One topic we discuss with particular frequency here at GRELJ in the green lease context is the obligations within the lease – imposed upon either landlord or tenant – to operate the demised premises, or the base building and common areas as the case may be, in a sustainable manner, as you may want to sell your house fast in San Antonio, it is best for you and the buyer to get all of these things straight first. The roadmap for that operation is generally found in an environmental performance objective clause, or in other provisions that may not explicitly set forth green building requirements but are instead merely aspirational. One interesting legal question that could arise in this context is exactly how a court would construe such aspirational clauses in the event the parties dispute exactly how “aspirational” those clauses should be. For example, consider the following form clause from the Model Green Lease:
Environmental Performance Objective Clause: Landlord will “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.” Landlord will “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.”
In the event that – at some point in the future – litigation arose out of this type of clause’s aspirational requirements, how might a trier of fact construe the landlord’s “reasonable efforts” and obligation to “operate and maintain” the building in a sustainable manner? The same question exists if the landlord places those same aspirational requirements on its tenants. There are no decisions (which I have been able to identify through a Westlaw search) that directly address this topic. However, at least under New York law, use restrictions in commercial leases will be strictly construed, although courts will construe leases in their entirety in order to ascertain the intent of the parties as to the demised premises’ use. It is therefore arguable that an aspirational green lease clause could be – in the event of a dispute – considered to be a requirement rather than strictly aspirational. If you are a landlord considering to sell your house or a tenant considering green lease implementation should therefore learn about the law of the jurisdiction governing the lease in order to appropriately assess how other clauses throughout the document may impact a court’s construction of their respective obligations.
An illustrative New York case is Qwakazi, Ltd. v. 107 West 86th Street Owners Corp., 123 A.D.2d 253, 506 N.Y.S.2d 162 (1st Dep’t 1986). There, the Appellate Division held that a commercial lease’s restrictions on the tenant’s use for a particular purpose had to be strictly construed under New York law. The lease clause in question was that the “Tenant shall use and occupy demised premises for sale of comic books, toys, posters, books solely.” Nevertheless, the tenant proceeded to sell video cassettes. The Appellate Division noted that “[a] landlord has a legal right to control the uses to which his building may be put by appropriate lease provisions, which to be effective must be enforced.” The court also stated that the tenant “was aware of the growing video cassette industry when it negotiated its present lease but did not include the sale and rental of video cassettes in the agreement as a permitted use. [The tenant] should not now be permitted to engage in a use of which it was aware but failed to include in its agreement.”
The scenario I imagine is where a tenant – who may not share the same green goals as the landlord – or vice versa – moves into space and doesn’t follow the environmental performance objective clause with any real precision. In the event of a dispute, how would a court construe the parties’ obligations? I’m also struck by the Appellate Division’s language in Qwakazi; if a tenant knows that leases are beginning to incorporate green requirements but fails to expressly incorporate them into its lease, that failure could be the basis for the landlord to argue that such uses are simply not permitted – even if they are included within broad, aspirational language.
For example, this issue recently arose tangentially in my practice where a developer client – whose project is seeking LEED for Core and Shell certification – decided that it wanted to require potential tenants to sign some sort of green lease. One potential tenant resisted, and our client approached us asking whether that tenant might jeopardize the client’s ability to earn its desired level of LEED certification (compelled, incidentally, by a corporate commitment to building all of its facilities to a predetermined level of LEED certification). As we discussed with the client, while potential tenants will have little impact on a LEED-CS application, if the building were to ongoing certification under LEED-EB:OM, an uncooperative tenant might play a role in impacting the project’s application – which could have serious consequences if the project seeks tax incentives or must otherwise comply with other emerging regulatory requirements. For that reason, we suggested precise lease language that identified the tenant’s specific obligations rather than broad aspirational strokes that might eventually leave the landlord without remedy in the event that its goals for third-party certification went unrealized due to circumstances created by the tenant.
These concepts are still largely legal theory at this point, but until aspirational green lease clauses are interpreted by the courts or more fully analyzed by legal scholars, landlords and tenants alike may be treading in dangerous waters when it comes to lease provisions that fail to specifically allocate the parties’ rights and responsibilities. These dangers are more acute in situations where the parties have competing visions and objectives when it comes to sustainable goals for the demised premises.