Green Leasing in the US

Background

Green lease provisions are being added with increasing frequency in U.S. leases, especially in lease forms of larger and more sophisticated owners. For example, major owners of industrial spaces throughout the U.S. represented by Hogan Lovells have been adding green lease provisions. Tenants, including national corporations that Hogan Lovells represents in lease transactions, have been accepting them.

What types of green lease provisions are we seeing?

Some examples of the types of green lease provisions that might be included are: 

• Acknowledgements by the tenant that the landlord has or may be required in the future to: 
  • adopt energy, water, and waste efficiency, and other environmentally sustainable practices; and 
  • adhere to sustainability monitoring and certification and/or rating programs. 
• Rights of the landlord: 
  • to install on-site power generation (i.e., solar or small wind) and/or storage (batteries) at the leased premises (so long as such installation does not interfere with Tenant’s use of the leased premises). 
• Tenant responsibilities / obligations: 
  • to reasonably cooperate with any of the above if requested by landlord, including data reporting on energy consumption for any utility billed directly to the tenant or billed by submeter (if the landlord does not have access to the submeter usage data); 
  • to deliver commercially reasonable written releases evidencing the tenant’s consent to deliver energy consumption data to the landlord, and the tenant’s agreement to install smart meters; 
  • to follow local waste sorting and recycling programs, and to provide copies of waste manifests, to the extent prepared by the tenant, for all waste that leaves the leased premises that is within the tenant’s control; and 
  • to pay for its equitable share of building emissions and/or energy efficiency costs and penalties, and/or for capital improvements to the building to reduce any such costs and penalties, resulting from laws enacted in certain U.S. cities and states. Currently, building emissions and energy efficiency laws have been enacted statewide and/or in select cities in Florida, Illinois, Massachusetts, New Jersey, New York, Pennsylvania and Texas. 
• Building design and operation: 
  • a requirement that all lighting within the leased premises will be energy efficient lighting (i.e., compact fluorescent lamps (CFLs) or light emitting diodes (LEDs)), and any requirements regarding indoor air quality; 
  • Agreement of the landlord to use commercially reasonable efforts to provide the tenant with the building’s ENERGY STAR score annually; and 
  • a pledge from the tenant to prioritize using materials in its construction of the leased premises that meet the sustainable criteria including: (i) being manufactured from recycled or renewable materials; (ii) being biodegradable or recyclable; (iii) having recyclable or reusable packaging that is comprised of few materials; (iv) being energy efficient; and (v) being backed by trustworthy, environmentally conscientious labelling programs. 
• Tenant issues 

The most common issues identified by tenants relating to green lease provisions pertain to costs and privacy. Some tenants are concerned that complying with sustainability practices, or using sustainable materials in their alterations, will increase costs beyond what they were anticipated for their occupancy. Other tenants worry that installing environmental sensors or energy monitoring devices will result in privacy concerns, such as what else is being monitored by these devices, how the tenant’s operations are being tracked, and who will have access to the data. 

Authored by Trevor Adler.