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Green Leasing Series: Environmental Performance Objective Clauses in Green Leases

Many commentators suggest that, as a threshold issue, a green lease include an “environmental performance objective,” or a clause that requires both landlord and tenant to operate the demised premises pursuant to a set of very general, aspirational green building objectives. Upon reading a sample environmental performance objective clause, you may be reminded of the form language in the 2007 version of the AIA’s B101 Owner Architect Agreement, which obligates the architect to make a set of very vague and non-specific green building-related recommendations to the owner with respect to certain aspects of its proposed design for the project. While provisions in a lease that set forth a roadmap for landlord and tenant to operate demised premises in a sustainable manner should by no means be discouraged, it is important for landlords to carefully consider the specific language that they may choose to insert into a green lease as part of such clauses.

For example, at his presentation at last year’s Greenbuild in Boston, Alan Whitson proposed language whereby a landlord “shall operate and maintain the Building and the Premises to minimize (i) direct and indirect energy consumption and greenhouse gas emissions; (ii) water consumption; (iii) the amount of material entering the waste stream; (iv) negative impacts upon the indoor air quality of the Building and the Premises.” As we’ve done previously here at GRELJ with respect to construction agreements, let’s assume for a moment that the Building- perhaps through no fault of the landlord- does not perform at the level suggested by this form language. Is the landlord at risk for a claim by the tenant that it breached this roadmap provision, which will likely sit in a very conspicuous location at the very front of the lease, by failing to “operate and maintain” the building as required by the lease? Perhaps. I think that the point here is, once again, that form language in green leases can be just as dangerous as form language in construction agreements, and both landlords and tenants should guide themselves in the green lease context accordingly. We’ll have much more to say on specific green lease provisions as we continue to move forward through our Green Leasing Series here at GRELJ.

Just as an interesting side note, the BOMA Model Green Lease does not include any similar environmental performance objective language in either the preamble to the lease or in the body of the lease itself.

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2 Responses to Green Leasing Series: Environmental Performance Objective Clauses in Green Leases

  1. Alan Whitson June 19, 2009 at 12:33 pm #

    I have enjoyed reading the GRELJ blog since day one; however, the June 11, 2009 entry has a few items that need correction or additional clarification.

    The reference to the “BOMA Model Green Lease” can cause confusion. The title for the current BOMA document is “Lease Guide, Guide to writing a commercial real estate lease including green lease language.” As a shorthand title, some people use BOMA Lease Guide. First published in 2005, it was reissued in late 2008 to include “green lease language.” My presentation at Greenbuild 2008 in Boston was the rollout for the Model Green Lease.

    Any comparison between the two lease documents requires some understanding of how they were created, their objectives, and historical context. The green version of the BOMA Lease Guide is the results of a “cut & paste” on an existing pro-landlord lease document. On the other hand, Model Green Lease started out with a clean sheet of paper and a single goal: Create a lease document that encourages office buildings that are environmentally responsible, profitable, and provide a healthy and productive place to work.

    The Model Green Lease Task Force felt that to achieve that goal, the lease needed to meet four objectives:

    1. Be a fair and unbiased lease document – nether landlord, or tenant centric.

    2. Create a financial incentive for developers, landlords, and real estate investors to design, build, own and operate high-performance and sustainable office buildings.

    3. Ensure that all of the interests of a tenant leasing space in high-performance and sustainable office building are protected over their lease term.

    4. Be adaptable and encourage continuous improvement over the lease term.

    Today the biggest obstacle to green buildings is financial – the so-called “split-incentive.” Interestingly, I took up the “split-incentive” issue, the historical reasons behind it, and presented a solution in the article, Lease Structure Hinders Energy Efficiency, published in the June 2005 issue of BOMA International magazine. Three additional articles on the green lease topic followed:

    1. “Green Lease, Creating an incentive to effectively design, build and manage high-performance and sustainable buildings through a green lease,”
    Environmental Design + Construction, June 2006;

    2. “Proper Metrics Key to Measuring Performance of Green Buildings,” OfficeInsights, February 25, 2008;

    3. “Green Lease Agreements: Navigating Uncharted Waters,” Sustainable Industries, April 2008.

    Returning to the issue raised in the blog, I agree that if the “Environmental Performance Objective” is vague and non-specific, it is problematic. However, that is not the case with the Model Green Lease. Leases are long-term agreements, and frequently the people called upon to understand and enforce lease terms are not the same people that negotiated that lease. Thus, a well-crafted lease should supply enough context and clarity so the parties can understand the intent of the negotiated lease document and the actions required under it.

    In the Model Green Lease, the “Environmental Performance Objective” sets out four precepts to provide that context and clarity:

    First, “The parties agree it is in their mutual best interest that the Building and Premises be operated and maintained in a manner that is environmentally responsible, fiscally prudent, and provides a safe and productive work environment.”

    Second, “The Tenant shall conduct its operations in the Building and within the Premises to minimize: (i) direct and indirect energy consumption and greenhouse gas emissions; (ii) water consumption; (iii) the amount of material entering the waste stream; (iv) negative impacts upon the indoor air quality of the Building and the Premises.”

    Third, “The Landlord shall operate and maintain the Building and the Premises to minimize: (i) direct and indirect energy consumption and greenhouse gas emissions; (ii) water consumption; (iii) the amount of material entering the waste stream; (iv) negative impacts upon the indoor air quality of the Building and the Premises.”

    Fourth, “The Landlord shall use its reasonable efforts to cause other tenants of the Building to conduct their operations in the Building and their premises in conformity with the Environmental Performance Objective.”

    While this provides context and clarity, it is not specific enough for day-to-day operation. That’s why Model Green Lease takes it to the next level by using various lease exhibits to define specific performance metrics for energy use, building operating hours, ventilation rates, temperature and humidity ranges, green cleaning, indoor air quality, tenant fit-out, and recycling. Preliminary estimates show that buildings adopting the structure of the Model Green Lease, with appropriate construction and operating standards can reduce energy use by 30 to 50 percent over comparable office buildings, with corresponding financial benefits accruing to the landlord and investors.

    The Model Green Lease Task Force has sought to create a lease that is adaptable and consistent with LEED, Green Globes, and Energy Star. Yet, it could be used in buildings that for a variety of reasons may or may not be seeking certification under one or more of the competing rating systems.

    Although the Model Green Lease includes specific metrics, we know that technology and operating practices will continue to improve. The real benefit of the Model Green Lease is its ability to adapt the landlord-tenant relationship to those changes, and encourage continuous improvement over the lease term.

    The Model Green Lease will be available June 30, 2009. A supporting educational program – Model Green Lease Seminar will be held in 10 cities this year starting in Minneapolis on July 29. These educational programs are offered in cooperation with the IFMA Corporate Real Estate Council and other collaborating organizations. Based upon the success at Greenbuild 2008, Model Green Lease will be presented again at Greenbuild 2009. For more information go to http://www.squarefootage.net

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