• Clean Sheet of Paper– Not a Cut & Paste of Existing Standard Form Lease– Rethink the Tenets of Current Office Leasing Practices– Build on Historical Context Where Appropriate– Integrate Building Science & Improved Technologies
• Plain Language Document– Easy to Read & Understand– Specific & Performance Based
• A building’s environmental performance standards are defined in specific lease clauses or lease exhibits:– Building Use– Rent– Operating Expense– Services & Utilities– Hazardous Materials– Maintenance & Repairs– Alterations & Improvements– Building Rules & Regulations– Contractor Rules & Regulations– Tenant Work Letter
Model Green Lease
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• Purpose:– Establishes “intent” of parties– Define common environment goals for tenant and landlord
• Issues:– Lease are long-term agreements– People that negotiated lease, may not administer the lease– Things change; Laws, Technology, Science, and Standards
• Tools:– Set “big picture” goals in Lease– Use Rules & Regulations and other lease exhibits (e.g. Building
Standards, Cleaning Requirements, and Contractor Rules & Regulations) to define operational details
(a) The 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 a safe and productive work environment.
(b) 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; (ii) water consumption; (iii) the amount of material entering the waste stream; (iv) negative impacts upon the indoor air quality of the Building and Premises.
Model Green Lease
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(c) 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 Premises.
(d) 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.
Ten Essential Elements Model Green Lease
Rent Structure
Model Green Lease
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• Escalation Clause: A lease clause that provides for the rent to be increased. This may be accomplished by several means such asfixed periodic increases, increases tied to the consumer price index or adjustments based on changes in operating expenses paid by the landlord in relation to an expense stop or base year reference.
• Base Year: Actual operating expenses for a specified base year, most often the year in which the lease commences. Once the base year expenses are known, the lease essentially becomes an expense stop lease.
• Expense Stop: An agreed dollar amount for operating expenses (expressed for the building as a whole or on a square foot basis) over which the tenant will pay its pro-rated share of increases. May be applied to specific expenses (e.g., property taxes or insurance). Also called “dollar stop.”
Model Green Lease
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• Operating Expenses: The cost of operating an office building, such as cleaning, repairs and maintenance, utilities, security, management fees, taxes, insurance and similar day-to-day expenses. Operating expenses should not include financial expenses like debt service, ground leases, depreciation and income taxes; capital expenses such as roof replacement; any expense associated with the production of income such as leasing commissions and legal fees.
• Right to Audit: A lease clause that gives the tenant the right to audit the lease and defines the process for doing so. The goal of a lease audit is to determine whether charges assessed by thelandlord under a tenant’s lease are correct and proper, and refund any overcharges by the landlord to the tenant.
Per Square Foot “Market” Downtown Boise Banner Bank Building
Total Income $19.95 $19.95 - Total Expenses -7.75 -4.85 = Net Operating Income $12.20 $15.10 ÷ Capitalization Rate 7.5% 7.5% = Building Value $162.67 $201.33 Value Created per sq ft $38.66 Total Value Created $6,960,000
Value of Building Green
Downtown Boise, IDColliers
Model Green Lease
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(a) Heating, ventilation and air conditioning (“HVAC”) during Normal Business Hours, in season at such temperatures and in such amounts as to comply with ANSI/ASHRAE Standard 55-2004, Thermal Environmental Conditions for Human Occupancy, and ANSI/ASHRAE Standard 62.1-2004, Ventilation for Acceptable Indoor Air Quality. Air filtration shall be provided and maintained with filters having a minimum efficiency reporting value (MERV) as determined by ANSI/ASHRAE Standard 52.2-1999, Method of Testing General Ventilation Air Cleaning Devices for Removal Efficiency by Particle Size. Pre filters shall be have a MERV of 8 or higher, and final filters shall have a MERV of 14 or higher for all outside air intakes and inside air recirculation returns.
(b) The HVAC system which services the Premises shall be designed, installed and maintained in a 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° F Dry Bulb - 74° F Wet BulbInside: 75° F Dry Bulb - 50% Relative Humidity
Winter Outside: 22° F Dry BulbInside: 72° F Dry Bulb - 50% Relative Humidity
Building's HVAC internal heat loads shall be based upon [INSERT]watts per rentable square foot (RSF) for lighting and power and one (1) person per one hundred and fifty (150) rentable square feet.
Model Green Lease
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• State of California requires Building Energy Statement in 2009– Certification of Building Performance Compliance by Landlord– Landlord Record Keeping, and Auditable by Tenant
• Tools:– Integrates with Annual Operating Expense Adjustment Process– Sub Metering, Contractor Rules & Regulations– Accounting System, Building Automation, and Green Vendors
Model Green Lease
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• Purpose:– Inform tenant how to get the most out of their space and building
• Issues:– Explain sustainable feature and benefits, procedures and
operating parameters in non-technical terms to Tenant and Tenant's employees
– Provide insights on how to maximize the building's design, systems, and building standards to create a high performance and sustainable workplace – Continuity of design intent
• Tools:– Tenant Manual – Day to Day Operational Issues– Development Guidelines – Tenant Fit-Out
Model Green Lease
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Faulty Assumptions Plague Too Many Green Lease Blogs B. Alan Whitson RPA Every day I get a Google Alert on green leases, which I dutifully read and then click on the various twits, blogs and websites listed in the alert. Sometimes there is a well researched nugget. Sadly, the typical article is riddled with misconceptions, faulty assumptions, and over simplification of the commercial leasing process. Too often, the authors failed to grasp building operating practices, real estate economics, or the nuance of negotiating a lease. Six years ago, many considered it revolutionary when I wrote the Ten Essential Elements of a Green Lease. The 10 elements were based on using the right rent structure, appropriate technology, performance standards, coupled with measurement and verification to create a financial incentive for green buildings rather than the some platitude about saving the planet. Some still believe that copying a little language from a LEED reference guide into an existing lease document will create a green lease. While, this may give a lease a green tint, it does not result in a green lease. I’m aware of attorneys who’ve invested countless hours tweaking existing leases with riders in the hope of crafting a green lease. This additive approach can result in some small improvement but it usually does nothing more maintain the status quo which is not sustainable. The Model Green Lease Task Force concluded early on that the best approach was to start with a clean sheet of paper, and a clear set of goals: remove the split financial incentive, reward landlords for superior operational and environmental performance, and provide tenants with an environmentally responsible and productive workplace. Let’s exam five building
operating issues and see how the language in a green lease and a bad lease differ. 1. Energy This is a simple case of follow the money. Only real estate taxes top energy as the largest operating cost for an office building. The key to controlling and reducing energy use in an office building is for the landlord to profit from doing so. Tenants have minimal financial incentive to reduce energy consumption. Of a tenant’s total cost of doing business; people account for 80 percent, rent which includes energy is 8 percent. Energy alone accounts for only 0.6 percent of an office tenant’s total cost of doing business. Given current energy costs and usage patterns, if a tenant did reduce energy use by 40 percent, the savings would not be sufficient to buy every employee a daily cup of coffee at Starbucks. Even if this did happen it’s doubtful that a tenant would see any of energy savings, since the pro rata share allocation method spreads the savings over the total rentable area of the building.
Under the Model Green Lease a landlord is responsible for all energy costs up to the energy allowance. This creates a powerful financial incentive to seek out energy savings and to keep the building in top condition. This encourages a whole building approach to energy management and using the appropriate technology such as the lighting system installed in the New York Times Buildings. The building code in New York limits lighting to 1.1 watts per square
...adopting the structure of the Model Green Lease can cut energy use by 30 to 50 percent over comparable buildings.
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foot. The lighting system used in the Times Building has reduced lighting energy to 0.38 watts per square foot. This equates to a combined energy savings from lighting and cooling of $1.00 per square foot. From the tenant’s side the use of sub-meters brings over allowance energy use to the forefront very quickly. How you may ask? Somebody within the tenant’s organization will have to budget for it. Also if excess energy use or after hours charges are billed to individual department’s P&L, those responsible for that P&L will scrutinize that expense closely. Experience has shown a 30 percent reduction in over allowance and after hours use after installation of sub-meters. Engineering analysis shows that adopting the structure of the Model Green Lease can cut energy use by 30 to 50 percent over comparable buildings. Green Lease Modified Gross Lease with Expense Stop or Base Year; Realistic Energy Allowance for tenants and sub-metering for tracking each tenants energy use, and separate sub-meters for high energy uses such as server rooms; Control actual building operating hours Bad Lease Net Lease, Pro-rata Share Allocation of Operating Cost promote the status quo 2. Operating Performance A few years ago the National Institute of Science and Technology did a survey of 100 office buildings and found that half of them were taking in less than the minimum amount of fresh air as required by ASHRAE 62.1. Moreover, 25% of the buildings were operating at less than half the minimum air intake rate. Over-ventilation was just as rampant as under-ventilation. Both can have a negative impact on tenant comfort, indoor air quality and energy use. Comfortable temperatures and indoor air quality are the second and third most important issues for
tenants trailing only rental rate. Yet these two issues are the greatest source of tenant dissatisfaction with a building. Green Lease The lease should state that the building’s HVAC system will be operated in compliance with ANSI/ASHRAE Standard 55, Thermal Environmental Conditions for Human Occupancy and ANSI/ASHRAE Standard 62.1, Ventilation for Acceptable Indoor Air Quality. Including this reference in the lease provides a measurable performance metric. Bad Lease Terms like “reasonable” or “comparable with other class “A” office buildings located in the area” are use to describe how a building will be operated. 3. Recycling, Daytime & Green Cleaning, Green Pest Management What’s not to like about this? Recycling can turn a cost center into a profit center. Daytime cleaning cuts energy use from 4 to 10 percent and you get a cleaner building with fewer complaints. Green cleaning and green pest management protect the health and safety of the janitorial staff and tenants. Tenants won’t object unless you make the process too complicated. A major bank in Canada decided to introduce a corporate recycling program. When the program was rolled it out, they could not find a branch bank in their system that didn’t already have a recycling program started by the employees. Green Lease Appropriate Lease Clauses, Lease Exhibits, Building Rules & Regulations such as those in the Model Green Lease make implementation a straightforward task. Bad Lease If the lease does not address these topics – It’s not a green lease.
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4. Annual Environmental Performance Report The idea of the annual environmental performance report comes from management guru Peter Drucker, “What gets measured, gets managed.” When the Model Green Lease Task Force first raised the idea of the Annual Report, there was some resistance. California and a growing number of jurisdictions are now requiring an annual report. Since the landlord operates the building and pays all the bills it is reasonable for the landlord to collect, analyze and report performance data to the tenants along with the annual operating budget and annual expense reconciliation. After the Model Green Lease was released, Andy Fuhrman and Alan Edgar of OSCRE asked the Model Green Lease Task Force to work with the OSCRE Green Lease Advisory Board to set up the data exchange standards. This newly released standards makes the collection, analysis and reporting of information quick and easy for the landlord and provides transparency to the tenants. Green Lease A lease clause with appropriate lease exhibit detailing the information the landlord will provide the tenant each year on operating hours, energy use, renewable energy, water use, and recycling. Bad Lease If the lease doesn’t require an annual report – It’s not a green lease 5. Interior Construction The initial fit-out of tenant space coupled with the subsequent tenant turnover can have a significant impact upon the environment and indoor environmental quality of a building. The interior construction should comply with requirements for low VOC content, dust control, proper material handling and storage, and recycling of construction waste
whether the tenant is seeking certification such as LEED for Commercial Interiors or not. Green Lease Tenant Workletter Agreement and the Contractor Regulations contain language that defines sustainable product requirements and construction practices to be used in constructing the tenant improvements. Bad Lease If the lease and its exhibits do not specify the sustainable product requirements and construction practices to be used in constructing the tenant improvements – It’s not a green lease. This Spring the Model Green Lease Task Force will release the latest update to the Model Green Lease including three new tenant workletter agreements. The update will be sent to all registered users. The Model Green Lease is available for purchase online at www.squarefootage.net Alan Whitson is President of the Corporate Realty, Design & Management Institute; and Chair of the Model Green Lease Task Force. Click on www.squarefootage.net for a seminar schedule, Alan’s speaking schedule, books, CDs, software, and Model Green Lease template. You can contact Alan Whitson at [email protected] This originally appeared in Alan Whitson’s Turning Green in Gold column in OfficeInsight on March 8, 2010.
