A model lease agreement

As green building standards become increasingly important for tenants and landlords alike, many progressive companies are now looking to ensure the ongoing building operations are also handled responsibly.

But there is no simple way to design such a “green lease,” experts say. Although the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) standards are widely used throughout the industry, the group focuses primarily on design and construction. Energy use, water efficiency, chemical use or other vital aspects of green operation are another story.

Many in the building industry are now working on such green lease provisions, but the effort has left many scratching their heads, wondering how to write a lease that ensures healthy, sustainable operations.

“In the commercial leasing context, it’s hard to say how to structure a lease to encourage a tenant to behave in ways that are aligned with how the building is designed,” says Ralph DiNola, Principal with Green Building Services, a consulting firm with offices in Portland. DiNola says developers and landlords often make sustainable design a major component of the marketing strategy for new construction. However, tenants that fail to engage on energy efficiency, green maintenance and other measures can negate those efforts.

According to Karen Penafiel, vice president of advocacy for the Building Owners and Managers Association (BOMA), tenant cooperation is a key aspect of green building that the industry hasn't comprehensively addressed.

“One of the hardest things about going green is user behavior,” Penafiel says. “You can upgrade all your systems and achieve a lot of energy efficiency that way, but if the tenants use more and more energy, you’re not really doing anything on the conservation side.”

Many throughout the industry know one of the most effective ways to promote green operation is to sub-meter tenants for their electricity, rather than include energy use in standard maintenance charges. While the practice gives tenants a direct incentive to reduce energy use, it is just one way to encourage responsible building operations. Developers are feeling pressure coming from the tenants as well, says Jon Carder, president of Melvin Mark Brokerage, a real estate development and brokerage firm with several LEED-certified projects in Oregon.

“We work with a lot of tenants that have made sustainability a part of their mission statement, and they want to know they’re going into a healthy building,” Carder says.

Managers take the lead
As the industry takes notice of the trend, BOMA is spearheading an effort to provide guidance for landlords on how to incorporate sustainability into every aspect of an office or retail lease. BOMA is the nation’s primary trade association for landlords and property managers; its model lease document is widely used as the standard for commercial leasing. The sustainable leasing guide will provide a model green lease document to help landlords and tenants improve their leases without straying from the standard lease structure.

“The guide will go through, clause-by-clause, and offer language that can ‘green’ any building’s lease easily,” Penafiel says.

Expected for release in early 2008, the green leasing guide is set to include language to promote recycling throughout the building, mandate efficient lighting, heating, and air-conditioning systems; and require the use of cleaning products without volatile organic compounds (VOCs), Penafiel explains.

She also notes the lease provisions will be usable in any building certified under LEED, Green Globes, or any other green building–certification system. And this isn’t just aimed at progressive developers and building owners, Penafiel says, noting the forthcoming guide is meant to fundamentally change how landlords design their leases. “As more and more people do this, we expect the green lease to slowly replace the existing standard lease document,” she says.

But despite this enthusiasm, some in the industry are wondering how far a landlord can go with a green lease without stepping on a tenant’s rights. Says Melvin Mark’s Jon Carder: “I don’t think you can completely regulate green operations. You can encourage green operations, but it can be much harder to place mandates on tenants.”

Although he admits there are limits to what a landlord can require, Carder’s company is already beginning to include some green mandates in their leases.

For instance, Melvin Mark requires all tenant improvements in its new 70,000 square-foot, LEED-certified Standard Tanasbourne building in Hillsboro, Ore., to be built according to Portland’s G-Rated sustainable building guidelines. Carder says the company has the same requirements in many other buildings as well.

“Adopting G-Rated guidelines is not really a big addition to the cost,” Carder says, and explains it can achieve strong results at less cost than certification under the LEED for Commercial Interiors program.

DiNola also says offering a green lease can provide a marketing advantage for developers, especially in Portland and other cities with a strong focus on sustainable business.

“Now that these new green office buildings are coming up out of the ground, they’re going to be offering competitive lease rates and green benefits,” DiNola explains. “I think they’re going to be pulling tenants from the existing buildings market because there’s more attractive space.” “So what we’re seeing is that the owners of existing buildings are looking to us to help them to retrofit, upgrade and certify their existing buildings,” he says. “And this could include green leases.”

Tenant opportunities
It’s not just landlords that are seeing benefits of green lease provisions, many tenants are also demanding buildings be operated in environmentally responsible ways, especially companies with sustainability as a key part of their business plan.

According to Dick Roy, managing director of the Center for Earth Leadership, a Portland-based sustainability advocacy group, tenants can easily negotiate green provisions to a lease.

“As a major tenant, you could negotiate all sorts of requirements, and they could be attached as an addendum to a standard lease,” Roy says, explaining adding an addendum can be preferable, because it doesn’t require an overhaul of the entire lease contract.

Roy says tenants could stipulate installation of efficient lighting, elimination of floor and wall coverings containing polyvinyl chloride (PVC), use of wood products certified by the Forest Stewardship Council, and other measures.

He also says tenants should be sub-metered for electric use, and that building operators should continually optimize heating and air conditioning systems for maximum efficiency. Many of these provisions can even be implemented in buildings without LEED certification, Roy asserts.

Although Roy says tenants’ ability to drive change often depends on the amount of space they occupy in a building, he says multiple tenants in a building can bond together to demand sustainable operations.

“If the majority of a building’s tenants were to proactively seize the initiative…and request a green lease, then the building owner would probably have to agree,” he speculates.