By Marc Heisterkamp
When Structuring a Green Lease,
Terms Are Just One Consideration
THE CONCEPT OF GREEN LEASES AND HOW
tenants and landlords can protect the financial interests
associated with green building has been one of the biggest topics of industry discussion over the past year.
Between BOMA’s Green Lease Guide and language
produced by RealPac and other entities, the industry
now has several good resources to reference in terms
of specific lease language. However, a truly green lease
does not start or end at the negotiating table; rather, it’s
the result of an integrated, collaborative process.
A tenant’s decision on leasing begins the day the need
for new office space is identified. From that day forward,
the tenant faces decisions around broker representation,
design and construction teams, building selection, lease
terms and many other factors. Like most processes, the
initial decisions made can have a significant impact on
achieving successful outcomes. For example, picking
a broker who is knowledgeable about green buildings,
perhaps even a LEED-credentialed professional, will
help ensure the tenant’s criteria and preferences such as
finding a space that uses less energy and water, or has
higher indoor air quality, are met.
One key area that the right broker representation
can assist with is property and site selection. Location
and rent will always be of critical importance. However,
many tenants are beginning to put more weight on the
environmental performance of the building. Therefore,
questions related to a property’s sustainability become
part of their qualification process and Request for
Proposals. It would be easy for tenants to simply select
a LEED-certified building, yet that can still be difficult
to do in many markets, particularly if certain locations
or amenities are desired. Even with certified buildings,
it’s important for tenants to know which environmental
attributes the building performs well on. Using an environmental questionnaire early in the process will help a
tenant make sure that key areas such as building energy
efficiency and minimum indoor air quality are met by any
building that they are considering.
A challenge that both landlords and tenants face is
what to do about existing leases. In this economic climate, tenant retention is crucial and some occupants are
leveraging upcoming lease renewals to negotiate better
terms and require higher levels of performance. Often the
best environmental and financial decision will be to renew
the existing lease and avoid the impact of a new tenant
improvement project, but pass-through expenses should
be carefully analyzed and compared to make sure the current building is competitive with others in the market.
A green lease is much more than just a legal document. Negotiations over lease terms provide the necessary structure to make sure that each side receives the
expected benefits. Key considerations in lease terms
include utility submetering, HVAC operating hours,
custodial policies and minimum indoor environmental
quality and ventilation. Requirements around LEED certification, whether for the entire building or an individual
tenant space, are an area where transparency and clear
language is essential. Meanwhile, the allocation of environmental incentives, such as carbon credits, is a new
area and often needs to be treated on a case-by-case
basis. While it’s tempting to think of green lease clauses
A truly green lease does not start or end at the
negotiating table; rather, it’s the result of an
integrated, collaborative process.
or environmental riders as quick solutions, the reality is
that lease language for green attributes doesn’t apply
universally. Standard green lease clauses and riders
should serve only as guidelines that informed teams can
use as a starting point. Optimally, green lease terms will
be negotiated specifically to the project and should provide incentives to both landlords and tenants.
While there is not a simple green lease solution that
applies universally, there are significant benefits gained
by integrating green decisions into every step of the process. Green leasing is most successful when benefits are
shared and requirements are clear. There are many available resources that offer tools and sample lease language
mentioned here. ◆
The views expressed in this column are those of the
author and not necessarily REAL ESTATE FORUM.
Marc Heisterkamp is the director of the commercial real estate
sector for Washington, DC-based US Green Building Council.
He may be contacted at firstname.lastname@example.org.