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Green Leasing Series: Introduction to Green Leasing

This is the first in what will be a series of articles here at GRELJ on green leasing. Future articles will consider the unique legal risks of green leasing and a more detailed analysis of the various green leasing standards and form green leases currently available to owners and tenants.

Green building and leasing is increasingly becoming a best business practice for many of the largest retailers in the country. The generally perceived benefits of leasing a green building or tenant space is (i) increased worker productivity, (ii) profitability through long-term utility cost savings, and (iii) reputation enhancement, to both customers and potential employees. Although far from an exhaustive list, companies such as PNC Bank, Wal-Mart, McDonald’s, Subway, Target, Staples, Kohl’s, and Best Buy have either all opened “green” stores, or are currently constructing a “green” store or branch.

As noted in the New York Times article linked above regarding best business practices, many of these companies view green building as a tool to reduce costs during this challenging economic time. In December of 2007, President Bush signed the Energy Independence and Security Act (“EISA”) of 2007, which set goals and standards to reduce energy use in federal buildings, including buildings in which the federal government leases space. These are the types of tenants that developers need to be able to attract during challenging times. As a result, green leasing will likely exponentially expand in the years ahead.

What is a green lease?

Much like the term green building, green lease is a term without a widely accepted definition. (Editor’s note: this is a critical point that we will be exploring in detail in future articles in this series). A green lease can take many forms. However, the key concepts in any green lease are: (i) rent structure and operating expenses; (ii) build out of tenant improvements; (iii) sustainable development principles and regulations (throughout the building or larger development); (iv) the use and disposal of hazardous materials, including cleaning supplies; (v) recycling; and (vi) environmental management plans. A green lease will generally detail environmentally friendly products to be used, water and energy conservation methods and targets, the use of alternative sources of energy on-site, such as solar or wind, indoor air quality standards, and dispute resolution procedures.

The two most prominent green leasing standards currently available are promulgated by the United States Green Building Council (“USGBC”) and the Building Owners and Managers Association International (“BOMA”) USGBC’s Leadership in Environment and Energy Design (“LEED”) program utilizes widely accepted standards in the green building movement to certify tenant spaces through its Commercial Interiors certification process. This process is able to provide all parties with a framework and a third party classification following the construction of the tenant space. As detailed above, many tenants are now requiring certain levels of LEED certification as it provides a clear and industry wide accepted benchmark as to the company’s commitment to going green.

BOMA was founded in 1907 and is made up of members that are building owners, managers, developers, leasing professionals, facility managers, asset managers and the providers of the products and services necessary to operate commercial properties. Its 16,500 plus members own or manager more than nine billion square feet of commercial properties in North America alone. In the summer of 2008, BOMA released its Guide to Writing a Commercial Real Estate Lease, including Green Lease Language (the “BOMA Guide”), which was designed to facilitate the ongoing implementation of sustainable building practices. The BOMA Guide provides both property owners and tenants with a framework to enter into a green lease, although without the rigidity of the USGBC classification and certification process. Although the BOMA Guide will not be universally adhered to, it provides building professionals with the tools necessary to craft greener leases. These smaller steps are also critically important for the movement, as it will allow more property owners and tenants to be able to consider more sustainable features in leases without undertaking the rigorous LEED certification process.

Geoff White is a Senior Associate in the Commercial Transactions and Real Estate Group at Frost Brown Todd. He is a contributing author to Green Real Estate Law Journal. He also oversees the Green Building Series on the Frost Brown Todd’s Construction Law News website. Mr. White is licensed to practice law in Kentucky and Ohio and is a member of the Kentucky Chapter of the U.S. Green Building Council. Learn more about Geoff at http://www.frostbrowntodd.com/geoffwhite/.

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One Response to Green Leasing Series: Introduction to Green Leasing

  1. Jodi Summers May 28, 2010 at 2:27 am #

    The California Sustainability Alliance has developed strategies to green California’s commercial office space. This effort focuses on “green leasing”, i.e., integrating sustainability practices into the entire commercial leasing process. The Green Leasing Toolkit 2.0 includes insight on service provider selection; marketing of buildings, development of green specifications; request for proposal (RFP) and letter of intent (LOI) drafting; site selection and due diligence; and the negotiation and drafting of realistic and enforceable lease language.

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