What is Green Leasing?
When structured properly, green leasing can be mutually beneficial for the tenant and the landlord, however there are a few barriers to making green leasing ubiquitous in the private sector. One of the biggest barriers to green leasing is feedback and measuring the return on investment. A tenant occupying a small portion of a large commercial building might make certain efficiency upgrades, but if the building is not submetered, there is no way to show their accomplishments or measure their savings. Also, some sustainability strategies are impossible to pursue depending on who is in control of which areas. For instance, a tenant might want to insulate the roof to provide for more energy savings, but might not have that kind of control.
While green leasing adoption still lags behind conventional leasing, it is clear that green leases are becoming an established strategy for enabling more environmentally and financially efficient operations in all types of buildings.
Barriers to Green Leasing
In a traditional commercial lease, the tenant is typically responsible for paying its rent, plus additional pass through costs, such as its proportionate share of the property taxes, building insurance, and maintenance costs. This type of lease may discourage an owner's investment in green building upgrades because they may not provide a sufficient return. The landlord pays, but most of the benefits go to the tenant in the form of lower maintenance and operations costs. If the landlord undertakes green construction, he or she may not realize a share of the resulting savings. For more efficient buildings, landlords will likely be able to charge a higher rent, but that increase may not generate a return sufficient to justify the investment.
If, instead, a gross lease is used, where the landlord pays some of the costs usually passed to the tenant, incentives align better for green design. In this set-up, the landlord can recoup its investment through reduced operating costs and continued high efficiency. In order to affirm tenants have a stake in the building’s green character, some costs need to be passed through to the tenants to provide the proper incentives. For instance, landlords could require tenants to achieve LEED for Commercial Interiors certification, participate in recycling programs, specify green improvements and disposal of waste, use of energy efficient light bulbs, motion sensing light timers, low-flow toilets, or Energy Star rated appliances in their leases.