Presenting a live 90‐minute webinar with interactive Q&A
Green Leases: Legal and Practical Strategies Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants Negotiating and Crafting Cost‐Effective and Environmentally Friendly Lease Terms
T d ’ f l f
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, NOVEMBER 3, 2010
Today’s faculty features:
Louise C. Adamson, LEED-AP, ID&C, Partner, K&L Gates, San Francisco
Ronald B. Grais, Of Counsel, Jenner & Block, Chicago
Jacob Bart, Partner, Stroock & Stroock & Lavan, New York
The audio portion of the conference may be accessed via the telephone or by using your computer's speakers.Please refer to the instructions emailed to registrants for additional information. If you have any questions,please contact Customer Service at 1-800-926-7926 ext. 10.
Continuing Education Credits FOR LIVE EVENT ONLY
For CLE and/or CPE purposes, please let us know how many people are listening at your location by completing each of the following steps:
• Close the notification box
• In the chat box, type (1) your company name and (2) the number of attendees at your location
• Click the blue icon beside the box to send
Tips for Optimal Sound Quality
If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection.
If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-866-871-8924 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail [email protected] immediately so we can address the problem.
If you dialed in and have any difficulties during the call, press *0 for assistance.
Green Tenant Leases
G L L l d P ti l St t i f Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants
November 3, 2010
Louise C Adamson LEED® AP ID&CLouise C. Adamson LEED®-AP ID&CPartnerSan [email protected]© 2010 Louise C. Adamson
Presentation overviewPresentation overview
THE CONTEXT OF GREEN LEASES Sustainable development drivers
Building impacts; Green buildings; Corporate perspectives on sustainability; LEED 101
GREEN TENANT LEASESGREEN TENANT LEASES How to structure an effective green lease
Client case study; What are the elements of an effective l ? I f h RFP d LOIgreen lease program? Importance of the RFP and LOI
Lessons learned Materials and resources
5
Materials and resources
Environmental impacts of buildingsEnvironmental impacts of buildings
U.S. Building Impacts
6
U.S. Dept. Energy 2008
Comparative sector impactsComparative sector impacts
7
http://www.greenerassets.com
Green BuildingsGreen Buildings
USE 24% to 50% less energy
EMIT 33% t 39% l b di id i t th EMIT 33% to 39% less carbon dioxide into the atmosphere
USE USE 40% less water
SEND 70% less solid waste to landfills and incinerators
8
U.S. Green Building Council
9
Corporate Perspectives on SustainabilityCorporate Perspectives on Sustainability A 2008 global survey of over 400 building occupiers prepared
by Jones Lang LaSalle and CoreNet shows that 90% of corporate occupiers surveyed consider sustainability a near-corporate occupiers surveyed consider sustainability a nearterm critical business issue
Most major corporations have now developed public sustainability policy statementssusta ab ty po cy state e ts
Opportunities: lower rents; landlord concessions Sustainability has become part of the corporate vernacular
and remains a high priority and remains a high priority 2009 CoreNet study shows 42% of real estate execs prepared to pay a
premium (up to 5%) to lease green space; 53% willing to pay premium to retrofit owned property
10
Global Trends in Sustainable Real Estate: An Occupier’s Perspective. Jones Lang LaSalle/CoreNet, Feb 2008;Global Trends in Sustainable Real Estate: An Occupier’s Perspective. Jones Lang LaSalle/CoreNet, Feb 2008;BOMA Kingsley Quarterly, 2007; 2009 State of the Corporate Real Estate Industry Report. CoreNet Global, Mar 2009BOMA Kingsley Quarterly, 2007; 2009 State of the Corporate Real Estate Industry Report. CoreNet Global, Mar 2009
When will sustainability become a When will sustainability become a critical business issue?critical business issue?critical business issue?critical business issue?
11
Why green building?Why green building?
Opportunity and incentive toOpportunity and incentive toimplement environmentally implement environmentally sustainable practicessustainable practicessustainable practicessustainable practices
Improved bottom line; Improved bottom line; increased occupant increased occupant wellwell--being and productivity; being and productivity; reduced absenteeism; qualifyreduced absenteeism; qualify
Valuable opportunity to Valuable opportunity to communicate commitment communicate commitment to responsible environmental to responsible environmental stewardship to the marketplacestewardship to the marketplacereduced absenteeism; qualifyreduced absenteeism; qualify
for growing array of for growing array of state/local initiativesstate/local initiatives
stewardship to the marketplace, stewardship to the marketplace, employees, community and employees, community and shareholdersshareholders
12
What is the LEEDWhat is the LEED®® Green Building Rating SystemGreen Building Rating System™™??LEED is an acronym for “Leadership in Energy And LEED is an acronym for Leadership in Energy And Environmental Design”. The LEED Green Building Rating System is promulgated by the US Green Building Council
LEED has become the established
LEED is designed to guide the development of
as beco e e es ab s edindustry benchmark for the certification of sustainable building projects
the development of high performance sustainable building projects; “points” are accrued for i l i f ffi i The mission of LEED is to encourage implementation of efficiency and design measures; certification awarded basedon number of points earned
The mission of LEED is to encourage the global adoption of sustainable green building and development practices
13
on number of points earned
USGBC Rating System PortfolioUSGBC Rating System Portfolio
LEED Rating System
Portfolio
LEED for NewConstruction &
Major Renovations
LEED for Existing BuildingsOperations & Mgmt
LEED for Interior Design &
Construction
LEED forCore & Shell
LEED for Neighborhood Development
LEED f
14'USGBC' and related logo is a trademark owned by the U.S. Green Building Council
LEED forRetail: New
ConstructionLEED for Schools
LEED for Homes
LEED for Healthcare
LEED ID&C certification is awarded at the following LEED ID&C certification is awarded at the following levels:levels:
CERTIFIEDCERTIFIED 4040--49 points49 pointsSILVERSILVER 5050 59 i t59 i t SILVERSILVER 5050--59 points59 points
GOLD GOLD 6060--79 points79 points PLATINUMPLATINUM 80 points and above80 points and above PLATINUMPLATINUM 80 points and above80 points and above 7 “must7 “must--have” prerequisites. Balance of credits have” prerequisites. Balance of credits
selected on “pick and choose” basis across various selected on “pick and choose” basis across various
15
categories categories
'USGBC' and related logo is a trademark owned by the U.S. Green Building Council
LEED for Interior Design and ConstructionLEED for Interior Design and Construction
Certification for the tenant build-out is covered by LEED for Green Interior Design and Construction LEED-ID&C (formerly LEED-CI) which is premises-based NOT (formerly LEED-CI) which is premises-based NOT building-based
Recognizes that tenant will typically have limited ability to control or leverage landlord behavior and requires the implementation of sustainable practices within the premises ONLY
LEED-ID&C is all about the art of the do-able!
16
LEED-ID&C is all about the art of the do-able!
LEEDLEED--ID&CID&CLEEDLEED--ID&C addresses performance in the following ID&C addresses performance in the following categories:categories:
Sustainable SitesSustainable Sites Water EfficiencyWater EfficiencyWater EfficiencyWater Efficiency Energy & AtmosphereEnergy & Atmosphere Materials & ResourcesMaterials & Resources Indoor Environmental Quality Indoor Environmental Quality Indoor Environmental Quality Indoor Environmental Quality Innovation in DesignInnovation in Design Regional PriorityRegional Priority
17
18
Green Lease EvolutionGreen Lease Evolution
Early green buildings were owner-occupied – trend is toward investor-owned buildings
Initial focus on initial building design/construction rather than Initial focus on initial building design/construction rather than ongoing operation
Corporate sustainability goals I i b f t l d t & i ti Increasing number of governmental mandates & incentives
Green buildings are redefining what constitutes Class A office space
Owners and investors fearful of obsolescence – failure to respond to demands for green building may lead to a competitive disadvantage particularly once economy recovers
19
Client Case StudyClient Case Study
Assignment was to “green” standard multi-tenant lease form f F t 100 ith 22 illi ft tf li (56% for Fortune 100 company with 22 million sq. ft portfolio (56% owned, 44% leased)
No “green” tenant leases existedg Not simply a matter of plugging in a few green provisions into
the lease form (“green washing”) Requires identification and communication of sustainability Requires identification and communication of sustainability
goals from very start of building selection and lease negotiation processes
20
Client Case Study Client Case Study (continued)
Input received from all members of the client transaction team
Developed a unique green lease program that integrates sustainability in a holistic way starting with site selection and continuing through RFP LOI and leasecontinuing through RFP, LOI and lease
Differentiator: Lease tracks LEED-ID&C requirements so that lease itself facilitates certification of the premises on a stand-lease itself facilitates certification of the premises on a stand-alone basis (regardless of typically uncertified status of building)
Client has adopted new green lease forms and pursuit of LEED
21
Client has adopted new green lease forms and pursuit of LEED certification is now default assumption for new leases
What are the elements of What are the elements of an effective green leasing program?an effective green leasing program?g g p gg g p g
1. Development of sustainability goals2 Communication of goals to team (i l di L dl d)2. Communication of goals to team (including Landlord)
3. Site selection guidelines (informed by LEED reqs)
4 Request for Proposal (i l d LEED ti i )4. Request for Proposal (include LEED questionnaire)
5. Letter of Intent (include sustainability standards exhibit)
6 Lease (incorporate green lease terms that track LEED ID&C 6. Lease (incorporate green lease terms that track LEED-ID&C requirements
22
Effective Green Lease ModelEffective Green Lease Model
TraditionalTraditional
Site SelectionSite Selection
RFPRFP
LOILOI
23
LeaseLease
Effective Green Lease ModelEffective Green Lease Model
TraditionalTraditional “Green Washing”“Green Washing”
Site SelectionSite Selection Site SelectionSite Selection
RFPRFP RFPRFP
LOILOI LOILOI
Lease
24
LeaseLeaseLease
With Plug-inGreen Terms
Effective Green Lease ModelEffective Green Lease Model
TraditionalTraditional
Establish sustainability goals
Green LeaseGreen Lease
sustainability goals
Communicate goalsto team
Site SelectionSite Selection Site Selection(with LEED parameters)
RFPRFP RFP (withLEED questionnaire)
LOILOI Letter of Intent(includes green standards)
Green Lease
25
LeaseLeaseGreen Lease
(incorporates green terms;may track LEED reqs)
Communication of Sustainability Goals Communication of Sustainability Goals to Teamto Teamto Teamto Team
Communication of sustainability objectives to ALL Communication of sustainability objectives to ALL parties participating in the leasing process is key parties participating in the leasing process is key ––i l d b k l dl d hit t t t i l d b k l dl d hit t t t includes brokers, landlords, architects, contractors includes brokers, landlords, architects, contractors and attorneys, many of whom may have a limited and attorneys, many of whom may have a limited
understanding of green building practices understanding of green building practices g g g pg g g p
26
Site Selection ChecklistSite Selection Checklist
Site selection checklist – Defined by tenant’s sustainability criteria and goals; may include LEED requirements
Example: LEED l ti f i l t d ithi Example: LEED encourages selection of premises located within buildings that
implement sustainability best practices (e.g. LEED certified b ildi b ildi h i i bl f )building or building that incorporates sustainable features)
are located in areas of maximum density in established urban communities with access to public transport
27
Green RFPGreen RFP
“Green” RFP sets out core sustainability requirements AND solicits green information. May include a separate LEED questionnaire if tenant interested in seeking certificationquestionnaire if tenant interested in seeking certification
Questions alert landlord to importance of sustainability issues. Responses to RFP allow tenant to compare the
h i i f b ildi d i l f green characteristics of buildings and assess potential for certification in a given market
CAUTION: Important not to “spook” potential landlords but p p palso important to realistically assess sustainability potential of particular building (including potential for LEED or other sustainability certification) early in process
28
y ) y p
Sample Green RFP GuidelinesSample Green RFP GuidelinesAfter narrowing the field of potential buildings, the next step is to request additional information by including the following in a Request for Proposal (RFP):
LEED certification Confirm tenant’s desire to pursue certification for premises; confirm Landlord’s p p ;
willingness to cooperate in certification process Tenant’s environmental standards
Specify tenant’s environmental standards (applicable to build out and ongoing operations)
Building’s environmental standards Building s environmental standards Landlord to confirm the building characteristics and operational practices that are
environmentally friendly Landlord project team
Landlord to confirm if members of Landlord project team have experience with green p j p gprojects and/or certification process or green credentials (such as LEED-AP/Associate)
Landlord compliance Confirm that Landlord will be required to comply with tenant’s environmental
standards
29
standards
Sample Green RFP GuidelinesSample Green RFP Guidelines
Operating and Capital Expenses Current-year expenses related to green capital improvements to be delineated in
year end statement Electrical Expenses & Metering
Confirm usage data for prior 3 years; confirm separate metering for utilities; confirm if any renewable energy
Parking and alternative transportation Parking and alternative transportation Number of spaces and parking ratio; bike racks and storage; any preferred
parking for car pool/fuel-efficient vehicles Health/changing facilities
Showers changing rooms lockersShowers, changing rooms, lockers Building Hours/HVAC
Hours of operation/after hours use Environmentally Preferable Purchasing Policy Water/energy conservationWater/energy conservation
Confirm building conservation strategies Commissioning
When was the last commissioning/energy audit? Architectural/engineering services & general contractors
30
Architectural/engineering services & general contractors Confirm service providers of record; confirm prior LEED project experience
LEED Questionnaire
Include Building Questionnaire with RFPInclude Building Questionnaire with RFP
If Tenant Wants to Pursue LEED ID&C Certification for Premises include a Building Questionnaire with RFPQuestionnaire with RFP
Questions are based directly on the LEED rating system point checklist
CAUTION: Lengthy and detailed – Landlords unfamiliar with green or LEED issues may find overwhelming or even threateningg g
Use with more sophisticated Landlords Good example of a comprehensive building
questionnaire is included in USGBC Green
31
questionnaire is included in USGBC Green Office Guide
Letter of IntentLetter of Intent
Include a separate Sustainability Standards Checklist as an exhibit to your LOI Provides a comprehensive summary of tenant’s
sustainability and LEED requirements (related to building systems)building systems)
Allows technical sustainability-related issues to be addressed separately from balance of lease issues
Negotiated sustainability standards can then be i d i h i hibi hi h ill
32
incorporated into a comprehensive exhibit which will be attached to Lease
Letter of IntentLetter of Intent
If seeking LEED certification Sustainability If seeking LEED certification, Sustainability Standards exhibit should include and identify LEED prerequisites together with additional optional points needed to achieve desired level of certification
TIP: Sustainability Standards Checklist highlightedto show which are the “must have” LEED prerequisitesprerequisites
33
Lessons LearnedLessons Learned
Start the conversation early! Successful green lease transaction depends as much on a
structured and integrated approach (site selection, RFP, g pp ( , ,LOI) as it does on negotiation of specific lease terms
Use a qualified team: A functional green lease requires qualified advisors and
ttattorneys A broker who is familiar with sustainability issues can play a
crucial role in educating landlord and tenant Use an accredited attorney!Use an accredited attorney!
Be realistic: don’t spook landlord by asking for too much; recognize that landlord may be constrained by commitments to others; decide on your priorities
34
Lessons LearnedLessons Learned
Be flexible and creative in order to achieve “must have” goals Pick your fights: Some issues are more important than others (e.g.
certification financing financial incenti es s bike racks) certification, financing, financial incentives vs. bike racks) This is a brave and unfamiliar new world! Make sure that the
lease proactively and expressly addresses issues related to green issues in the same way as other material business terms in order to ylimit potential for misunderstanding; avoid vaguely-defined sustainability standards
Integrate green terms into lease itself instead of using a rider (except for technical specs for building systems)(except for technical specs for building systems)
Remember – LEED-ID&C certification can be obtained for the premises on a stand-alone basis regardless of the typically uncertified status of the building
But If tenant wants to pursue certification need to determine early But – If tenant wants to pursue certification need to determine early in the process if you can meet prerequisites and likely points
Green leases provide valuable opportunity to implement sustainable practices; meet sustainability goals; communicate
i i bili k dd l
35
commitment to sustainability to market; add value
Green Lease ResourcesGreen Lease Resources
Green Office Guide: Integrating LEED into Your Leasing Process – US Green Building Council (USGBC), 2009 (tenant oriented)(tenant oriented) Comprehensive manual designed to assist tenants green the
leasing process Addresses site selection, negotiations, build-out, ongoing , g , , g g
operations; great checklists and sample lease language, Lease Guide: Guide to Writing a Commercial Real Estate
Lease – Building Owners and Managers Assoc. Int. (BOMA), 2008 (landlord oriented) Form of commercial lease agreement that integrates green
provisions
36
Real Property Association of Canada (REALpac) (updated 2010) (landlord oriented – green rider approach) Form of commercial lease plus rider, available at no charge
www.realpac.ca
Model Green Lease Reference Guide — (2009)(landlord oriented) Promotes gross lease approach; simplistic and brief; lacks Promotes gross lease approach; simplistic and brief; lacks
nuance/commentary; available for purchase at www.squarefootage.net
Green Leases Toolkit California Sustainability Alliance (2008) Green Leases Toolkit –California Sustainability Alliance (2008), available at no charge www.sustainca.org
37
Louise C. AdamsonLouise C. AdamsonLEEDLEED AP ID&CAP ID&CLEEDLEED®®--AP ID&CAP ID&CPartnerPartnerSan FranciscoSan [email protected]@klgates.com415.882.8200415.882.8200
38
Green Leases: Legal and PracticalGreen Leases: Legal and Practical Strategies for Commercial Landlords
and Tenantsand TenantsNegotiating and Crafting Environmentally Friendly Lease Terms
November 3, 2010
Ronald B GraisRonald B. GraisJenner & Block LLP
353 N. Clark Street, Chicago, IL 60645Tel (312) 923-2810 • Fax (312) 923-2910
[email protected]@jenner.com
Where Do You Put the Green in the Lease?Where Do You Put the Green in the Lease?• Building Use
• Rental Structure & Operating Expenses –Pass Throughs
• Services and Utilities• Services and Utilities
• Hazardous Materials
• Work Letter –Contractor Rules and Regulations
Building Rules and Regulations• Building Rules and Regulations
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 40
Green Lease ModelsGreen Lease Models• National Standard "Green" Office Lease for Single
B ildi P j t V i 1 03 Building Projects Version 1.03 2010 [http://www.realpac.ca/green-office-leases/] (RealPac)(RealPac)
• The Model Green Lease V. 1.0 [http://www squarefootage net/TMGL html] (MGL)[http://www.squarefootage.net/TMGL.html] (MGL)
• BOMA Green Lease Guide [http://shop boma org] • BOMA Green Lease Guide [http://shop.boma.org] (BOMA)
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 41
Environmental Performance ObjectiveEnvironmental Performance Objective
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 42
Schedule “E” Schedule E Environmental Management Plan
Section 1 — ENVIRONMENTAL OBJECTIVESSection 1 ENVIRONMENTAL OBJECTIVES
1.1 Context
• The provisions of this Environmental Management Plan have been designed to • The provisions of this Environmental Management Plan have been designed to encourage and promote the implementation of certain environmental objectives on the part of each of the Landlord and the Tenant.
REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 43
1.2 General Objectives 1.2 General Objectives • (a) The Tenant acknowledges the Landlord’s intention to operate the
Building so as to provide for:Building so as to provide for:– a comfortable, productive and healthy indoor environment;– reduced energy use and reduced production, both direct and indirect, of Greenhouse
Gases;– reduced use of potable water and the use of recycled water where appropriate;– the effective diversion of construction, demolition, and land-clearing waste from landfill
and incineration disposal, and the recycling of tenant waste streams;th f l i d t tifi d i d ith E L M (C d ) G – the use of cleaning products certified in accordance with EcoLogoM (Canada), Green SealTM (United States) or equivalent standards;
– the facilitation of alternate transportation options for individuals attending at the Building; – furniture and improvements within the Building and individual tenant premises; andp g p ;– the achievement of such other more specific targets as may be set out in Section 1.3
below.REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 44
Optional RemediesOptional Remedies• [OPTION 1: The provisions of this Environment
M t Pl h ll f t f thi L d Management Plan shall form part of this Lease and comprise a covenant on the part of the Landlord or the Tenant as the case may be respectively ]Tenant, as the case may be, respectively.]
REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 45
• [OPTION 2: A breach by either the Landlord or the Tenant of any of the provisions of this Environmental Management Plan on the part of either the Landlord or the Tenant to be observed or performed, as the case may be, Landlord or the Tenant to be observed or performed, as the case may be, shall not constitute a default under this Lease, but the party committing such breach agrees, to the extent possible under the circumstances, to use commercially reasonable efforts to cooperate with the other party to remedy y y ysuch breach. In addition to the foregoing, the Tenant and the Landlord agree to constructively consult with each other on: (i) enhancements that may achieve the Environmental Objectives and the Landlord and Tenant shall consider undertaking any such enhancements; and (ii) issues, events and circumstances likely to detract from achieving the Environmental Objectives.]
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 46
5.01 Environmental Performance Objective5.01 Environmental Performance ObjectiveThe parties agree it is in their mutual best interest that the Building and Premises be operated and maintained in a manner that is environmentally responsible fiscally prudent and provides
5.01.1 The Tenant shall conduct its operations in the Building and within the Premises to minimize: (i) direct and indirect energy consumption and greenhouse gas emissions;
and maintained in a manner that is environmentally responsible, fiscally prudent, and provides a safe and productive work environment.
minimize: (i) direct and indirect energy consumption and greenhouse gas emissions; (ii) water consumption; (iii) the amount of material entering the waste stream; (iv) negative impacts upon the indoor air quality of the Building and the Premises.
5 01 2 The Landlord shall operate and maintain the Building and the Premises to minimize: 5.01.2 The Landlord shall operate and maintain the Building and the Premises to minimize: (i) direct and indirect energy consumption and greenhouse gas emissions; (ii) water consumption; (iii) the amount of material entering the waste stream; (iv) negative impacts upon the indoor air quality of the Building and the Premises.
5.01.3 The Landlord shall use its reasonable efforts to cause other tenants of the Building to conduct their operations in the Building and their premises in conformity with the Environmental Performance Objective
Model Green Lease Project - www.squarefootage.net Master Model Green Lease V01
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 47
Model Green Lease Project www.squarefootage.net Master Model Green Lease V01
Section 6.3 Sustainable Building Operationsg p(a) This building is or may become in the future [certified under the Green Building
Initiative’s Green GlobesTM for Continual Improvement of Existing Buildings (G Gl b TM CIEB) th U S G B ildi C il’ L d hi i E (Green GlobesTM-CIEB), the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system, or ______ standard or operated pursuant to Landlord’s sustainable building practices]. [ADD THIS SENTENCE IF APPLICABLE: Landlord’s sustainability practices address wholeSENTENCE IF APPLICABLE: Landlord s sustainability practices address whole-building operations and maintenance issues including chemical use; indoor air quality; energy efficiency; water efficiency; recycling programs; exterior maintenance programs; and systems upgrades to meet green building energy maintenance programs; and systems upgrades to meet green building energy, water, Indoor Air Quality, and lighting performance standards.] All construction and maintenance methods and procedures, material purchases, and disposal of waste must be in compliance with minimum standards and specifications, in p p ,addition to all applicable laws.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 48
Rent StructureRent Structure• Split Incentive• Pass Through Provisions
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 49
BOMA Green Pass Through ProvisionBOMA Green Pass Through Provision• [From Section 4.2 (a)]• In addition to the above Annual Operating Charges, Annual Operating Charges
shall also incl de (i) all costs of maintaining managing reporting commissioning shall also include: (i) all costs of maintaining, managing, reporting, commissioning, and recommissioning the Building or any part thereof that was designed and /or built to be sustainable and conform with [the U.S. EPA’s Energy Star® rating, the Green Building Initiative’s Green GlobesTM for Continual Improvement of Existing g p gBuildings (Green GlobesTM-CIEB), the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system, or ______ standard], and (ii) all costs of applying, reporting and commissioning the Building or any part thereof to seek certification under [the U S EPA’s Energy Star® rating the Green thereof to seek certification under [the U.S. EPA s Energy Star® rating, the Green Building Initiative’s Green Globes TM for Continual Improvement of Existing Buildings (Green GlobesTM-CIEB), the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system, or ______ standard]; provided however, the cost of such applying, reporting and commissioning of the Building or any part thereof to seek certification shall be a cost capitalized and thereafter amortized as an Annual Operating Charge under GAAP.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 50
g
Operational PerformanceOperational Performance• Annual Performance Report• Services and Utilities
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 51
LEED 2009:LEED 2009:• “A project must adhere to the LEED Minimum Program
R i t (MPR ) i d t hi LEED Requirements, (MPRs) in order to achieve LEED certification. LEED projects must comply with each applicable MPR described below NOTE:applicable MPR described below. . . NOTE:CERTIFICATION MAY BE REVOKED FROM ANY LEED PROJECT UPON GAINING KNOWLEDGE OF NON-COMPLIANCE WITH ANY APPLICABLE MPR.” (Green Building Certification Institute (GBCI) Policy Manual)
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 52
September 2009 Update on MPRSeptember 2009 Update on MPR
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 53
• California Sustainability Alliance :
All fi t d i t b i li ith EPA t f 1992 L • All fixtures and accessories must be in compliance with EPAct of 1992. Lessor shall limit flow rates to 2 gpm for lavatory and multipurpose faucets and 2.5 gpm for kitchen faucets (at 80 psi). Lessor shall limit flow rates to 2.4 gpm for showerheads (at 80 psi) Lessor shall limit maximum flush volume to 1 6 gallons for toilets (at 80 psi). Lessor shall limit maximum flush volume to 1.6 gallons for toilets. Lessee shall establish usage reporting protocols with Lessor.
• Lessor shall install occupancy sensors to reduce energy consumption by switching Lessor shall install occupancy sensors to reduce energy consumption by switching off lighting fixtures in unoccupied areas, and coordinate all spaces for occupancy sensor control with the Lessee.
– The Lessor will ensure that from the commencement date the Premises are separately metered for electricity (with the meters being digital electricity meters), gas and water services (both hot and cold). Lessor will ensure that the meters have an accuracy class suitable to customer billing and the meter register is readily accessible for billing suitable to customer billing and the meter register is readily accessible for billing. Lessor agrees that: (i) management of the meters will reside with Lessee on installation, if desired and (ii) Lessee is entitled to purchase its own electricity.
The California Sustainability Alliance, a Navigant Consulting Project
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 54
• 5.02 Annual Environmental Performance Report• Landlord shall submit to Tenant each year an Annual
Environmental Performance Report certified by the L dl d tti f th th i t l f f th Landlord setting forth the environmental performance of the Building for the preceding Operating Year concurrent with the Landlord’s Statement of Annual Operating Chargesthe Landlord s Statement of Annual Operating Charges.
• MGL Section 5.02
Model Green Lease Project - www.squarefootage.net Master Model Green Lease V01
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 55
Model Green Lease Project www.squarefootage.net Master Model Green Lease V01
BOMA Sec 15.1(f)BOMA Sec 15.1(f)• (f) Tenant shall be required to submit to Landlord
l t i it ti d t i f t d d bl electricity consumption data in a format deemed reasonably acceptable by Landlord.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 56
Energy Use by TenantEnergy Use by Tenant
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 57
(b) The HVAC system which services the Premises shall be designed, installed and maintained in a hi h h ll i i it ffi i d h ll d i N l B i H i t i manner which shall maximize its efficiency and shall, during Normal Business Hours, maintain
the temperature of the Premises within the following range of temperatures, subject to unusual heat loads caused by Tenant's extraordinary use of the Premises or alteration of the Premises made contrary to the provisions of this Lease:Summer: Outside: [93] Degree Fahrenheit Dry Bulb – [74] Degree Fahrenheit Wet Bulb
Inside: [75] Degree Fahrenheit Dry Bulb – 50% Relative HumidityWinter: Outside: [22] Degree Fahrenheit Dry Bulb
Inside: [72] Degree Fahrenheit Dry Bulb – 50% Relative HumidityInside: [72] Degree Fahrenheit Dry Bulb – 50% Relative HumidityShell HVAC internal heat loads shall be based upon two (2) watts per rentable square foot (RSF) for lighting, two (2) watts per square foot for power and one (1) person per one hundred and fifty (150) RSF.
(c) Landlord shall make HVAC available to the Premises outside of Normal Business Hours in accordance with all applicable provisions of this Lease. Except during Normal Business Hours HVAC shall be furnished only upon request of Tenant, who shall bear the entire actual costs to Landlord to provide HVAC to the Premises. Tenant may request such HVAC service for one or Landlord to provide HVAC to the Premises. Tenant may request such HVAC service for one or more floors constituting the Premises. At Tenant's cost, Tenant may tap condenser water supply lines for supplemental HVAC services to Tenant's word processing and computer room units.
Model Green Lease Project - www.squarefootage.net Master Model Green Lease V01
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 58
Model Green Lease Project www.squarefootage.net Master Model Green Lease V01
MGL: Exhibit BMGL: Exhibit B• .
Section 4 Electrical FacilitiesLandlord shall furnish to the Premises, during normal business hours on normal business days electricity in an amount not to exceed [.025] kWh per rentable square foot per normal business day. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to themeasured consumption at the average cost per kilowatt hour charged to the building during that period.
Model Green Lease Project - www.squarefootage.net Master Model Green Lease V01
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 59
Model Green Lease Project www.squarefootage.net Master Model Green Lease V01
Energy Efficiency Lease GuidanceS P t i k N ill C l 7Sean Patrick Neill, Cycle-7
– 1.9 (Option 1) After a year of occupancy, Tenant should lose• _____ % of unused service, e.g. a Tenant actually using 2.5 Watts/sf
may be dropped from a lease-stipulated 8 Watts/sf to 3 Watts/sf (to cushion for future growth)cushion for future growth).
• (Option 2) Landlord should have the right to charge• Tenant for unused capacity For every Watt/sf reservedTenant for unused capacity. For every Watt/sf reserved• for Tenant but in excess of the maximum usage of Tenant• in a given year, the Landlord should assess a fee.in a given year, the Landlord should assess a fee.
Model Green Lease Project - www.squarefootage.net Master Model Green Lease V01
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 60
Model Green Lease Project www.squarefootage.net Master Model Green Lease V01
1.3 Specific Objectives1.3 Specific Objectives• Notwithstanding the provisions of Section 1.2 in this Schedule “E” above, the Tenant acknowledges the Landlord’s
intention to achieve, and maintain, the following specific targets for the Building, by [NTD: target date if not today]a) electricity use averaging not greater than <*> kilowatt hours per square foot of Rentable Area of the Building per
year (Kwh/sf/ yr);b) natural gas consumption averaging not greater than <*> cubic metres per square foot of Rentable Area of the
Building per year (M3/sf/yr)c) water consumption levels averaging not greater than <*> litres per square foot of Rentable Area of the Building
per year (l/sf/yr); andper year (l/sf/yr); andd) a waste diversion rate not less than <*>% per year; ande) indoor carbon dioxide (“CO2”) levels compared to outdoor CO2 levels of not greater than <*> Parts Per million
(PPM) measured in accordance with the American Society of Heating, Refrigerating and Air-Conditioning Engineers (“ASHRAE”) standard 62.1-2007 or equivalent standard as it may be amended or replaced from time g ( ) q y pto time.
1.2 Regulatory Standards• Notwithstanding the provisions of Section 1.2 and 1.3 herein, in the event that any governmental authority imposes a
resource reduction target on the Building for any utility or resource otherwise than as set out in Sections 1.2 and 1.3 above, then the within Environmental Objectives shall be deemed to have been amended so as to stipulate such resource reduction target and all changes required to be made by the Landlord to the Environmental Management Plan, or which are necessitated as a result of such mandatory resource reduction target, shall be deemed to be included and permitted, as the case may be, pursuant to the provisions of this Section and this Lease.REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 61
p g g j
• 6 8 Reduction or Control of Operating Costs and Utility • 6.8 Reduction or Control of Operating Costs and Utility Consumption
• The Tenant shall comply with any practices or procedures The Tenant shall comply with any practices or procedures that the Landlord, acting reasonably, may from time to time introduce to reduce or control Operating Costs and utility p g yconsumption, and shall pay, as Additional Rent, all costs, as determined by the Landlord, that may be incurred by the L dl d lt f li Th L dl d Landlord as a result of any non-compliance. The Landlord may use an Expert to assist it in making such determination determination.
REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 62
Section 6.3 Sustainable Building OperationsSection 6.3 Sustainable Building Operations(b) Tenant shall use proven energy and carbon reduction
measures including energy efficient bulbs in task lighting; measures, including energy efficient bulbs in task lighting; use of lighting controls; daylighting measures to avoid overlighting interior spaces; closing shades on the south g g p gside of the building to avoid over heating the space; turning off lights and equipment at the end of the work day; and purchasing ENERGY STAR® qualified equipment and purchasing ENERGY STAR® qualified equipment, including but not limited to lighting, office equipment, commercial and residential quality kitchen equipment, vending and ice machines; purchasing products certified by the U.S. EPA’s Water Sense® program.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 63
BOMA Guide to Writing a Commercial Lease 2008
RealPac IMPLEMENTATIONRealPac IMPLEMENTATION
• The Tenant agrees to conduct its operations in the Building and within the Premises in accordance ith the follo ing pro isionsthe Premises in accordance with the following provisions:
» Reduce Indirect and Direct Energy Consumption and Greenhouse Gas Emissions
» The Tenant agrees to the installation of electricity smart meters in » The Tenant agrees to the installation of electricity smart meters in respect of the Tenant’s consumption of electricity within the Premises, at the Tenant’s sole cost and expense, payable as Additional Rent under this Lease.
» The Tenant shall take reasonable steps to minimize its electrical » The Tenant shall take reasonable steps to minimize its electrical consumption within the Premises such as, by way of example only, adopting conservation practices (e.g. reducing its use of lighting where unnecessary); the use of Energy Star equipment; the types of lighting lighting switches sensors and zones as may be specified in lighting, lighting switches, sensors and zones as may be specified in the Tenant Construction Manual; and using the types of equipment suggested in the Tenant Procurement Guidelines.
[Emphasis added]REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 64
Cleaning and RecyclingCleaning and Recycling• During Tenant Buildout / Alterations
• During Term of Occupancy
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 65
Exhibit D Contractor Rules & Regulations16 R l f W t M t i l16. Removal of Waste Materials• Any and all existing building materials removed and not reused in the
construction shall be disposed of by Contractor as waste or construction shall be disposed of by Contractor as waste or unwanted materials, unless otherwise directed by the Building Manager.
• Contractor agrees to provide documentation demonstrating that at least 70% by volume of any and all construction waste were recycled, salvaged or otherwise diverted from landfill and y gincineration.
• Contractor shall at all times keep areas outside the work area free f t t i l bbi h d d b i d h ll t from waste material, rubbish and debris and shall remove waste materials from the Building on a daily basis.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 66
Recycling During the TermRecycling During the Term• SECTION 6.4 Recycling and Waste Management• Tenant covenants and agrees, at its sole cost and expense: (a) to comply with all g p ( ) p y
present and future laws, orders and regulations of the Federal, State, county, municipal or other governing authorities, departments, commissions, agencies and boards regarding the collection, sorting, separation, and recycling of garbage, trash, rubbish and other refuse (collectively, “trash”); (b) to comply with Landlord’s ( y ) ( ) yrecycling policy as part of Landlord’s sustainability practices where it may be more stringent than applicable law; (c) to sort and separate its trash and recycling into such categories as are provided by law or Landlord’s sustainability practices; (d) that each separately sorted category of trash and recycling shall be placed in separate receptacles as directed by Landlord; (e) that Landlord reserves the right to refuse to collect or accept from Tenant any waste that is not separated and sorted as required by law, and to require Tenant to arrange for such collection at Tenant’s sole cost and expense, utilizing a contractor satisfactory to Landlord; and (f) that
fTenant shall pay all costs, expenses, fines, penalties or damages that may be imposed on Landlord or Tenant by reason of Tenant’s failure to comply with the provisions of this Section.
BOMA Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 67
BOMA - Guide to Writing a Commercial Lease 2008
Tenant Buildout and AlterationsTenant Buildout and Alterations• Plan• Materials• Contractor Rules
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 68
2. Work Approval2. Work Approval• Contractor and all subcontractors must be approved to conduct their trades in the
jurisdiction in which the Building is located by any and all governmental entities with such authority. Tenant or Contractor must provide Landlord with names, addresses and phone numbers for all subcontractors prior to commencement of work by the subcontractor. Construction drawings must be approved by Landlord prior to the t t f t ti All j t h ll b i d f t ti l i t t d ti start of construction. All projects shall be reviewed for potential impact to reduction
targets and environmental programs. For any project over [$10,000], Contractor agrees to engage a third party Green Globe or LEED Accredited Professional or similarly qualified professional to oversee and validate that the project has met the similarly qualified professional to oversee and validate that the project has met the standards for Landlord’s sustainability practices.
• An agent or representative of Contractor must be present on the site at all times An agent or representative of Contractor must be present on the site at all times when work is in process.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 69
g
• The Lessor’s design and construction team shall develop and utilize • The Lessor s design and construction team shall develop and utilize a construction and demolition waste management plan that identifies materials to be recycled and sources for their disposition. This plan
t i l d t ti t t i l k i d must include new construction waste materials, packaging and associated clean-up activities and be approved by Lessee. Commonly recycled demolition materials include: asphalt, bricks, y y pconcrete and masonry, metals, wood, cardboard, carpet, gypsum drywall, and ceiling tiles. Lessor must divert X% of construction, demolition and land-clearing debris from landfill and incineration demolition and land clearing debris from landfill and incineration disposal.
The California Sustainability Alliance, a Navigant Consulting Project
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 70
15. Purchasing15. Purchasing• Landlord has a comprehensive sustainable purchasing
policy as part of its sustainability practices policy as part of its sustainability practices.
• In order to gauge Building performance, it is necessary for In order to gauge Building performance, it is necessary for contractors to provide information about all material purchases for facility additions and alterations. Landlord will supply a standard formatting for reporting purposes that will include, but not be limited to, data on cost, recycled content sal aged content FSC certified ood rapidl content, salvaged content, FSC-certified wood, rapidly renewable materials, and geographic origin.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 71
g
14. Energy Management 14. Energy Management • Contractor agrees to install, calibrate and operate fundamental Building elements and systems as intended so they can deliver functional
and efficient performance and leverage the Building’s energy management system. Contractor agrees to engage a commissioning authority independent from the design and construction responsibilities as the responsible party for all commissioning activities. All energy-related systems to be included in the commissioning process activities include as a minimum:
– Heating, ventilating, air conditioning and refrigeration (HVAC&R) systems (mechanical and passive) and associated controls– Lighting controls, including daylighting– Domestic hot water systems– Renewable energy systemsgy y
• The building is currently Energy Star® rated; this rating is to be maintained at the highest level possible. • All energy using equipment, appliances, lamps, ballasts and controls must be state-of-the-art energy efficient and Energy Star rated
where available, conform to the Building’s then-current standards for energy management, and tie in to existing Building controls and monitoring systems.Wh il bl C t t h ll i t ll l ENERGY STAR® lifi d i t d li i th j t i l di b t t li it d • When available, Contractor shall install only ENERGY STAR® qualified equipment and appliances in the project, including but not limited to lighting, office equipment, commercial and residential quality kitchen equipment, vending and ice machines, and products certified by the U.S. EPA’s Water Sense® program. Documentation shall be provided in a format deemed reasonably acceptable to Landlord.
• Lamps and ballasts, including manufacturer, type, watts, and mercury content are specified and are to be replaced with “like” or better. Contractor shall reduce connected lighting power density below that allowed by ASHRAE/IESNA Standard 90.1-2004 by a minimum of 15%15%.
• Install daylight responsive controls in all regularly occupied spaces within 15 feet of windows and under skylights. Use occupant adjustable lighting controls.
• All energy-related improvements must be reviewed and approved by the Building’s chief engineer and/or energy manager.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 72
BOMA Guide to Writing a Commercial Lease 2008
• Recycled Materials Usagey g
– Tenant shall be entitled to use recycled materials in its Leasehold Improvements and Alterations if so permitted either pursuant to the Tenant Construction Manual, or as may be consented to by the Landlord, acting reasonably. The Tenant agrees to consider locally sourced materials where possible in the completion of Leasehold Improvements, consistent with the terms as set out in the Tenant Construction Manual and the Tenant Procurement Guidelines.
– Tenant shall be entitled to use recycled furniture fixtures and equipment in the – Tenant shall be entitled to use recycled furniture, fixtures and equipment in the Premises to the extent consistent with the Environmental Objectives and the Tenant Procurement Guide.
– The Tenant agrees to recycle or cause its contractor to recycle as much as possible any waste created in the demolition of existing Leasehold Improvements or Alterations within the Premises so as to minimize the amount of waste ending in landfill. The Landlord reserves the right to monitor and measure the amount of waste leaving the Building from the Premises and going to landfill from time to time. If available, the Landlord agrees to provide to the Tenant a staging area for the sorting and recycling of materials during construction.
REALpac National Standard Green Office Lease for Single-Building Projects – 1.03 – 2010
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 73
12. Optimize Use of IAQ Compliant Products12. Optimize Use of IAQ Compliant Products• Contractor agrees to develop an indoor air quality management program and to maintain it in conjunction with all
construction projects in the Building as well as ongoing maintenance and repairs of the Building and Premises optimizing and documenting the use of air quality compliant materials inside the Building to reduce the emissions from materials used in the Building materials used in the Building.
• Ongoing indoor air quality requires the use of low- or no-VOC paints, solvents, adhesives, furniture, and fabrics. Do not exceed the VOC and chemical component limits of Green Seal’s Standard GS-11 requirements.
• Paints used on site shall be low-VOC and are to be brush-applied only; spray painting is not allowed on site. Paints t t d th VOC d h i l t li it f G S l’ St d d GS 11 i t i t i must not exceed the VOC and chemical component limits of Green Seal’s Standard GS-11 requirements: interior non-
flat < or = 150 g/L, Interior flat < or = 50 g/L.
• All painting must be completed outside of normal office hours (after 5:00 PM and before 7:00 AM) and on weekends.
• Carpet must meet the requirements of the CRI Green Label Plus Carpet Testing Program Carpet must meet the requirements of the CRI Green Label Plus Carpet Testing Program.
• Carpet cushion must meet the requirements of the CRI Green Label Testing Program.
• Composite panels and agrifiber products must not contain added urea-formaldehyde resins. Laminate adhesives used to fabricate on-site and shop applied assemblies containing these laminate adhesives must contain no urea-f ld h dformaldehyde.
• Documentation of all covered materials purchased and the total cost of these purchases shall be provided. Documentation shall be provided in a format deemed acceptable to Landlord.
BOMA Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 74
BOMA - Guide to Writing a Commercial Lease 2008
11. Construction Management Plan for Indoor Air Quality
• During construction, meet or exceed the recommended Design Approaches of the Sheet Metal and Air C diti i N ti l C t t A i ti (SMACNA) IAQ G id li f O i d B ildi U d
Contractor agrees to develop and implement an Indoor Air Quality (IAQ) Management Plan for the construction and occupancy phases of the area being built out as follows:
Conditioning National Contractors Association (SMACNA) IAQ Guideline for Occupied Buildings Under Construction, 1995, Chapter 3.
• Protect stored on-site or installed absorptive materials from moisture damage.• If air handlers must be used during construction, filtration media with a Minimum Efficiency Reporting
Value (MERV) of 8 must be used at each return air grill as determined by ASHRAE 52 2 1999Value (MERV) of 8 must be used at each return air grill, as determined by ASHRAE 52.2-1999.• Replace all filtration media immediately prior to occupancy.• Remove contaminants that may be remaining at the end of the construction period.
– Conduct a minimum two-week building flush-out with new filtration media with 100% outside air after construction ends and prior to occupancy of the affected space After flush-out replace the filtration construction ends and prior to occupancy of the affected space. After flush out, replace the filtration media with new media, except for filters solely processing outside air.
Or– After construction ends, conduct a baseline indoor air quality testing procedure for the affected space in
the building that demonstrates that the concentration levels for the chemical air contaminants are below ifi d l l F h li i t h th i t ti li it d d specified levels. For each sampling point where the maximum concentration limits are exceeded,
conduct a partial building flush-out, for a minimum of two weeks, then retest the specific parameter(s) that were exceeded to indicate the requirements are achieved. Repeat procedure until all requirements have been met.
BOMA - Guide to Writing a Commercial Lease 2008
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 75
BOMA Guide to Writing a Commercial Lease 2008
Building Rules and RegulationsBuilding Rules and Regulations• Terms in green leases can have a profound impact on how
b i t b ti l ti th ta business operates by stipulating that:• • The business operates only energy efficient equipment• • Only specific types of lighting be put into fixtures• • Only certain types of material be used in space renovation
d difi tiand modification• • The contractors employed by the business recycle
t i lmaterials.
Green Leases: Legal and Practical Strategies for Commercial Landlords and Tenants 76
Sharing of Costs andSharing of Costs and Obligations in a
Green LeaseGreen Lease
November 3, 2010Jacob Bart, Esq.
Stroock & Stroock & Lavan LLP180 Maiden Lane
New York NY 10038New York, NY 10038(212) 806-5584
ALLOCATION OF “GREEN” OCCUPANCY
A O ti E
COSTS BETWEEN LANDLORD AND TENANT
A. Operating Expensesi. First Dollar (Net)ii. Over Base Year (Gross)( )iii. General Exclusion of Capital Costs
a) Operating and Maintenance Costs Includedb) Costs of Ownership Excluded
1. What Constitutes Cost of Ownership2 Improves Value; Benefit Inures to Landlord2. Improves Value; Benefit Inures to Landlord
iv. Exception for Costs to Comply with New Laws
78
ALLOCATION OF “GREEN” OCCUPANCY
v Exception for Costs to Achieve Savings
COSTS BETWEEN LANDLORD AND TENANT
v. Exception for Costs to Achieve Savingsa) Laborb) Energy
vi. Inclusion of Amortized Costsa) Straight line vs. Acceleratedb) Useful Life vs. Length of Termb) Useful Life vs. Length of Termc) Useful Life vs. Reasonable Investment Recovery Period d) Interest
1 Fi d R t1. Fixed Rate2. Landlord’s Actual Borrowing Cost
e) After Base Year (in Gross Leases)
79
ALLOCATION OF “GREEN” OCCUPANCY
ii C
COSTS BETWEEN LANDLORD AND TENANT
vii. Caps a) Limited to Amount of Savings b) Absolute)c) Savings Plus Percentage
viii.Exception for Costs to Achieve Green Benefits (other than S i N L )Savings or New Laws)a) Retrofitting – “Splitting Incentive” Issueb) New Green Equipment – Allocation Required) q p q
ix. Express Inclusion of Monitoring and Studies Costs (including Retro-commissioning Studies for Building Systems)
80
ALLOCATION OF “GREEN” OCCUPANCY
x Negating “Reasonable” Standard with Landlord Ability to Use Higher
COSTS BETWEEN LANDLORD AND TENANT
x. Negating Reasonable Standard with Landlord Ability to Use Higher Cost, but Sustainable Energy Sources (e.g., “Green Power”)a) Open Standard with Landlord’s Reasonable Discretion b) Specific LEED Category Limitationb) Specific LEED Category Limitation
1. LEED Definition – The Leadership in Energy and Environmental Design Green Building Rating System
2 LEED Rating Purpose – set of standards developed by the2. LEED Rating Purpose set of standards developed by the U.S. Green Building Council for environmentally sustainable construction
xi. Gross-up Issue a) What is a Gross-up of Operating Expenses?
1. Generally 100% or 95%2. Inclusion of Base Year
81
b) Needed to Make Landlord Whole
ALLOCATION OF “GREEN” OCCUPANCY
) All O ti E It V i bl It
COSTS BETWEEN LANDLORD AND TENANT
c) All Operating Expense Items vs. Variable Items d) If Variable, Landlord May Not Recover All Green Capital Items e) Compromise Possibilities to Incentivize Landlord (e.g., Inclusion
with Caps) B. Electricity Consumption in Premises
i. Submetering vs. Rent Inclusion ii. Landlord Survey Right is Not Efficient Mechanism to Reduce
Consumption in Rent Inclusion Leasea) Landlord Profit Margina) a d o d o a g
1. Actual Use vs. Assumed Connected Load 2. Landlord Has No Incentive to Survey Unless Significant
Increase in Electric Consumption
82
Increase in Electric Consumption
ALLOCATION OF “GREEN” OCCUPANCY
b) T t H N E i I ti t R d El t i
COSTS BETWEEN LANDLORD AND TENANT
b) Tenant Has No Economic Incentive to Reduce Electric Consumption
iii. Converting from Rent Inclusion to Submetering a) Cost of Installation, Reading, Administration and Repairsb) Size and Configuration of Premises (Multi-Tenanted
Floors)Floors)
83
GENERAL BUILDING OPERATION AND MAINTENANCE OBLIGATIONS
A Li t f L ft G l (N t N il All A hi bl i T d ’A. List of Lofty Goals (Not Necessarily All Achievable in Today’s World)
B. Landlord Obligationsi. Maintain Building to Specified Standard
a) What Level of LEED (If Any) is Practical?b) D bl Ed d S db) Double Edged Sword
ii. Enforce Air Quality Standards by Methods Including Imposing Controls on Tenant Improvements in Premises (e.g., Carpet Glue) a) At Plan Approval Stageb) Monitoring Rights
84
b) Monitoring Rights
GENERAL BUILDING OPERATION AND MAINTENANCE OBLIGATIONS
1. During Construction 2. During Post-Construction Occupancy
c) Landlord Right/Obligation to Remediatec) Landlord Right/Obligation to Remediateiii. Create Procurement Requirementsiv. Require (or Assume Cost of) Metering Wherever Appropriate
a) Incentivizes Tenantsb) Electricityc) Waterc) Water
85
GENERAL BUILDING OPERATION AND
C T t Obli ti
MAINTENANCE OBLIGATIONS
C. Tenant Obligationsi. Obligation to Install Energy Efficient Leasehold Improvements
and Equipment ii. Obligation to Use Recycled Materials
a) What Level of Effort (Commercially Reasonable, etc)? b) C t C id tib) Cost Considerations
iii. Tenant Willingness to Accept Restrictions in II.B(ii) iv. Tenant Willingness to Accept Less Comfortable Base Building g p g
HVAC Specifications
86