Green Leasing

Most commercial-building leases written today are based on language that has changed little over the years. The current standard arrangement divides responsibility for capital and operating expenses in a manner that fundamentally misaligns the incentive for most energy efficiency improvements, usually by slowing capital recovery or creating savings that accrue to only one party.

Common lease structures, such as net and gross leases, perpetuate this dilemma: a gross lease offers tenants no incentive to operate their space efficiently, because their utility payments are fixed; a net lease discourages a landlord from making efficiency investments, because the savings will be passed through to tenants.

Green lease (or "energy-aligned lease") terms harmonize the financial and energy interests of landlords and tenants. Inserted into existing lease forms, these terms realign incentives, facilitate information sharing, and encourage landlord and tenant to work together on the efficient use of energy and other resources.

The federal governments of the United States and Australia require green-lease terms for the real estate they lease, and cities including New York, London, and Melbourne are working with the real estate community to promote them. Green leases have huge potential to create economic and environmental savings--but unfortunately, this potential is still largely untapped. IMT is working to make green leasing practices mainstream among commercial real estate brokers, lawyers, landlords, and tenants.