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. 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. Landlords and tenants considering green lease implementation should therefore consider 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.

This comment reminded me of language in the NIBS report which noted that “[a]t an increasing rate, state and local governments and their code/regulatory agencies are adopting building rating/certification systems, intended as voluntary systems, to be their code or regulatory requirements, often without fully understanding their benefits, tradeoffs, and costs.” While the Atlanta restaurant industry seems more concerned with what it perceives to be a green building cost premium, the fact that its opposition is also grounded in the lack of sufficient input from stakeholders also echoes many of the policy issues we’ve raised here at GRELJ over the past year, particularly with respect to the rush to mandate green building requirements.

In that vein, it’s also interesting that although Atlanta’s Bureau of Buildings will enforce the ordinance, the city council has yet to determine what types of fines or other enforcement mechanisms would be imposed on buildings that fail to comply. “This is still a work in progress,” a spokesman observed, and the restaurant industry is pointing to this specific comment as one of the bases for arguing that the ordinance needs more work before the city council even considers passing it. Again, this echoes the types of observations noted in the NIBS report. While these types of details are being worked out, the restaurant industry is instead advocating for additional financial incentives (such as tax credits and building permit fee reductions); this also reflects the conclusions of the NAIOP report issued earlier this year, which called for financial incentives rather than mandates to bridge landlords’ payback period gap for most types of energy efficiency improvements.

On another note, the ordinance may present some novel green leasing implications which the restaurant industry has picked up on. Although building owners will bear the responsibility under the text of the ordinance for ensuring that the required standards are satisfied, the restaurant industry is warning restauranteurs who do not own the premises out of which they are operating to review their lease documents and confirm that they will not be responsible for executing the legislation’s required retrofits. It is not difficult to imagine the scenario where a lease includes a clause obligating the tenant to comply with all applicable codes and regulations, and the landlord pinning responsibility for any such retrofits on that tenant in the absence of affirmative language to the contrary.

Just a quick editorial note- this article will be the only new post here at GRELJ for the rest of the month as I am getting married this Saturday and then off on the honeymoon. Thanks to everyone for your support and comments since we launched this site almost a year ago (and patience over the past couple of weeks while the pace of our posts has slowed in advance of the wedding). See you on the other side!

• Operators in Atlanta Fight Forced Green Conversions (NRN)
• Costly Eco-Friendly Laws Overlook Industry’s Proactive Green Efforts (NRN)

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.