Slow Growth for “Green” Leases
August 29, 2011
Colorado Energy News
By Melissa Baldridge
Erik Foster had practiced law in his downtown Denver office building for five years before he realized what an energy-efficient gem the place was.
He was chatting up a security guard one day and saw a plaque at the security desk - “ENERGY STAR 2009.” When Foster asked about it, the guard said that the building had also won a “Building of the Year” award from the Building Owners and Managers Association, in addition to its LEED certification.
He said the operations staff was so proud of the plaques that they squirreled them away in a back office. Foster, a real estate attorney who works with green builders and building owners, suggested a more public display - “Well, maybe the tenants would like to know that, too.”
Foster’s building in downtown Denver, had an ENERGY STAR rating of 97, meaning only three percent of buildings nationwide operated more efficiently. A LEED Accredited Professional with Moye White, Foster is definitely a member of the green choir. Yet he said that his firm’s lease included no provisions for how the building should operate in order to retain that elite status after the doors opened - a looming problem for green-building certifiers as more and more buildings seek labels.
Green light for new builds
Energy-efficient building codes and certifications are transforming the built landscape, and the U.S. Green Building Council has certified over 40,000 LEED buildings. Cities like Dallas, Portland and Chicago are requiring LEED certification for new municipal buildings.
And companies like Bank of America, Wells Fargo, Starbucks and Office Depot are routinely building LEED from the ground up. As owners and landlords pay the upfront money to stamp their buildings as energy efficient, they must work in tandem with tenants if they want to recertify when the building moves into adolescence and adulthood.
The mechanism for good green-building practice, beyond tenant good will? “Green” leases, or leases with provisions that govern life in a green building.
Yellow light for existing buildings
Even though green is here to stay, the leases have a long way to go. This is critical with ENERGY STAR and LEED, which require recertification based largely on the building’s energy use (read, how building systems function and the energy demands tenants make on them). Even Foster, practicing law for 20-plus years, says he didn’t see a green lease in Denver until two years ago, and that was largely driven by an architecture firm, which are usually chock-full of LEED APs, working with a building owner.
But even if owners pony up for the certifications in the first place, they must recertify (in perpetuity if they want the designation) under the “O+M” (operations and maintenance) criteria. This includes no-big-deal provisions like building-wide recycling, low-flow water fixtures and energy-efficient light bulbs (natch).
There are more intrusive checkpoints, however, that directly affect the way people use a building, like pulling sunny-side blinds down in the afternoon, purchasing “environmentally preferable” products and services, and allowing daytime cleaning crews into work spaces. “So often when a building is lit up at night, it’s the janitorial service that’s driving that whole use of utilities,” says Foster.
Green leases sacrifice sacred cows
Another novel green-building trend flies in the face of a cherished lease practice - triple-net leasing. With triple-net, building owners charge a per-square-foot price for energy use, and settle up with tenants at year-end.
In this scenario, Foster says tenants have no incentive to save energy because the owners pocket any savings from building efficiencies. Sub-metering, though, captures individual energy use, rather than doling out a pro-rata share, and study after study shows direct feedback can help lower energy costs by 15 percent. That helps make the recertification case.
An education process also has to happen before tenants go into green space. Even a group as simpatico to greening as the Environmental Protection Agency (EPA) had to school its employees when it moved into its LEED gold Region 8 offices in downtown Denver, with building systems like under-floor air ventilation, huge air returns on every floor and waterless urinals.
“Even buildings that are LEED or ENERGY STAR have been slow to come to the realization that they need to get tenants’ buy-in to make buildings work to maximum efficiency,” says Foster.
One reason green leases are behind the curve is that owners and managers play cards close to the chest. In preparation for this article, I called seven property managers of LEED buildings. Not one called back. One woman I interviewed peripherally suggested that these building owners may be unwilling to publicize lease terms, private between management and clients. Foster says, more likely, leasing agents don’t want to gum the works with what may be perceived as green-police, “rap-the-knuckles” rules for building use.
Speculating on whether there will be industry-wide acceptance for green leases anytime soon, Foster says, “I think it’s going to be years. I think you have to get buy-in from the brokerage community, and we’re not there.”
Melissa Baldridge is a contributing writer to Colorado Energy News and co-founder of GreenSpot Real Estate, a traditional real estate brokerage with a specialty for green, energy-efficient properties. She’s a LEED AP, a HERS rater and a BPI-certified Building Analyst. She writes about green buildings, living and design, and her articles have appeared in media like MSN.com, The Denver Post, Luxe and Ms. magazine. Her e-mail is Melissa.email@example.com.
Article originally printed in Colorado Energy News.
About Moye White LLP
Moye White is a Denver-based business law firm serving clients throughout the United States and internationally. The firm provides legal representation across a wide variety of transactional and litigation matters, offering strategic, business-oriented counsel to public, private, and governmental clients in complex business and real estate transactions and disputes. As one of the first Denver law firms to achieve B Corp certification, Moye White meets rigorous standards of social and environmental performance, transparency, and accountability. For more information, please visit moyewhite.com or contact Managing Partner Thomas List at 303-292-2900 or firstname.lastname@example.org.