The Model Green Lease

By some estimates, contributing more than half of all CO2 emissions, commercial and industrial buildings represent a prime opportunity to reduce our nation’s carbon footprint.   For years green building enthusiasts have lamented the primary obstacle to landlord-tenant cooperation in greening buildings, known as the ‘split incentive’.     This term refers to the divergence of economic interests between landlords and tenants when if comes to energy savings and other green building practices.    For example, in a NNN lease structure, why would a landlord want to pay for new energy efficient lighting or Solar Photovoltaic panels, when the tenant is paying the utility bills?    Conversely, why would the tenant want to invest in energy efficiency or renewable energy when she/he does not own the building, and may move after the termination of her/his three-year lease, long before the tenant can recoup its investment?

 While green leases are still far from standard practice, significant progress is being made in creating win-win lease documents which incentivize tenants and landlords to work together in reducing the carbon footprint of commercial buildings.   Green real estate professionals throughout the country, have joined together in developing a Model Green Lease, released in July 2009.   According to a blog http://modelgreenlease.wordpress.com  dedicated to advancing this new real estate tool, the Model Green Lease is distinct from previous green lease efforts in three critical areas:

• It resolves the critical financial problem of the split-incentive that has hobbled the progress of greening existing office buildings and constructing new green buildings.

• It’s equitably balanced to meet the financial and operational needs of landlords, lenders, investors, and tenants.

• Preliminary estimates show that buildings adopting the structure of the Model Green Lease, with appropriate construction and operating standards can cut energy use by 30 to 50 percent over comparable office buildings, with corresponding financial benefits accruing to landlord, investors and tenants.

In addition to the Model Green Lease effort, here in my hometown, the City of Boulder is doing its part by developing a lease document to assist landlord and tenants in reducing CO2 emissions.   Kevin Afflerbaugh Energy Sustainability Coordinator City of Boulder ClimateSmart Program, with the help of legal counsel is developing a Green Lease Addendum.    This addendum would allow landlord and tenants modify existing conventional lease documents to gain the benefits of a green lease, without starting with an entirely new lease document.

So is the Green Lease/Addendum the ‘silver-bullet’ for reducing commercial buildings’ carbon footprint?    No, as with any legal agreement, it needs the sincere backing of both parties for the document to work.    And even with the sincere desire of tenants and landlords to cooperate, without additional economic incentives, energy efficiency in commercial buildings is unlikely to spread virally.  However, the Model Green Lease and the Boulder Green Lease Addendum, provide a valuable framework for landlords and tenants to begin a conversation about their roles in reducing CO2 emissions and protecting the planet.