What to consider when negotiating a Green Lease

What to consider when negotiating a Green Lease BOMA Boston Green Real Estate Summit Matt Giffune & Jennifer Cronan Jones Lang LaSalle April 1, 2011

2010 CoreNet & Jones Lang LaSalle survey Some interesting findings The number of respondents willing to pay more for green spaces jumped from 37% in 2009 to 50% in 2010. 2

Green Leasing What is it? The building is green in terms of the design and/or ongoing operations. The build-out of the space will be green in terms of designing the space to achieve efficiencies in areas such as energy, lighting and water usage, materials used in construction, and construction practices. The tenant will have the flexibility and building support to achieve its green goals through programs such as tenant recycling, control of indoor air quality and temperature and use of cleaning products. 3

Green Leasing Why? Tenant s perspective Green leasing, from a tenant s perspective, means achieving any of the following things in the selection and negotiation of a new lease: Support of corporate sustainability initiative Public image/reputation Clients/Customers/Investors Increased energy efficiency = reduced operating expenses Waste reduction Enhance employee productivity Lower healthcare expenses Enhanced recruitment 4

Green Leasing Why? Landlord s perspective Green leasing incents landlords to increase their sustainability efforts by providing opportunity to achieve the following: Higher rents Higher occupancy higher tenant retention/renewal Increased building asset/value Increase in ROI Lower energy and operating costs Improved health and productivity of occupants Wider tenant audience 5

Green Leasing Who are the stakeholders? 1. Building Owner 2. Tenant 3. Property Manager 4. Construction Manager 5. Chief Engineer 6. Architect 7. Lender 8. Broker 6

Green Leasing Building Consensus To certify or not to certify Rating systems: EPA EnergyStar USGBC LEED Certification Existing Building Core & Shell Commercial Interior Green Globes If a building is certified, standards can be agreed upon by exhibit or rules & regulations If a building is not certified, further clarification of tenant and landlord responsibilities need to be agreed upon throughout the lease s major clauses. 7

Green Leasing Building Consensus Gross vs. NNN lease How do you draft a lease that motivates both tenant and landlord to engage in sustainable building operating practices? Gross lease - advantage landlord As the building becomes more energy efficient, only Landlord benefits from savings Landlord more likely to ask premium on rent for tenant s green requests Problem: Tenant has no incentive to be energy efficient NNN lease - advantage tenant Tenant directly benefits from reduction in operating expenses Problem: Landlord has no incentive to invest in capital improvements if tenant realizes all the savings 8

Green Leasing Discussion items On the table for discussion during Lease Negotiations: 1. Alternative Transportation 2. Separate Utility Metering 3. Indoor Air Quality 4. Ozone Protection 5. Hazardous Materials 6. Building Commissioning 7. Green Cleaning 8. Water Efficiency 9. Heat Island Reduction 10. Recycling Programs 9

Green Leasing Discussion items Alternative transportation Lease terms can support this approach by requiring the building to administer programs or policies that encourage tenant employee and visitors to use more efficient commuting. Provide shuttle buses or vans to the nearest commuter rail or bus line Provide secure bicycle racks, changing facilities and showers for bike-riding commuters Provide preferred parking for alternative fuel vehicles or hybrids. Coordinate car pooling programs for tenants, include preferred parking for carpooling vehicles. 10

Green Leasing Discussion items Indoor air quality Cite standards for the building s HVAC systems Specify measures related to tobacco smoke Verify that there is no asbestos or PCBs in the building Measure and control Carbon Dioxide Improve indoor air quality is by introducing outdoor air ventilation into the building Indoor Air Quality Management Plan for Construction Filters of MERV 13 or greater in place for all outside air intakes and returns 11

Green Leasing Discussion items Building commission Assure that all building systems are performing within specifications. A building may have very efficient systems but, if they are not working as intended, the efficiencies can be greatly diminished. Lease terms can require commissioning within a particular time frame to help assure that building systems perform as intended. The tenant can also require that the building share a copy of the commissioning program and reports generated by the process. 12

Green Leasing Discussion items Green cleaning The lease can define green cleaning specifications for the tenant space and/or the common areas of the building. Green cleaning can cover a number of variables: Cleaning products should comply with Green Seal Standard 37. Green Seal is a non-profit organization that identifies and promotes products that cause less toxic pollution and waste, while conserving resources. Training of cleaning personnel in the proper use of cleaning products. Mandatory walk-off mats at building entrances to reduce contaminants in the building. 13

Green Leasing Discussion items Water efficiency Energy Policy Act of 1992 Defines efficient flow rates for plumbing fixtures such as faucets, toilets and urinals Calculate a baseline potable water flow target for the entire building A lease could require the building to meet or exceed this guideline within a specified period of time. Measures a building can follow to comply: Replace fixtures with compliant fixtures Limit the use of potable water for landscaping irrigation Capture and re-use rainwater or gray water 14

Green Leasing Discussion items Recycling programs The building offers a recycling infrastructure that the tenant can use. Separate collection receptacles or areas for: Paper Glass Aluminum Plastics Metals Batteries Fluorescent Light Bulbs Separate recycling waste pick-up by the building cleaning staff. Separate recycling waste disposal by the building s waste hauler. 15

Green Leasing Even Dilbert is thinking about it! 16