Posted on July 15, 2011 by Chris Cheatham

Green Leases 101

Steve Teitelbaum practices real estate with Jones Day in their Washington DC office. Steve speaks frequently on real estate topics, particularly leasing, and has become a leading lecturer on “green” leases.  Since we have not covered green leases much on this blog, I thought Steve would make for a great interview.  Enjoy! 

 

Chris: What is a green lease?

Steve: To my mind a green lease is a lease that tries to help the landlord and the tenant improve the building.  The improvement can take the form of operational matters such as enhancing energy and water efficiency, instituting recycling programs, improving indoor environmental quality by requiring the use of less harmful chemicals and banning smoking, reducing operating costs, allocating capital costs, and encouraging the parties to collaborate in other ways to act more sustainably.  

Another improvement can be requirements imposed on either party or both parties to build the building or the tenant’s premises in accordance with some sustainability standard, most frequently the US Green Building Council’s LEED standards or occasionally a Green Globes standard, whether or not actual certification is also required.  A green lease also helps the parties comply with Energy Star requirements and third party sustainability standards, and anticipates the growth we’re now seeing in municipal and State laws that require disclosure, and therefore sharing, of sustainability information.

Chris: How do you differentiate a green lease from a standard lease?

Steve: Standard leases rarely address any of these issues, except perhaps recycling and a ban on smoking.  It’s important to understand that a standard lease that doesn’t address sustainability issues isn’t a “green lease” even if it’s used in a green building; a green building can be operated in a non-green manner.  Conversely, a green lease can be used even in a building that isn’t green because the lease helps improve building operations and, if desired, could help the building ultimately achieve some third-party green operational standard.

Chris: Is there an optimal property type or location for utilizing a green leasing program?

Steve: Single tenant buildings, office or warehouse, are optimal, particularly since a lot of the push has come not from landlords but from tenants with corporate sustainability programs.  But the real impact will have to be in the more common multi-tenant arena, where adoption of green leasing is both more difficult because of the need to phase it in and more important because of the prevalence of the property type.

Chris: Where do you see the growth of green leases in 5 years? 20 years?

Steve: The CoStar Group announced that 2008 was “the year of the green lease,” yet we’ve seen very little application of green leasing in the field. That may be due to inertia, amplified by the recession, the reduction in both leasing activity and construction, and the landlords’ reluctance to impose additional lease terms on scarce prospective tenants.  But as green standards become more commonplace, as more landlords and tenants understand that there isn’t a “cost premium” to green and that sustainability can actually save them money or even make them money through enhanced productivity or faster lease-up, as companies like much maligned Walmart impose sustainability standards on their vendors, and as more and more green governmental mandates are imposed, I think green leases will become more common.  I hope that in five years we won’t need to be having this conversation.  In 20 years sustainability will be so mainstream, at least in metropolitan areas, that this conversation will seem like something out of ancient history.

Original Article