Green leases are emerging as a key component of commercial leasing, as both landlords and tenants in different industries place an increasing emphasis on sustainability and environmental impact.
A “green lease” is a commercial real estate lease agreement that focuses on environmental performance and sustainability practices, and aligns the environmental and financial goals of the parties. The parties to a green lease commit to work together to meet certain environmentally-sound goals, such as efficient energy consumption, waste reduction, water conservation and healthier air quality.
The benefits of green leases to both landlords and tenants include:
- Cost savings resulting from reduced energy consumption, water conservation and efficiency measures such as energy-efficient HVAC systems, lighting an insulation;
- Health benefits and increased productivity stemming from employees enjoying better air quality, use of non-toxic cleaning materials, temperature comfort and use of natural lighting;
- Increased property value and marketability by demonstrating a commitment to the environment with green certifications or eco-friendly features, which leads to attracting and retaining tenants who value sustainability practices;
- Positive long-term environmental impact of reducing a building’s carbon footprint by preserving natural resources and reducing waste;
- Fostering collaboration between landlords and tenants by creating shared accountability for meeting common sustainability goals;
- Supporting the building’s compliance with current and evolving environmental standards, such as reducing carbon emissions and meeting energy-efficiency standards; and
- Potential for governmental incentives for sustainable building practices, which provide economic benefits for both parties.
Green lease provisions often include:
- Data sharing and performance assessments clauses to allow landlords and tenants to track progress and identify areas in need of improvement with respect to sustainability goals;
- Specific obligations for installation of energy efficient appliances and equipment, adherence to waste management practices and recycling programs, use of non-toxic cleaning materials and minimizing water consumption;
- Cost sharing of capital improvements that reduce energy costs, ensuring that each party has an interest in the success of their joint sustainability efforts;
- Requirements that tenant improvements align with sustainability goals, such as use of certain sustainable construction materials;
- Establishment of communication channels for sustainability issues, such as designation of a point person or group for each party, a schedule of meetings and training programs;
- Agreement of the parties to cooperatively strive toward meeting sustainability goals and to work together to identify new opportunities for conservation of natural resources throughout the lease term; and
- Flexibility provisions that allow the parties to modify the lease to meet new legal requirements and incorporate new sustainability technologies and standards.
Green leases can have a particularly important impact in healthcare space. Hospitals and clinics consume enormous amounts of energy and have substantial carbon footprints as a result of medical equipment use and heating, ventilating and cooling needs. By promoting energy efficient measures, water conservation practices, better waste management practices, recycling programs and use of renewable energy sources, green leases in healthcare space can have a significant impact on the environment. Green leases also encourage natural lighting and better air quality, which can be particularly important in a hospital setting for both recovering patients and overworked healthcare providers.
As concern for the environment and sustainable practices continues to grow, green leases will play an increasingly significant role in commercial real estate. These leases offer significant financial, health and environmental benefits to the parties and foster collaboration between landlords and tenants. The result of green leases is the development of more sustainable buildings, which has a positive environmental impact on the broader global community.
Allison Zangrilli is Senior Counsel in Epstein Becker Green, P.C.’s Health Care and Life Sciences Group. Allison has extensive experience drafting and negotiating commercial leases for clients in a wide variety of industries, including healthcare, hospitality, real estate and professional services. She focuses on medical office, retail and warehouse space leases. Allison is also experienced in all aspects of real estate matters, including real estate acquisitions and dispositions, title matters, diligence, and financing.