When a landlord or tenant desires a green or sustainable lease pursuant to (i) internal policies or corporate branding or (ii) requires such a lease because of financing or monetary incentives, addressing the key green or sustainable lease issues in the letter of intent or lease proposal (collectively, the LOI) can save much time and expense in finalizing the lease. This article will discuss the key elements of a green or sustainable lease that should be addressed in any LOI.
1. Sustainability Standards.
As referenced above, either the landlord or the tenant may require certain sustainability standards. Those standards might be as follows and should be stated in the LOI:
For multitenant office and retail buildings, the dominant third-party sustainable standard for landlords will be LEED Core and Shell for newly constructed buildings and LEED EBOM for existing buildings. The dominant sustainable standard for tenants will be LEED CI. The recommendations in this article will focus on the LEED Core and Shell, LEED EBOM, and LEED CI.
For retail leases using a pass through of common area and maintenance expenses and office leases using a base-year concept with the tenant paying increases in expenses over the base year amount, there is always much discussion between the landlord and tenant on capital expenditures (Capex) and operating expenses (Opex). Typically, the tenant resists any capital expenditures being included as part of the operating expenses but the general alternatives for green or sustainable Capex are as follows:
3. Construction Obligations and Operations and Maintenance
The tenant improvements would either be constructed by the landlord or tenant but the tenant improvements (and any alterations) will be subject to a published lease exhibit or stand-alone publication containing tenant design and construction guidelines and certain additional, mandatory construction rules and regulations. The “must-haves” and optional guidelines will be dictated by the desired LEED certification of the landlord (e.g., LEED Core and Shell or LEED EBOM) or tenant (e.g., LEED CI) and might be as follows:
4. Sharing Information
Both the tenant and the landlord should agree to share information on the consumption of utilities, the consumption of utilities-per-square-foot and the consumption of utilities-per-occupant of electricity, gas, and other fuels and water and the total gross waste (by ton) generated or diverted from landfills or incineration.
5. Special Remedies
If there are damages for failure to comply with the sustainability standards, such as the loss of a low-interest credit facility for failure to obtain a certain LEED certification or the failure to obtain incentives due to the failure to obtain a certain LEED certification, the damage/default sections should specifically address these special damages.
Regardless of which sustainability standard is chosen by the landlord or the tenant, before the LOI is finished, that chosen standard should be reviewed and all major items in that sustainability standard should be addressed in the LOI.
1Taking the LEED on Green Leasing: What You and Your Clients Need to Know. The American Bar Association, Section of Real Property, Trust and Estate Law and the ABA Center for Continuing Legal Education, March 5, 2009, Event Code: CET9TTL
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Emerson M. Lotzia