Do you need a green lease to occupy a green building? No. Still, a green lease addresses a harsh reality of the commercial real estate industry. One does not get what is right or fair – but what is negotiated, and only if that is in writing! This is especially important during these rocky financial times. Any day, your landlord may be replaced by a lender more interested in how fast they can recover their capital than managing a building in a sustainable manner.

Here are 25 tips, tricks, and traps to consider when negotiating a green lease.

1. It’s the people! Over a ten-year lease the salaries and benefits of the people occupying the space account for 80% of the total costs on a present value basis. Technology takes 10%. Rent, including energy, will consume 8%. Tenant improvements and office furniture make up the final 2%. Research shows that green buildings have reduced levels of absenteeism, higher employee retention, and increased employee productivity.
2. The greenest space you can lease is the square feet you do not lease. The square footage needed to house a firm’s space requirement can vary by 30% among the buildings under consideration. Items such as a company’s space standards, building elements such as bay depth, window module, core arrangement, and the size and shape of the floor plate can have a major impact.
3. A lower rental rate per square foot does not always translate to a better deal for the tenant. While the rent per square foot is a common metric in leasing, a better metric is rent per employee. A space efficient building with a higher rent per square foot can the low cost alternative.
4. There are many ratings systems for certifying building performance i.e. ASHRAE, BOMA 360, Energy Star, Green Globes, and LEED EBOM. Yet, a well-managed building may lose it certification because its occupancy rate declined below a minimum level. This can be a double edge sword.
5. Assemble your leasing team before starting your search. Your team should include a real estate attorney, interior architect, and accounting expertise as well as a qualified real estate broker. Adding a construction manager is wise, too, if you plan to supervise your own build out of the tenant improvements.
   a. The attorney works with the broker to include critical legal issues into the Request for Proposal (RFP) and the resulting Letter of Intent (LOI) and Lease. This saves time, money and avoids last minute legal issues from killing the deal.
   b. An interior architect can ensure the spaces under consideration will fit your needs, conforms to your environmental requirements, and is space efficient.
   c. Accounting expertise is invaluable in maximizing the benefits currently available from rebates and tax credits.
   d. As well as supervising the tenant fit-out, the construction manager may provide LEED documentation services for the project.
6. Tenants should work with their management and leasing team to set clear goals, timetable, and budget for the project. Must the building be certified now or in the near future? Will the tenant space be certified under a rating system such as LEED CI and to what level? As part of this work, the team should develop a method to evaluate points, costs, and benefits.
7. Avoid the design trend for an “open” ceiling. Poor acoustics is the number one productivity killer in offices. A sound masking system coupled with ceiling panels with an NRC of .9 or above are your most cost-effective tools. It outperforms slab-to-slab walls and allows for future reconfiguration of the office space at a fraction of the costs.
8. It’s possible to green an existing lease document. Simply use the exhibits (Utilities and Services, Building Operating Costs, Building Regulations, Green Cleaning Specification, Annual Environmental Performance Report, and Contractor Regulations) from the Model Green Lease to green an existing lease document.
9. Unless you plan to smelt aluminum in your office, the requirement for 7 watts per square foot of lights and plug load is overkill and adds unnecessarily to your cost. Field surveys have shown the typical office building consumes between 2.3 and 2.7 watts per square foot for lights and plug load.
10. Most office space is grossly over lit. Saving 3-watts of lighting energy saves 1-watt of air-conditioning energy. A recent research project by Southern California Edison (SCE) cut lighting power density and consumption by 65% or more from California’s strict energy code. SCE replaced an 8-foot-by-8-foot lighting grid of 2×4 light fixtures with a system of suspended direct/indirect light fixtures, reducing the number of fixtures (22%) and lamps (48%). Dimmable ballast, allowed SCE to trim the light level to 80% output – saving 20%. Using occupancy and daylight sensors supplied light only when and where needed. LED fixtures controlled by a power strip with an occupancy sensor replaced traditional fluorescent lighting in the workstations saving (82%). This advanced lighting control system is cost competitive with traditional lighting systems.
11. Products used to build out green office space such as movable wall systems, carpet tile, advanced lighting, and modular cabling can be classified as tangible personal property that qualify for accelerated depreciation. Many tenants leave this money on the table by failing to undertake a cost segregation study. Wise tenants conduct their cost segregation analysis during the design phase rather than waiting until after the design is finished.
12. LEED EBOM and LEED CI are the fastest growing rating systems within USGBC. Regrettably, there is some inconsistency between the two ratings systems. Recently, a tenant leased a floor in a major high-rise that had just received an LEED EBOM Gold rating. The tenant sought to capitalize on the Building’s LEED EBOM rating in its quest for an LEED CI Gold rating. However, the minimum water efficiency requirements for LEED EBOM did not meet the prerequisites for LEED CI. The tenant then had to spend another $30,000 to replace the new fixtures in the newly renovated rest rooms to earn the desired level of LEED CI certification.
13. Besides a “subordination and do not disturb agreement,” ask for this important tenant improvement stipulation in the lease language: “If the landlord fails to pay any part of the tenant improvement allowance, the tenant may deduct the unfunded amount from the rent.”
14. If you are installing systems to control energy use in the space you occupy, make sure you are not on the hook to subsidize tenants that waste energy or operate beyond normal business hours. Protect yourself by installing sub-meters. Prices on sub-meters have dropped to as low as $75 per circuit. Tenants have reduced their energy use up to 30% in buildings with sub-meters.
15. If a tenant occupies a green certified space or building, insist on lease language that prohibits the landlord, lender, or any other tenant from do anything that would jeopardize certifying the space or building.
16. A well-crafted lease will allow the landlord to make improvements that reduce operating expenses and amortize the costs of those improvements (provided the annual amortization costs do not exceed the actual savings).
17. Unfortunately, some people still believe that if a cleaning product does not give you a nosebleed it is not effective. Green cleaning specifications are vital to a healthy workplace.
18. Daytime cleaning can reduce energy use by as much as 10 percent, enhance tenant satisfaction, and improve security.
19. A building wide recycling program can turn an operating cost into a profit center. Some landlords have recycling programs in place, while others need a little nudging from a prospective tenant to get started.
20. Inspect janitor closets, electrical rooms, and mechanical spaces when touring prospective buildings. Are these spaces clean and orderly? Do they have an odor? Air handling units should be clean and rust free, and drain pans should be dry and pitched towards toward the outlet. Air filters should fit snuggly without gaps around the frame.
21. Confirm that building management has an HVAC maintenance program that includes scheduled inspection, cleaning, and service, calibration of control system components, and proper procedure documentation.
22. The Model Green Lease requires compliance with ASHRAE Standard 55, “Environmental Conditions for Human Occupancy” to avoid IAQ issues.
23. Using high performance air filters, electronic air cleaners, and ultraviolet germicidal irradiation lamps can dramatically improve IAQ and saves energy. Before signing your lease, verify the landlord is using this state of the art technology.
24. When negotiating the lease commencement date, allow enough time for the design, build out, and to “air out” the space before occupancy.
25. Use plastic crates on dollies rather than cardboard boxes when moving into your new space. Crates are safer, easier, and faster to pack. They save money by reducing the number of trucks and trips between the old and new facility.

The workplace is a tool for the people who work there – if designed, configured, and operated in an environmentally responsible manner it can significantly affect the productivity and performance of the entire organization. That’s the real value of a green lease to a tenant.

Question:              I have been wondering what the panelists think about the Model Green Lease, what their comments are, what they think would work, what wouldn’t work? Do they think this is an effective approach? Do they have recommendations to improve it?

 Sandra Dino, Director of Sustainability, Environetics              I appreciate that the Model Green Lease is rating system neutral. I think it’s a great start. It takes a lot of the guesswork out, especially when we are shopping for spaces and it’s a really good base to begin with. I like that, because that helps us protect our clients, educate them quickly, and then we can build upon that. We can really do some great projects together with it.

Scott Steuber, Cushman Wakefield              Overall, yes. I think it’s a great movement. I think it’s an absolutely needed movement. It’s the movement that’s going to help hopefully clarify that incentive issue whether we can get both landlords and tenants working toward the cost save by structuring the rent a certain way, by treating the operating expenses in a certain way, the lease by sub-metering the building. I think it is going to be unfortunately, a little bit of time until it really permeates the industry. And I think that time frame is dependent on a couple things, and one of those things is government regulation.

As Legislature regulations start coming through — Cal Green just passed a couple weeks ago here in LA, a recent proposal that passed in New York that requires all buildings to report their performance results every decade — as that starts getting permeated through our industry — that is then going to require landlords to slip in these Model Green Leases. So for Alan and team, to have this document ready to go will save us some time in getting to where we all need to be some point.

But even with those government regulations, because especially on the these larger buildings the million square-foot buildings where there is 5000, 2000, 1000 square-foot tenants throughout, it’s going to take a long time for those buildings to rollover, for those leases to rollover and for new leases to get put in. But overall, yes, it’s a great movement. It’s just going to take a little time to make its way through the industry.

Pete Roth, Partner, Allen Matkins                  To me, I wouldn’t view success to be wholesale implementation. I think the real value especially in the near term of the Model Green Lease is an educational tool, because it has thought through so many of these issues which are fundamental to the concept and the implementation of sustainability in buildings. I think it is going to be invaluable from that perspective.

The other thing it will do is there are clauses, and addendum and exhibits, and concepts that will be in short order, adapted. Lawyers do that. One of the reasons why the leases in New York are 150 pages long is because some lawyer read another lawyer’s clause and said, oh, that’s good idea. I’ll just throw it in. And it’s always additive. A long lease and California starts at around 40 pages whereas its New York counterpart is three times as long. It is just the nature of the beast.

But by structuring it the way Alan has, especially with the usefulness of the exhibits, I think you will see implementations of elements of it in short order into leases. It would be great if everyone just took it, and ran with it, and used it as a new basis, and tweaked it around for each particular building, and owners perspective and tenants perspective, but it’s the educational tool and the ability to take a neutral point for these different concepts and use that as a framework as opposed to starting with whole cloth. Otherwise it’s a very hard task for a landlord or a tenant or the brokers or their lawyers to try to identify and solve the problems that this group has already thought through and presented an option in a framework to work from.

Footnote:

We record and transcribe the Q&A session of every Model Green Lease Workshop. The transcripts are then incorporated into the Almanac of Greening North America’s Office Buildings. If you would like a copy of the Almanac please send your contact information to Laura Rossi – LRossi@SquareFootage.net

“Apart from the issues raised by the current state of the economy,” adds Laurie Mc Mahon, LEED AP, Managing Director, Cassidy & Pinkard Colliers, Washington DC; “rising energy costs, and concerns about carbon and climate change have upped the stakes for addressing the spilt-incentive. Our experience shows that greening any building benefits both tenants and the building owner. The first step is getting the financial incentives aligned, and then pairing that with an educated, engaged and effective property management and leasing team to execute.”

The Model Green Lease is distinct from other green lease efforts in three critical areas:

1. Resolves the critical financial problem of the split-incentive that has hobbled the progress of greening existing office buildings and constructing new green buildings.
2. It’s equitably balanced to meet the financial and operational needs of landlords, lenders, investors, and tenants.
3. Preliminary estimates show that buildings adopting the structure of the Model Green Lease, with appropriate construction and operating standards can cut energy use by 30 to 50 percent over comparable office buildings, with corresponding financial benefits accruing to landlord, investors and tenants.

Historically, the industry is polarized. If a tenant signs a net lease, the building owner sees little benefit from investing time and money in saving energy. A tenant that signed a gross lease doesn’t care how energy efficient a building is – because the tenant never sees the savings. Ironically under both types of leases, tenants that manage their energy use wisely often subsidize tenants that waste energy or operate beyond normal business hours. The Model Green Lease changes the game, says Whitson, “We redesigned the modified gross lease to put the economic incentives in the right spots to get the economic and environmental results everybody wants. Plus, it’s written in plain English.”

“It’s time to rethink the traditional lease document,” says real estate attorney Ronald B. Grais, Jenner & Block, Chicago. “While drafted at the onset of a lease term that may go five, 10 or even 20 or more years: many things will change over the lease term. Although the Model Green Lease includes specific ‘standards’ for IAQ, cleaning, recycling, and temperature range; these standards are going to change. The real genius of the Model Green Lease is its flexibility to adapt the landlord tenant relationship to change, and encourage continuous improvement.”

The Task Force created a lease that is consistent with ASHRAE, Energy Star, Green Globes, and LEED rating systems. Yet, it can be used in any buildings that for various reasons may not be seeking certification. Other goals include; having a user-friendly format with key deal points itemized at the front of the lease, and work across a portfolio of buildings with minimal changes. Besides key environmental issues such as IAQ, energy use, carbon credits, recycling, insurance, operating costs, tenant improvements, green cleaning specifications, and building regulations; the Model Green lease includes a requirement for an Annual Environmental Performance Report.

“The Model Green Lease Task Force did an outstanding job achieving our objectives,” says Whitson. “We resolved the biggest obstacle to green office buildings — the split financial incentive in a fair and equitable manner. From the landlord’s standpoint the Model Green Lease provides a framework to compete for tenants by designing, building and managing high performance and sustainable office buildings while maximizing their return on investment. From the tenant’s standpoint, the Model Green Lease ensures they receive the full benefit of being a tenant in a green office building — a healthy and productive workplace at a competitive rate.”

The Model Green Lease is available by download at www.squarefootage.net or on CD. It includes a reference guide on “Understanding and Working with the Model Green Lease,” plus an editable copy to use in your own leasing transaction. A series of educational workshops on the Model Green Lease are also running throughout North America. The workshops cover provisions of the Model Green Lease, its evolution, and how to apply it to new or existing buildings. An expert panel/ mock lease negotiation session is part of the seminar. This educational program is part of the Turning Green into Gold® series; and is offered in cooperation with the IFMA Corporate Real Estate Council and other collaborating organizations. Additional information is available at www.squarefootage.net or by calling 503-274-7162.