Understanding Green Leases

What are Green Leases?

Green leases, also known as “energy-aligned leases” or “high-performance leases,” are agreements that incorporate terms encouraging sustainable practices and energy efficiency into the leasing of buildings. At their core, green leases are designed to align the interests of landlords and tenants towards achieving energy efficiency and sustainability goals. Traditional lease agreements often discourage investment in energy efficiency, as the benefits of such investments are not equally shared between the tenant and landlord. Green leases address this divide by ensuring that both parties share the costs and benefits of sustainability improvements leading to a mutual benefit from the property’s improved performance. While these leases started as a way to address energy consumption in a building, over time, green leasing has evolved to also address a broader set of sustainability challenges such as water consumption, waste management, and indoor air quality.

Although green leases vary by company, Green Lease Leaders, created and managed by the Institute for Market Transformation (IMT) and the U.S. Department of Energy’s (DOE) Better Buildings Alliance, sets national standards for what constitutes a green lease and recognizes landlords and tenants for creating and implementing compliant leases.

Key Features of Green Leases

Green lease requirements cover design, construction, and operations. Topic areas may include energy, water, waste, and indoor environmental quality. Each lease is different and will depend on the specific priorities of both landlord and tenant. But there are common topics that green leases may address, including:

• Shared Investments and Savings: Green leases outline mechanisms for sharing the initial costs and resulting savings of energy-efficient upgrades between landlords and tenants.
  • Examples: If tenants are paying for utilities directly, landlords have no financial incentive to invest in capital upgrades that reduce energy use, because the resulting savings will go to the tenant. To address this, some green leases will incorporate a “pass-through” clause that allows landlords to pass on the costs of capital improvements to tenants as operating expenses.
• Sustainability and Efficiency Goals: They include commitments to meet specific sustainability benchmarks, such as energy efficiency ratings or the use of renewable energy sources.
  • Examples: Tenant must reduce connected lighting power density to be below the limits set in certain green codes and all light bulbs and lighting fixtures must have an ENERGY STAR certification. A green lease may also require the landlord to make energy-efficient upgrades to the building, such as installing energy-efficient lighting or HVAC systems, or require the tenant to turn off lights and equipment when not in use.
• Collaborative Decision-Making: Both parties agree to work together on sustainability initiatives, breaking down traditional barriers to implementing green improvements.
  • Examples: A tenant must partner with landlords to comply with all local jurisdiction reporting requirements. Data must be shared with the Landlord, as requested, and includes but is not limited to: full-time and part-time occupants, server room sq. ft. and supplemental HVAC characteristics, the total quantity of computers, and monthly utility consumption if paid by the tenant directly to the utility. Green leases may include provisions that allow landlords to submeter tenant spaces and/or equipment for accurate energy and emissions monitoring and to facilitate reporting, benchmarking, and compliance. If there is tenant usage that falls outside of the landlord’s submeter, the lease may require the tenant to report it.

Benefits of Adopting Green Leases

The adoption of green leases brings multifaceted benefits, driving a positive impact on the environment, financial health, and stakeholder relationships. By adopting green leasing practices, the energy efficiency gap can be filled, and utility consumption in offices across the country reduced—with potential for both landlords and tenants to realize significant savings.

1. For tenants: Overall green leases create higher-quality spaces for tenants, who recoup their investment through lower utility bills and improved productivity and comfort. The Institute for Market Transformation (IMT) in the U.S. estimates that green leases can help reduce utility bills by up to 22 percent, or around 50 cents per square foot in U.S. office buildings alone.
2. For owners: Properties subject to green leases typically experience an increase in value. These buildings attract tenants more easily, command higher rents, and have lower vacancy rates due to their enhanced sustainability features and operational efficiency. Additionally, with governments around the world tightening regulations on energy use and sustainability in commercial spaces, green leases provide a proactive framework for compliance, reducing the risk of penalties. Industry recognition through green lease adoption is another core benefit. Higher-performance buildings can increase ENERGY STAR and LEED scores, as well as assist with achieving other certifications such as BOMA 360, Fitwel or WELL. Receiving industry recognition also helps a company to retain and attract like-minded employees, tenants, investors, and other partners.
3. For the Environment: By promoting energy efficiency and the use of sustainable materials, green leases directly contribute to the reduction of carbon emissions and environmental footprint of corporate activities.

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