If your business leases its real estate, it may be overpaying for energy and other operational costs. As noted in the prior 2017 Energy Action Month post many commercial tenants are paying higher energy bills than they need to.
While the U.S. commercial building stock is becoming more energy efficient, there are still institutional barriers and disparate incentives between building owners and tenants that leaves many buildings needlessly wasting energy. This Energy Action Month post provides more in depth information about green (aka “high performance”) leases and how tenants can take more control over their energy costs.
Beyond the broader “green” (or better termed “high performance”) building movement there are several initiatives addressing the sometimes split incentives between landlords and tenants that have historically resulted in lots of wasted energy. Some key activities include:
There are three phases during which businesses that lease their real estate have opportunities to optimize the rented space for energy (and other resource) efficiency: (1) pre-lease (including pre-renewal or extension of existing leases); (2) lease - design and construction of space build out (including new building construction); and (3) lease - post occupancy.
Pre Lease Considerations
Prior to entering a lease for new space (or before negotiating an extension or expansion of an existing leased space), companies can undertake several activities to ensure their leased space gets optimized for energy efficiency. For example, a company can adopt a high performance building leasing policy. The policy should reflect the company’s objectives and aspirations in seeking high performance buildings to lease. For a starting place, California Sustainability Alliance has prepared a sample policy.
These defined objectives and aspirations can be used to convey the company’s real estate preferences to its representatives (e.g., real estate broker/agent, lawyer) and in the request for proposal (RFP) stage. California Sustainability Alliance has also prepared a sample “green” request for proposal.
Whether formally in a policy and/or RFP or informally in internal discussions, the pre-lease phase typically identifies and documents the company’s priorities with regard to the following four areas (usually along with cost and timing parameters):
A sample energy-focused checklist might look something like this:
Traditionally, standard commercial leases have failed to align the initial cost of energy efficiency improvements with the resulting energy savings. High performance leases, especially those that feature energy efficiency practices can correct these “split incentives” and offer many financial, environmental, and social benefits. These benefits can often provide long-term, shared value to both tenants and landlords. How the benefits are allocated and accrued will often depend on the lease terms and the parties’ ability to monitor energy performance. The following table, from the U.S. General Services Administration (GSA), summarizes some of these benefits to both landlords and tenants.
A high performance building lease differs from a standard lease by specifying and re-aligning the financial incentives of energy and/or other sustainability measures. While these are sometimes also referred to as “green” leases, that term and the environmental focus can dissuade some. These leases ensure a broader set of benefits so the term “high performance” better captures the efficiency objectives.
In simplified terms, traditional commercial leases typically present these split incentives because the tenant generally pays for the utilities (arising both in net and modified gross leases either directly to the utility or via rent payment) and the landlord is solely responsible for capital improvements. Alternatively, in full service leases where the landlord pays the utilities, the tenant(s) won’t see financial reason to be energy efficient. Coupling together the investment and savings opportunities results in more efficient operations and the shared benefits.
A 2015 study from the Institute for Market Transformation (IMT) estimates that high performance building leases have the potential to reduce energy office consumption in office buildings by 11 to 22 percent. The IMT study estimates that these efficiencies could reduce utility expenditures in U.S. commercial buildings up to $0.51 per square foot (sf). IMT further found that simple modifications to existing lease terms (or the addition of the terms to prospective leases) can yield these shared benefits to owners and tenants. Interestingly, per IMT, much of the projected savings comes from the tenant space (up to 12.5%), with smaller savings coming from the building core systems (up to 5.8%) and common areas (up to 4%).
One day soon, these provisions will be market-standard. In the meantime, companies seeking to optimize their operational costs will do well to incorporate these terms. Additional high performance lease resources, including sample lease provisions are provided in the Appendix to this post.
Apart from the lease terms, businesses that rent space can seek to improve their energy efficiency by addressing several key areas that may be within the company’s control (as specified by current lease terms) and also by letting the building owner or property manager know of their: (a) interest in the building’s energy use and (b) desire to collaborate to reduce costs.
Before you engage with your building owner or property manager, learn a little about the building’s energy use and characteristics by seeking answers to the following:
Also, if there are other tenants in the building, seek out their interest level in reducing energy costs. You can research any federal, state, municipal, or utility provided incentives (e.g., rebates or tax credits for more energy efficient lighting) and/or technical assistance (e.g., free energy audits) for energy efficiency improvements in your area. And, identify some no- or low-cost improvements that you and/or the building owner could make. Focus on things with an 18-month or less payback. Lighting retrofits, including adding sensors often have a very short payback.
Here are a few other technological and/or behavior changes that can immediately reduce costs:
High Performance Leases | Recommended Criteria
The High Performance Leasing Task Group of GSA’s Green Building Advisory Committee (GBAC) developed materials that provide very simple and action oriented guidance. The EEIA of 2015 required GSA to develop voluntary “model commercial leasing provisions” to encourage building owners and tenants to use greater cost-effective energy efficiency measures in commercial buildings.
The recommendations and sample lease clause language in the remainder of this Appendix are derived, in large part, from the Task Group’s report. We have made some minor modifications to and have focused only on the energy and fuel efficiency suggestions from the Task Group’s recommendations. For additional context about the GBAC initiative and its other high performance building recommendations (e.g., water conservation, indoor air quality) check out the Task Group’s full recommendations report and cover letter.
High Performance Leases | Sample Clauses
The following sample clauses, gathered from expert input and a variety of publicly available sources (including those listed in the Additional Sources section of the Task Group’s recommendations report), provide some examples of specific high performance building lease language designed to implement the criteria listed above. The lease clauses below generally map to the criteria included in the table above, though there may be small variations since they were gathered from a variety of sources. Each of these clauses is written in the traditional lease manner of imposing an affirmative obligation to do (or not do) something. However, a lease clause may be made simply aspirational by limiting it to require only (in ascending order of obligation), “good faith efforts,” “reasonable efforts” or “diligent efforts” to perform. In practice, some of these clauses may be of more interest to tenants and some may be of more interest to landlords. Any actual lease language to be used should be developed by or adapted to the particular needs of the parties involved, with full legal review and input.
Energy Usage and GHG Emissions Management
1a: Achieve and maintain ENERGY STAR labeling for the building
The building must be ENERGY STAR labeled by achieving an ENERGY STAR rating of 75 and ENERGY STAR certification must be maintained for the duration of the lease term:
1b: Provide periodic recommissioning (every 3 years)
Landlord shall incorporate recommissioning requirements to verify that the installation and performance of energy consuming systems meet project requirements. Recommissioning shall occur every 3 years at a minimum. Recommissioning shall comply with ASHRAE Guideline 0.2 (for initial commissioning and retro-commissioning of base building systems) or ASHRAE Guideline 202 (for new commissioning of tenant fit out equipment). Recommissioning shall address at a minimum: heating, ventilating, air conditioning, and refrigeration (HVAC&R) systems and associated controls, lighting and lighting controls, and domestic hot water systems. Commissioning and a written report should be provided triennially. Tenant shall triennially commission the energy using equipment in its premises, including plug loads. Opportunities for efficiency shall be coordinated between both parties.
1c: Aspire to net zero energy
The building shall [achieve][aspire to] net zero energy, as defined by the U.S. Department of Energy[i] as of the date of this lease, within one year after occupancy and shall maintain that status for the remainder of the lease term.[ii]
1c Alternate: The Parties agree in the original lease to incorporate all energy saving measures necessary to achieve net zero energy, with the understanding that net zero may not be achievable initially. On that basis, the parties agree to periodically (every x years) assess and review the incremental progress/movement towards net zero energy use as measured by the actual usage numbers. The Parties agree, in good faith, to discuss future potential lease amendments and distribution/assignment of cost savings, along with possible lease cost adjustments, based on the resulting information.
2a: Install Lighting Power Density to comply with ASHRAE 90.1 2016 at a minimum
The building shall comply with lighting power densities (LPD) at or below ASHRAE 90.1 2016 (e.g., commercial office maximum LPD 0.79 watts/sf). For additional space types or calculation compliance paths and exceptions, please refer directly to the ASHRAE 90.1 2016 standard.
2b: Add lighting controls to adjust to occupancy/vacancy and daylight levels
Daylight dimming controls shall be installed in atriums or within 15 feet of windows and skylights where daylight can contribute to energy savings. Daylight dimming controls shall be either integral to the fixtures or ceiling mounted and shall maintain required lighting levels in workspaces. Lighting controls (including vacancy sensors[iii] and scheduling controls) shall be provided for all lighting equipment.
2b Alternate: Implement lighting controls, including daylight dimming controls for at least 50% of lighting load and vacancy sensors for at least 75% of connected lighting load. This measure is to be implemented if the simple payback period is demonstrated to be five years or less based on projected savings and estimated cost subject to building management team's review. Design and build to optimize daylight and views for occupants, which may be achieved through a design that includes interior rather than perimeter offices, or perimeter offices with glass fronts if perimeter offices are a design requirement.
2b Alternate: The Tenant shall initiate a review of lighting needs in all areas of the workplace [x] times within the year to accumulate lighting measurement data to compare with usage patterns. In conjunction with this effort, the specified energy rates for various areas will be reviewed and compared to the data to attempt to identify patterns and potential adjustment to lighting controls and sensors. (Dependent on metered/measured power usage within areas.)
3a: Share whole building or tenant space energy use (either actual or estimated)
Landlord shall provide reports for the amount of electricity, natural gas, and fuel oil (where applicable) consumed at the building broken down by utility type, energy unit usage (e.g., kWh, therms or ccf, gallons), cost per month for each energy source for the duration of the Lease and the Energy Use Intensity (EUI measured in kBtu/sf/year). Unless disclosure is prohibited by state or local law or if data is not available or is confidential, estimated energy use per tenant may be provided.[iv] Such reports shall be provided within ninety (90) days after the end of each [calendar quarter] [June 30 and December 31] [calendar year].[v] Where applicable, Landlord shall provide read-only access to tenant of the building’s ENERGY STAR Portfolio Manager account and vice versa. To the extent Tenant obtains electricity independently of the building, Tenant shall give Landlord access to Tenant’s data on energy use for inclusion in Landlord’s annual reports, ENERGY STAR annual rating and similar purposes.[vi]
3b: Submeter electricity use per tenant
Landlord shall install an electric meter/submeters to service the leased premises to measure the consumption of electricity in the leased premises. Where Tenant does not occupy the entire building or an entire floor, the partial floor or leased premises shall be separately metered.[vii]
3c: Submetered energy use for major energy end uses (e.g., heating, cooling, lighting, plug loads) per tenant
Landlord shall install an electric meter and submeters to service the leased premises to measure the consumption of energy (e.g., electricity, natural gas, and other sources, where applicable) broken out by each major energy end use as well as broken out by tenant. Actual or estimated breakdowns may be used, depending on the granularity of the data provided. Energy end uses shall include, at a minimum heating, cooling, lighting, fans, pumps, plug loads, domestic hot water, elevators, and parking structures (where applicable).
4a: Use ENERGY STAR equipment for all imaging equipment (i.e., copiers and printers). Space heaters banned.
All imaging equipment (i.e., copiers, printers, multi-function imaging devices) used by Tenant shall be ENERGY STAR Certified and energy savings modes must be activated. Space heaters are not permitted in the leased premises.
4b: Maintain automatic controls (night setbacks, sleep modes) for office equipment[viii]
Tenant shall provide sensor or timer controls for all of its major office equipment, including personal computers, laptops, and copiers/printers.
4c: Use ENERGY STAR equipment for all central HVAC equipment, computers, monitors, displays, and appliances
All Tenant equipment and appliances shall be ENERGY STAR certified (where applicable) and energy savings modes must be activated. Such equipment shall include, but is not limited to, computers, external displays, imaging equipment, phones, enterprise servers, network equipment, data center storage units, refrigerators, freezers, dishwashers, vending machines, and coffee makers. All central HVAC units shall be ENERGY STAR certified and (where possible) utilize variable speed compressors, fans, and pumps that are appropriately sized for the heating and cooling loads.
4c/5a, b, c – Combined Language
Reduce plug loads by specifying equipment and appliances (including, without limitation, computers, monitors, printers, refrigerators, dishwashers, water coolers, copiers, and A/V and IT equipment) that meet or exceed ENERGY STAR requirements.
5a, b and c: Plug load demand
Installed electrical wiring and facilities for plug load equipment including personal computers and other standard office equipment shall be limited to [3.5/2.5/1.5] watts per usable square foot.
6b and c: Green power purchasing or Renewable Energy Credits (RECs)
At least [50/100] percent of [the building’s][Tenant’s] electricity shall be purchased from renewable sources. Where direct green power purchasing is not available from the utility, utilize Renewable Energy Credits (RECs) or carbon offsets. For the purposes of this lease, “renewable sources” [shall][shall not] include nuclear-generated power.
Shared Savings and Commitments
1a: Conduct regular meetings between landlords and tenants to discuss energy efficiency opportunities and annual reporting[ix]
Landlord and Tenant shall meet annually and review energy [and water] use data, recommissioning outputs and recommendations and the effectiveness of efficiency programs and mutually establish an energy optimization plan, including energy management and cost effective savings opportunities for the building and the leased premises. Annual reports shall be produced summarizing both tenant and landlord efficiency efforts. Tenant and landlord shall work together to attain third party green building certifications.
1b: Include clause for landlord cost recovery for efficiency-related capital improvements[x]
Landlord may include the costs of certain capital improvements [intended to][that] improve energy efficiency in operating expenses. The amount passed through by Landlord to Tenant in any one year shall not exceed the prorated capital cost of that improvement over the expected life cycle term of that improvement [and shall not exceed in any year the amount of operating expenses actually saved by that improvement]. Interest/the cost of capital can be included.
1b Alternate: Another potential structure derived from New York City’s Energy Aligned Lease template[xi]: Landlord may include the costs of certain Capital Improvements in Operating Expenses pursuant to Section 1.1(a)(v)(16) in accordance with the following:
(i) In the case of any capital improvement that an independent engineer experienced in energy efficiency matters and selected by Landlord certifies in writing will, subject to reasonable assumptions and qualifications, reduce the building’s consumption of electricity, oil, natural gas, steam, water or other utilities, and notwithstanding anything to the contrary elsewhere in this lease:
1c: Identify and implement all efficiency measures deemed cost effective
Landlord shall perform a retro-commissioning study of base building systems that consume energy [or water] every   year(s). Tenant shall perform a retro-commissioning study of the equipment (including plug loads) installed by it in the leased premises every   year(s).[xii] Within   months after the conclusion of their respective retro-commissioning studies, each party shall start to implement recommendations identified by the retro-commissioning study that are deemed cost effective. For purposes of this section, the term "cost effective" means an improvement that will result in substantial operational cost savings by reducing electricity or fossil fuel consumption, [water, or other utility] costs and where such operational cost saving over the then-remaining term of this lease (or some other period of time that is mutually acceptable) is sufficient to pay the incremental additional costs of making the improvements.
1c Alternate: Perform commissioning of energy systems within the space (including, without limitation, lighting, HVAC, electrical, and plug loads) to ensure design optimizes performance and systems are constructed and function per efficient design.
1a, 1b, and 1c: Transportation management plan including alternative transportation solution[s]
Landlord will develop a Transportation Management Plan for the building to describe the various alternative mobility opportunities available to building occupants. Tenant and Landlord shall work together to implement [one][three] [or X] of the following provisions:[xiii]
[i] U.S. Department of Energy (2015), A Common Definition for Zero Energy Buildings,
[ii] A landlord or a tenant will probably require that the definition of net zero energy, an ASHRAE standard, a LEED® certification, a Green Globes® certification, or any other standard, be a definition known to exist on the date of the lease or some other fixed date.
[iii] Vacancy Sensors require someone to manually turn ON the lights when required. The sensor will then automatically turn lights OFF when no presence is detected for a specified amount of time. These sensors ensure the highest level of energy savings since the lights will never automatically turn ON.
[iv] For additional guidance from GSA on reporting, refer to: U.S. General Services Administration, Utility Consumption Reporting, http://www.gsa.gov/ucr).
[v] Material included in annual reports to tenants should include both energy [and water] use data, [data on the recycling program, whether the build-out materials and systems installed elsewhere in the building] within the particular reporting period comply with the requirements of this particular lease, the degree to which other tenant spaces within the building are leased with similar provisions, sustainability achievements, certifications and awards won, violations received (and the corrective actions taken), etc.
[vi] Source: Building Owners & Managers Association International (2011), Commercial Lease: Guide to Sustainable and Energy Efficient Leasing for High-Performance Buildings, https://store.boma.org/shopping_product_detail.asp?pid=52168.
[vii] A metering requirement invariably generates a lengthy negotiation between the landlord and the tenant over which of them will pay for the meter. Often, the cost of the meter is negligible and is exceeded by the time and legal fees debating who should pay for the meter.
[viii] As noted previously, plug loads often account for more than 30% of a building’s electrical demand. Reducing plug load can therefore have a substantial effect on electrical consumption.
[ix] Background and comprehensive lease language is available at: https://www.nrdc.org/resources/energy-efficiency-lease-guidance
[x] The concept of passing through to tenants as an operating expense the capital cost of improvements that save operating expenses is well-established in commercial leasing. But its implementation is highly negotiable (i.e., the capital cost could be repaid to the landlord over the projected payback period).
[xi] Background and comprehensive lease language is available on energy-aligned leases at: http://www.nyc.gov/html/gbee/downloads/pdf/eac_&_overview.pdf. Consider allowing cost recovery to begin the first month following completion of improvement measure so the landlord does not have to wait until the beginning of the next calendar year to begin recovering the cost of the improvement through operating expenses.
[xii] Additional resources on recommissioning can be found at: http://www.peci.org/sites/default/files/epaguide_0.pdf
[xiii] Additional resources, tools and information available from Best Workplaces for Commuters, https://www.bestworkplaces.org
[xiv] It may not be possible for all landlords to do this. For example, Real Estate Investment Trust (REIT) landlords may have issues with unrelated business income and therefore prefer to bundle parking charges into the rent.
APPENDIX | OTHER RESOURCES
There are lots of energy efficiency and high performance lease resources available to companies seeking to reduce their energy bills. In addition to the links elsewhere in this and the earlier Energy Action Month post, here are a few other favorites:
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Hi. I'm Colleen, Corporate Sustainability Advisor's founder and owner. Blogging about corporate sustainability trends, benefits, and best practices.