Last year, IMT and the Department of Energy’s Better Buildings Alliance recognized 14 commercial real estate companies as the inaugural Green Lease Leaders. The program’s launch succeeded in proving that leading real estate companies can, and are, using their leases as a vehicle to drive energy savings and environmental protection. As IMT and its partner organizations advance this program in 2015, I want to step back and take stock of what we learned from the program’s first year.
Setting a standard
Green leases align the financial and environmental incentives of building owners and tenants so they can work together to save money, conserve resources, and ensure the efficient operation of buildings. Last year, a group of industry experts collaborated with IMT to create a set of green lease standards. This was a notable achievement, as there previously was no common standard for what types of lease clauses constituted a “green” (also known as an energy-aligned, high-performance, or energy-efficient) lease in the U.S.
In 2014, landlord applicants for Green Lease Leader designation had to meet the following standards:
One complaint we’ve heard across the board from landlords is that energy efficiency projects are hampered by the landlord’s inability to recoup capital costs from the energy savings of new equipment. This issue, commonly referred to as the split-incentive problem, had to be addressed for a landlord to be eligible for recognition.
Landlords also had to meet three of the five following requirements in order for their leases to be designated as green:
Since there was no existing data or common standards for green leases, we weren’t certain about what we would find in the green leases submitted for consideration. Lease information is proprietary, and many companies are hesitant to share sensitive information from their lease. With that in mind, here’s a breakdown of which requirements were met by submitted leases from 2014 Green Lease Leaders:
Looking at last year’s submissions, the development of green leases mainly appeared to be driven by landlord interests. Perhaps that isn’t too surprising – 13 of last year’s 14 Green Lease Leaders were landlords, despite the recognition being available for tenants and commercial brokers. The most common clauses included in submitted leases covered building-level systems (Energy Management Best Practices) and building-level operations (Sustainable Operations & Maintenance). Energy management best practices for building systems were included in almost every green lease submitted, indicating that green leases are a proxy for smart energy management.
Meanwhile, clauses concerning tenant spaces (Tenant Disclosure of Utility Data and Submetering Tenant Spaces) were included in fewer green leases. There are a number of reasons why these clauses may be harder to come by in leases: a good landlord is sensitive to tenant interests, some cities have laws that make submetering difficult, and submetering can be a larger upfront cost than many landlords or tenants are willing to pay. Finding out what truly compels landlords to exclude these clauses from green leases warrants further investigation.
As applications come in for the second year of the program, it will be exciting to see what trends emerge and what the catalysts are for a successful green leasing program. While we know that green leases can be key in reducing building energy consumption, each year of the Green Lease Leaders program increases our expertise in understanding, specifically, they’re put into practice.
Last year’s Green Lease Leaders proved that major real estate companies are utilizing green leases to overcome complex landlord-tenant engagement issues and create more sustainable, healthy buildings. What will this year’s group bring? We look forward to analyzing and sharing that information in May when we introduce the 2015 winners. Read IMT’s press release announcing this year’s application period and visit greenleaseleaders.com for more information.