated, and only if it is in writing! This is especially important during these rocky financial times. Any day, your landlord may be replaced by a lender more interested in how fast they can recover their capital than managing a building in a sustainable manner.
Here are 25 tips, tricks, and traps to consider when negotiating a green lease.
- It’s the people! Over a 10-year lease the salaries and benefits of the people occupying the space account for 80 per cent of the total costs on a present value basis. Technology takes 10 per cent. Rent, including energy, will consume eight per cent. Tenant improvements and office furniture make up the final two per cent. Research shows that green buildings have reduced levels of absenteeism, higher employee retention, and increased employee productivity.
- The greenest space you can lease is the square feet you do not lease. The square footage needed to house a firm’s space requirement can vary by 30 per cent among the buildings under consideration. Items such as a company’s space standards, building elements such as bay depth, window module, core arrangement, and the size and shape of the floor plate can have a major impact.
- A lower rental rate per square foot does not always translate to a better deal for the tenant. While the rent per square foot is a common metric in leasing, a better metric is rent per employee. A space efficient building with a higher rent per square foot can be the low cost alternative.
- There are many ratings systems for certifying building performance i.e. ASHRAE, BOMA 360, Energy Star, Green Globes, and LEED EBOM. Yet, a well-managed building may lose it certification because its occupancy rate declined below a minimum level. This can be a double edge sword – with risk comes opportunity.
- Assemble your leasing team before starting your search. Your team should include a real estate attorney, interior architect, and accounting expertise as well as a qualified real estate broker. Adding a construction manager is wise, too, if you plan to supervise your own build out of the tenant improvements:
- The attorney works with the broker to include critical legal issues into the Request for Proposal (RFP) and the resulting Letter of Intent (LOI) and Lease. This saves time, money and avoids last minute legal issues from killing the deal
- An interior architect can ensure the spaces under consideration will fit your needs, conforms to your environmental requirements, and is space efficient.
- Accounting expertise is invaluable in maximizing the benefits currently available from rebates and tax credits.
- As well as supervising the tenant fit-out, the construction manager may provide LEED documentation services for the project.
- Tenants should work with their management and leasing team to set clear goals, timetable, and budget for the project. Must the building be certified now or in the near future? Will the tenant space be certified under a rating system such as LEED CI and to what level? As part of this work, the team should develop a method to evaluate points, costs, and benefits.
- Avoid the design trend for an “open” ceiling. Poor acoustics is the number one productivity killer in offices. A sound masking system coupled with ceiling panels with an NRC of .9 or above are your most cost-effective tools. It outperforms slab-to-slab walls and allows for future reconfiguration of the office space at a fraction of the costs.
- It’s possible to green an existing lease document. Simply use the exhibits (Utilities and Services, Building Operating Costs, Building Regulations, Green Cleaning Specification, Annual Environmental Performance Report, and Contractor Regulations) from the Model Green Lease to green an existing lease document.
- Unless you plan to smelt aluminum in your office, the requirement for 7 watts per square foot of lights and plug load is overkill and adds unnecessarily to your cost. Field surveys have shown the typical office building consumes between 2.3 and 2.7 watts per square foot for lights and plug load. Best practice is about 1.5 watts per square foot.
- Most office space is grossly over-lit. Saving 3-watts of lighting energy saves 1-watt of air-conditioning energy. A recent research project by Southern California Edison (SCE) cut lighting power density and consumption by 65 per cent or more from California’s strict energy code. SCE replaced an 8-foot-by-8-foot lighting grid of 2×4 light fixtures with a system of suspended direct/indirect light fixtures, reducing the number of fixtures (22 per cent) and lamps (48 per cent). Dimmable ballast, allowed SCE to trim the light level to 80 per cent output – saving 20 per cent. Using occupancy and daylight sensors supplied light only when and where needed. LED fixtures controlled by a power strip with an occupancy sensor replaced traditional fluorescent lighting in the workstations saving (82 per cent). This advanced lighting control system is cost competitive with traditional lighting systems.
- Products used to build out green office space such as movable wall systems, carpet tile, advanced lighting, and modular cabling can be classified as tangible personal property that qualify for accelerated depreciation. Many tenants leave this money on the table by failing to undertake a cost segregation study. Wise tenants conduct their cost segregation analysis during the design phase rather than waiting until after the design is finished.
- LEED EBOM and LEED CI are the fastest growing rating systems within USGBC. Regrettably, there is some inconsistency between the two ratings systems. Recently, a tenant leased a floor in a major high-rise that had just received an LEED EBOM Gold rating. The tenant sought to capitalize on the Building’s LEED EBOM rating in its quest for an LEED CI Gold rating. However, the minimum water efficiency requirements for LEED EBOM did not meet the prerequisites for LEED CI. The tenant then had to spend another $30,000 to replace the new fixtures in the renovated rest rooms to earn the desired level of LEED CI certification.
- Besides a “subordination and do not disturb agreement,” ask for this important tenant improvement stipulation in the lease language: “If the landlord fails to pay any part of the tenant improvement allowance, the tenant may deduct the unfunded amount from the rent.”
- If you are installing systems to control energy use in the space you occupy, make sure you are not on the hook to subsidize tenants that waste energy or operate beyond normal business hours. Protect yourself by installing submeters. Prices on sub-meters have dropped to as low as $75 per circuit. Tenants have reduced their energy use up to 30 per cent in buildings with sub-meters.
- If a tenant occupies a green certified space or building, insist on lease language that prohibits the landlord, lender, or any other tenant from do anything that would jeopardize certifying the space or building.
- A well-crafted lease will allow the landlord to make improvements that reduce operating expenses and amortize the costs of those improvements (provided
the annual amortization costs do not exceed the actual savings).
- Unfortunately, some people still believe that if a cleaning product does not give you a nosebleed it is not effective. Green cleaning specifications are vital to a healthy workplace; look for products with Green Seal or Environmental Choice certification.
- Daytime cleaning can reduce energy use by as much as 10 per cent, enhance tenant satisfaction, and improve security.
- A building wide recycling program can turn an operating cost into a profit center. Some landlords have recycling programs in place, while others need a little nudging from a prospective tenant to get started.
- Inspect janitor closets, electrical rooms, and mechanical spaces when touring prospective buildings. Are these spaces clean and orderly? Do they have an odor? Air handling units should be clean and rust free, and drain pans should be dry and pitched towards toward the outlet. Air filters should fit snuggly without gaps around the frame.
- Confirm that building management has an HVAC maintenance program that includes scheduled inspection, cleaning, and service, calibration of control system components, and proper procedure documentation.
- The Model Green Lease requires compliance with ASHRAE Standard 55, “Environmental Conditions for Human Occupancy” to avoid IAQ issues.
- Using high performance air filters, electronic air cleaners, and ultraviolet germicidal irradiation lamps can dramatically improve IAQ and saves energy. Before signing your lease, verify the landlord is using this state of the art technology.
- When negotiating the lease commencement date, allow enough time for the design, build out, and to “air out” the space before occupancy.
- Use plastic crates on dollies rather than cardboard boxes when moving into your new space. Crates are safer, easier, and faster to pack. They save money by reducing the number of trucks and trips between the old and new facility.
The workplace is a tool for the people who work there – if designed, configured, and operated in an environmentally responsible manner it can significantly affect the productivity and performance of the entire organization.
B. Alan Whitson, RPA, is President of Corporate Realty, Design & Management Institute, and Chair of the Model Green Lease Taskforce. Email: email@example.com, phone: 949-262-9380. To obtain a copy of the Model Green Lease and listen to online audio with insights on green leasing from attorneys, real estate brokers, landlords, corporate tenants, and interior architects in multiple regions throughout the U.S., go to the website: www.squarefootage.net