Environmental sustainability has become an increasingly important topic, leading many business owners and property renters to look for new strategies that can help improve efficiency, reduce waste, and limit their environmental impact. One of the ways the environmentally conscious are achieving this is through green leasing.
A green lease, or energy-efficient lease, is a type of lease that addresses the unique sustainability interests of a tenant and a landlord. It establishes clauses, procedures, and various other actions for both parties to take that reduce waste and improve the efficiency of the building. Green leases also specify how the landlord and tenant will be expected to split the costs associated with making these improvements.
In addition to outlining priorities and determining how upgrades will be paid for, green leases also ensure a level of transparency and accountability for both parties. Signing a green lease means that you and your landlord are committed to becoming more energy efficient and are willing to implement mutually-beneficial solutions to achieve this. Green leases also provide quantitative data that can be used to track progress on your sustainability initiatives.
Since these agreements are created to support the specific interests of a landlord and tenant, each green lease is unique. Though there is not a standard green lease that is used in every case, there are some topics that are commonly addressed in a green lease, including:
The cost recovery clause in a green lease exists to overcome issues of split-incentive. For example, while landlords may have some incentive to make energy-efficient upgrades to their building, the costs of these improvements will ultimately fall on them. Furthermore, it’s the tenants who will reap most of the benefits, such as reduced utility costs and an enhanced brand image. This is what’s known as a split incentive.
To resolve this situation, a cost recovery clause clarifies how the tenant will split the costs of energy-efficient upgrades with the landlord. This provides an additional incentive to landlords who are interested in green leases, as they are able to pass on some of the improvement expenses to tenants in the form of operating expenses.
There are two common ways for a green lease to be implemented. The first option is to create the green lease as a separate document that accompanies your business’s standard lease agreement. The second option is to incorporate the green lease language into the standard lease agreement itself. When the green leasing process begins, you can work with your landlord to determine which approach will work best for your particular situation.
There isn’t a set procedure to follow when starting the green leasing process. Either you or your landlord may raise the subject or initiate the conversation. From there, it will require a collaborative effort to establish the details of your green lease, such as the topics or clauses your green lease is going to include, the actions that will be required, and the metrics to be tracked and analyzed.
Green leases help minimize a building’s environmental impact while offering incentives to both landlords and tenants. For landlords, a green lease creates an opportunity to increase property value and drive demand for their rental space. Meanwhile, tenants like small business owners stand to benefit from green leases in several different ways:
Green leases outline energy-efficient upgrades and procedures that can help you lower your small business utility bills. For example, by following the energy efficiency measures laid out in a green lease, office buildings in the United States can reduce their energy usage by up to 22 percent.
A green lease allows you to define clear-cut sustainability objectives, determine the metrics that will be used to track progress, and obtain quantitative data that can be analyzed and communicated to stakeholders. The accountability that comes with implementing a green lease ensures that you’ll be working towards achieving your small business sustainability goals.
As you implement your energy-efficient lease and start making changes to go green in your small business, you’ll also set yourself up to obtain additional sustainability certifications. Many green leases have clauses that cover similar topics as LEED, ENERGY STAR®, and other green rating systems, meaning you may be able to expedite the process of securing these or similar certifications.
The premise behind green leases is that both tenants and landlords have a financial incentive to agree on sustainability measures. Since tenant/landlord discussions in a green lease are based around mutually beneficial actions and procedures, these conversations can help you establish trust and strengthen your working relationship with your landlord.
In addition to making your business more environmentally friendly, implementing the actions outlined in a green lease can help enhance your brand’s image and foster a positive reputation for your business. Sharing your small business’s sustainability story is an effective way to engage your customers, stakeholders, and employees and continue building support for your environmental efforts.
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