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Like the idea of being more eco-friendly?  Consider a green lease agreement.

A green lease is written in such a way to encourage both the landlord and the tenant to adopt environmentally friendly, sustainable practices.  Green leases therefore benefit the landlord, the tenant and the environment. 

There currently is no widely accepted standard for green lease agreements, so one green lease may look and feel quite different from another.  Landlords and tenants have a lot of flexibility, which lets them structure their lease in a way that meets both of their needs.  The key elements of a green lease are usually rent structure, operating expenses, recycling, acceptable products and best practices.  It is essentially a lease agreement that describes how the rental building will be used and operated in an environmentally friendly way. 

The goal of such an arrangement is for the building to have as little impact as possible on the environment.  It starts with the building itself, which is usually built with sustainable materials and systems, such as the following:

HVAC – The heating, ventilating, and air conditioning systems are selected based on their energy efficiency. 

Energy efficient design – When a building is built with the environment in mind, energy efficiency becomes the main focus of the actual design.  These buildings are well insulated, have good ventilation and use high performance materials.  The architects are mindful of window and skylight placement to maximize natural light.

Energy use – Green leases aim to reduce energy use when possible.  Some buildings are designed with alternative energy sources like solar panels or wind power.  Appliances and lighting are chosen based on their energy efficiency.

Water – Reducing water consumption is another key factor in green construction and green leases.  Low flow taps, toilets and showerheads are used throughout the space.  A water recycling system may create grey water to be reused onsite for lawn or garden use.  Sometimes, a water collection and purifying system is in place. 

Recycling and composting – To reduce waste, buildings with green leases use on site solutions to encourage recycling.  Items like compost bins, paperless offices and waste-free options are promoted.

Currently, green leases are mostly used in commercial and corporate settings.  They are, however, gaining popularity with new residential building developments. 

How do Green Leases Affect Landlords?

Landlords play a bigger role when they commit to a green lease. 

When a green lease is in place, landlords have more say on their tenants’ day-to-day use of the building.  Landlords can impose recycling programs and conservation measures.  They can decide which cleaning products are to be used on the premises.  Landlords can even set strict rules for which types of devices, from lighting to office equipment, are allowed in the building.  As long as it is clearly defined in the lease agreement, the landlord can demand it.

Be aware that tenants have higher expectations when it comes to green lease situations.  They are committing to adopt business practices that are environmentally friendly.  They are therefore more likely to make sure the property lives up to these eco-friendly practices, and may be demanding.  They may push for building improvements.  They may request specific certifications.  They may also lobby for new, more energy-efficient systems.  If tenants feel the property owner isn’t holding up their end of the bargain, they may try to hold them accountable.

Green Building for RentIn the long run, there are many benefits for landlords.  More efficient buildings – and environmentally-conscious tenants – can mean big savings in operating costs, especially in commercial buildings.  Green rental properties also tend to attract higher-quality tenants who are both better educated and willing to pay a premium for going green.  Demonstrably lower utility bills can be an excellent selling point, and will help landlords command higher rents. 

Particularly with newly constructed buildings, the additional costs and work are minimal, so marketing a green lease agreement is can help maximize return on investment while also requiring eco-friendly behavior from renters.  Keep an eye out for tax incentives, both for the construction phase and for property upgrades, to help offset initial costs.

Best Practices for Green Leases

If you’re thinking of adopting a green lease, there are a few key points to keep in mind.  First, don’t do it alone.  As always, the legal wording of your lease agreement is critical, so either use an attorney or a state-specific online service that offers state law tips as you go (ahem!).

Another key factor to a successful green lease is the proper structure of the rent.  As most of the day-to-day energy savings come from the tenants’ use of the building, it’s important for landlords to build a financial incentive into the rental agreement.  This usually means there is a base rent amount, then some kind of incentive for the tenant – either a saving or a penalty – based on energy consumption.  Sometimes, a net lease is adopted; tenants must then pay for all of their utility costs.  Net leases can encourage tenants to reduce energy consumption as they foot the bill.  However, this doesn’t always translate into energy efficiency as it’s harder for the landlord to impose targets. 

Landlords, do you have any green leases?  Do you have any recommendations for those thinking of taking on this type of lease?

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Categories: Leasing Issues

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