DRAFT
AN INTRODUCTION TO GREEN LEASING
1. WHAT IS A LEASE
A Lease agreement is a contract between a lessee (borrower or Tenant) and a lessor (owner)
for the use of a building, property or other asset. It allows the lessee to use the asset for a
specified rent and period of time. A Lease agreement formalizes the duration of the Lease,
identifies the assets under Lease, includes the names of the two parties and specifies the
payment method (periodic or lump sum).
The commercial building Lease, in its widest sense, governs the relationship between the
Landlord and the Tenant: who can do what, when, how, and who pays. It gives exclusive
possession of premises in return for rent and compliance with certain rules. In the office context,
the Landlord may control the shell, common areas of the building, and operations, but it is the
Tenant who controls activities within its own space. Both will usually have standards governing
their conduct.
The current commercial Lease1 landscape is comprised of a wide variety of Lease types, each
reflecting the diverse nature of land use types, individual Landlord and Tenant preferences, and
building history. Common types of commerical Lease agreements include the following, though
there are many variations and sub-types:
o Gross Lease
o Net Lease (including Double Net Leases and Triple Net Leases)
o Percentage Lease
o Land or Ground Lease.
The most common among these are the Gross Lease in which Landlord pays operating
expenses, including utilities, and the Net Lease in which the Tenant pays some or all operating
expenses, with many types and variations under them. Often, these leases are not structured in
a way that promotes better environmental performance. Under most Gross Leases, for example,
Tenants have no incentive to save energy in their leased premises because energy costs are
based on Tenant square footage. Under most Net Leases, building owners have no incentive to
invest in efficiency for their building systems because the operating expenses are passed
through to Tenants, who would therefore receive all of the energy cost savings2.
In the past, provisions in a commercial Lease generally did not encourage, allow, or fairly
allocate the costs of reduced energy usage, reduced water usage, reduced materials usage, or
the diversion of waste or recyclables. Recently owners and Tenants have started looking at the
Lease as a means to provide an opportunity to enable greater energy efficiency or sustainability
improvements than either party could achieve on its own.
1 Types of commerical leases is explained at http://www.patrickburnslaw.com/Articles/A-Review-of-Common-Types-of-CommercialLeases-and-Lease-Terms.shtml
2 Although it is difficult to judge the best type of Commerical Lease from an environmental point of view, Net Lease seems to be a
relatively better option as it provides an incentive to the Tenant to operate and maintain the building in an efficient manner. Even
under a Net Lease, in most cases, environmental features of a building are expected to increase the value of the property and make
the property more competitive in the market, and this can be considered as an incentive for the Landlord to undertake capital
upgrades.
2. GREEN LEASE3
Like a normal commercial Lease, a Green Lease4 governs the relationship between Landlord
and Tenant, but through an environmental lens. A green Lease is either a new Lease or a
modification to an existing Lease between the Landlord and Tenant with an additional set of
schedules compared to a ‘normal’ Lease contract, such as a contractual basis for monitoring
and improving energy performance, mutual obligations for both Tenants and owners to achieve
resource efficiency targets (e.g. energy, water, waste) and to minimize the environmental
impacts. This ensures that an office operates at an agreed level through regular monitoring and
ensures issues can be addressed as they arise. Green leases helps to ensure that leases are
structured to create compulsion, to create incentive, and to create flexibility, for both parties to
do the right thing.
A green Lease should not be equated to leasing space in a building with a Green Building
certification. Rather, a green Lease expands on existing Lease clauses, integrating
environmentally sustainable goals for the building and identifying how the Landlord and Tenant
will meet them. For example, changes can be made to clauses including alterations,
maintenance and repairs, subletting, insurance, utilities/services, and relocation. Depending on
which party drives the process, a green Lease may cover everything from daytime cleaning to
who owns the rights to potential carbon credits under future regulations. In the process it tries to
align the financial and energy/environmental performance incentives of building owners and
Tenants so they can work together to save money, conserve resources, and ensure the efficient
operation of buildings. It provides compulsions and encouragements/incentives and remove
disincentives in a commercial Lease to improve environmentally friendly practices by both the
Landlord and the Tenant. To achieve all these, the Green Leasing process requires greater
cooperation between Landlord and Tenant than traditional leases.
Green leasing is much more than the negotiation and drafting of Lease language. It involves the
integration of environmental sustainability objectives throughout the entire commercial leasing
process.
Green leasing has altered the traditional relationship between the Landlord and Tenant.
Tenants are demanding alterations in core and shell improvements as well as demanding that
Landlords perform their operations and maintenance duties in specific ways. Landlords are
dictating the type of materials and equipment a Tenant can use in its office space as well as
demanding compliance around programs such as recycling and conservation. These are
setting up new processes and negotiation points in commerical leasing.
To properly integrate environmental objectives into standard clauses of a Lease, it is important
to understand the concept of Green Buildings5. Green Buildings refer to an all-encompassing
concept of environmental sustainability of the built environment, achieved through various
methods. Green Buildings result in cost savings and reductions in resource consumption and
environmental impacts. It also could help to boost the market value of the property and the
environmental credentials of the Landlord and Tenant. A proper design process can ensure that
this is achieved with little or no additional initial investment and reasonable payback periods.
The proper operation and maintenance of Green Buildings is important or else they may not
realise their potential.
3
Also known as aligned Lease, high performance Lease, or energy efficient Lease
A number of information sources on Green Leasing is available in the Green Lease library Green Lease Library
http://www.greenleaselibrary.com/home-old.html
5
http://sustainabilityworkshop.autodesk.com/building-design/concepts and http://www.greeningtheblue.org/general-resourcesincluding-educational-material-guidelines-and-case-studies
4
There are many barriers for Green Leasing. This is described in Annex 1. To become more
effective, Green Leasing needs to be packaged with other good practices such as
benchmarking; rating and disclosure efforts; retro-commissioning; and broader energy and
environmental management policies and programs.
3. NEED FOR GREEN LEASING
Green leasing is one of the measures that helps to operationalise Green Buildings and realise
their potential in operation.
Green Leases are needed to rectify the deficiency in commercial leases, which are mostly
drafted with clauses of general application, but mostly cannot accommodate new “green”
issues. Examples are:
 Current commercial Net Leases generally do not set out any environmental objectives.
 Few leases contemplate limiting waste production by the Tenant, both in initial fit-out,
and in ongoing operations. Most leases do not obligate the Landlord to recycle with
multiple waste streams.
 Many commercial leases generally do not allow the Landlord to purchase green power if
it costs more and pass the costs on to the Tenant.
Leases are long-lived agreements, that could last from a few years to few decades, taking into
account the renewals. Normally major clauses are incorporated in a Lease when they are
initially framed. Subsequent renewals normally change only the rental rates and Lease term.
However, environmental issues and global warming require immediate action. Commercial
leases needs to be modified at the earliest opportunity, and should have the flexibility to
accommodate the required adjustments in operations and standards to achieve environmental
management objectives. A Green Leasing programme helps to achieve this.
4. APPROACHES
There are at least two approaches to a green Lease:
 Paternalisitc approach
Obligations for reduced consumption and environmentally responsible behaviour are
mandated by either the Tenant or the Landlord within the Lease. This could be two types

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Tenant-paternalistic Lease:
The Tenant wishes to force the Landlord to do its part to assist in compliance. In
this case, the Tenant might have a strong green brand or internal “green” targets
it is subject to.

Landlord-paternalistic Lease:
Landlord wants its Tenants to toe the line in achieving certain environmental
goals. Here, the Landlord might want to green its portfolio, or be seen as
environmentally responsible.
Co-operative model
Both parties buy into the need to green an existing building and mutual objectives are
set out in the Lease for both parties to achieve, leading to responsibilities and liabilities
for both parties.
5. PROCESS
The Green Leasing process, particularly with respect to modifications to existing leases, can be
initiated by either the Landlord or Tenant (especially large Tenants). The Green Leasing
process can potentially relate to or be subsumed in many other project development steps, such
as real property agreements; energy performance contracting; design, engineering, and
construction; operations and maintenance; and environmental management initiatives.
The obvious place for Landlords and Tenants to work together is right from the beginning in the
leasing process, though Green Leasing principles can be introduced to a Lease negotiation at
any time, whether during the initial Lease negotiation or upon a Lease renewal, or at any time in
between . The majority of Green Leasing work occurs months before the Tenant has selected a
suitable space. Of course, once the initial Lease is signed, the parties may have little incentive
to bring up green issues, unless the green features benefit both parties sufficiently enough to
overcome the usual inertia. Even when a comprehensive greening is not possible or practical,
the parties may agree to amend an existing Lease to implement specific sustainability
objectives.
The following could be the steps to be followed towards achieving a Green Lease:

Understand the building portfolio.
Prior to negotiating a Green Lease, the potential Landlord and Tenant must assess the
basic requirements for the space that is to be leased. Variables to consider include:
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Engage key stakeholders
Including relevant stakeholders in the design and negotiation of a Green Lease can
increase the likelihood of its acceptance and successful implementation by all parties.
Key stakeholders likely include:
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the percentage of total leased space that Tenants occupy or seek to occupy;
building age and condition;
Lease term and structure (e.g., Gross Lease in which Landlord pays operating
expenses, including utilities, or a Net Lease in which the Tenant pays some or all
operating expenses);
presence of other Tenants (including the Landlord) in the building;
Landlord and Tenants experience with sustainability.
Landlords, real estate owners and managers: These groups are critical to the
development and execution of benchmarking policy.
Tenants and their organizations
Utilities: They can provide valuable technical assistance and incentives to
undertake environmental management projects facilitated by Green Leases.
Technical experts.
Common Green Lease principles and minimum standards
Before going into the details of Green Leasing, it would be good to have a broad
agreement between the Landlord and Tenants on the common principles and minimum
standards that the Green Lease should aim at. An example is the three principles
forming the basis of the Natural Resources Defense Council’s Energy Efficiency Lease
Guidance:
 The Landlord should operate the building and the Tenant should operate its
premises as efficiently as possible.
 For any given system, installation, or piece of equipment, the responsibility for
the capital expense and the benefit of savings should reside with the same entity.

Alternatively, all of the savings achieved by virtue of a system improvement
should be available to pay for the improvement.
 To the extent feasible, both consumption and demand for resources throughout
the building should be measurable and transparent to both the Landlord and the
Tenants.
Needs Assessment
Conduct an assessment to establish the desired attributes of the space, such as budget,
location, image, services, amenities, as well as green requirements

Define Green Leasing goals
Annex 2 describes how environmental goals can be set.
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Prepare to negotiate.
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Plan for measurement and verification
An effective measurement and verification plan can verify and document the benefits of
Green Leases and enable involved parties to correct unsuccessful leasing practices and
replicate success. The parameters and measurement methods will vary depending on
the types of measures included in the Lease.
6. COMPONENTS OF A GREEN LEASE
There is no universal standard for a Green Lease. The following could be the possible
components of a Green Lease:

The Lease
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A document which specifies the environmental commitments and objectives. It
could contain:
o
An environmental management plan with sustainability goals.
Apart from the Plan and the Goals, clauses could be specified to allow flexibility
in adjusting the sustainability goals, depending on:
 the type of occupancy and degree of usage, or changes in them
 specific needs of Landlords and Tenants
 need to make them compatible with any standard, label or
certification schemes
 extensive works to be undertaken
 the target standard, label or certification were to be modified or
discontinued
 changes to any standardised terms/defintiions or assumption used
 consideration of changes to the Leasing structure as progress is
made in achieving the sustainability goals
o
Assumptions
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define the assumptions on which the environment management plan was
based (eg, the ability to specify higher cost for sustainable energy
sources, use of Life Cycle Costing principles, use of the building, loading
of the building, climatic data)
Identify variables that are beyond the scope of the environment
management plan (e.g. use of the building, loading of the building,
climatic data)
Apportion obligations for meeting the targets to both parties.
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o
Standardisation: How the functions, performance and usage of the
building and facilities were standardised and agreed upon by the Landlord
and all the Tenants
Calculation
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include a tolerance on the targets and outcome, taking into account the
accuracy of modeled versus real building performance
make allowances or corrections for factors that will influence
environmental performance of the building, but are beyond the control of
the Landlord or Tenant (e.g. non-average climatic effects or an increased
intensity of use of the building)
define a calculation basis for fair cost recovery if the environmental goals
are not met.
o
Landlord rights and obligations to meet the sustainability goals
o
Tenant rights and obligations relating to the sustainability goals
o
Co-operation required
o
Monitoring and verification methodology and process
o
Dispute resolution
REFERENCE
BCCC. Green Tenant Toolkit. Business Council on Climate Change
http://www.greentenanttoolkit.com/index.html
Brooks, S.M, 2008. Green Leases and Green Buildings. Aird and Berlis LLP
http://c.ymcdn.com/sites/www.realpac.ca/resource/resmgr/docs/greenleasesandbuildings16may.pdf
Government of New Zealand. Appendix C: Green or Performance based Leases,
Sustainable Government Buildings: Beyond Design
http://www.mfe.govt.nz/publications/sus-dev/sustainable-government-buildings-jun07/html/page10.html
Herbert Smith LLP, 2011. French “Green Lease” and Environmental Appendix:
model form and example clauses
http://www.herbertsmithfreehills.com//media/F5AAC8D6EC0C4F2EA3513C3E6982AC27.ashx?db=master&la=en&vs=1&ts=20120925T1234218499
Navigant Consulting,Inc, 2013. Green Leases Toolkit 2.0 . California Sustainability Alliance
Programme
http://sustainca.org/green_leases_toolkit
NRDC. Green Lease Forum: Energy Efficiency Lease Guidance . Natural Resources
Defense Council.
http://www.g-works-group.com/files/Energy%20Efficiency%20Lease%20Guidance.pdf
RMI & BOMA, 2012. Working Together for Sustainability: The RMI -BOMA Guide
for Landlords and Tenants. Rocky Mountain Institute & The Building Owners and
Managers Association (BOMA) International.
http://www.rmi.org/Knowledge-Center/Library/2012-05_GuideForLandlordsTenants
ANNEX 1
BARRIERS FOR GREEN LEASING
One of the main barriers for Green Leasing is the “split incentive” issue, which results from the
structure of many commercial leases. The most common kinds of commerical Lease is the
Gross Lease and the Net Lease, with many types and variations. Often, these leases are not
structured in a way that promotes better environmental performance. Under most Gross Leases,
for example, Tenants have no incentive to save energy in their leased premises because energy
costs are based on Tenant square footage. Under most Net Leases, building owners have no
incentive to invest in efficiency for their building systems because the operating expenses are
passed through to Tenants, who would therefore receive all of the energy cost savings.
To further complicate the issue, unless the Tenant space is separately metered or submetered,
all of the Tenants pay a pro rata share of the building’s energy or water costs. Therefore,
Tenants have little incentive to modify their behavior or implement any energy or water
reduction strategies because they must share the reward of their improved behavior while also
sharing the costs of other Tenants’ wasteful behavior, who would be considered as “free riders”.
Another main impediment to Green Leasing is that it is a relatively cumbersome option. Even at
the time of Lease renewal, the Landlord and Tenants are often reluctant to enter into a new
Lease agreement, as it is often a very lengthy and arduous process. Frequently, the only terms
of the Lease that are renegotiated are the Lease term and rental rate. To combat this barrier,
letter agreements have been successfully implemented in some cases and could prove useful
when renegotiating a green Lease is not practical. A letter agreement is typically used when the
building owner has a specific retrofit planned and needs to get the Tenants’ buy-in, or
renegotiate some of the terms of the Lease to more equitably share the costs and the savings of
the proposed retrofit—without reopening any of the other terms of the Lease contract.
Depending on the type of Lease, there are also other barriers for Green Leasing for Landlords
and for Tenants. Some of the barriers are indicated below:
BARRIERS FOR LANDLORDS
 long pay back periods for some types of improvements,
 Indifferent or unco-operative Tenants
 lack of skill or knowledge.
 lack of knowledge of an achievable target by either the Landlord or the Tenant;
 the lack of compulsion or incentives from government;
 no measurement systems to determine existing levels of water, fuel or electricity
consumption;
 a lack of capital;
 the lack of building operational expertise.
 restrictions in the existing Lease documents within a portfolio. For example, there may
be Landlord build-out specifications that apply to the Tenants premises, such as
minimum light levels at the desktop, tight permissible temperature ranges, limitations on
the Landlord in making changes to the premises or base building features, or restrictions
on the type of materials or equipment that can be used.
BARRIERS FOR TENANTS
 Poor Tenant premises-specific energy and water consumption data from the Landlord.
 Tenants may also be faced with indifferent or unco-operative Landlords
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Tenants may fear an unfair rent increase if they ask for a “greener” building, as the
current portion of water and energy saving capital costs are possibly passed through to
the Tenant on an unfair basis.
Tenants may fear that the Landlord will spend carelessly on green upgrades at the
Tenant’s cost , only because the cost can be 100% passed through to Tenants the
building.
Tenants may also lack the skill or knowledge necessary to determine achievable targets
for themselves or the building, and may not have access to the required independent
technical resources, or find the costs prohibitive, especially for small tenancies
Need to get all Tenants in the building together, to get the Landlord to green the building.
This may be a requirement to attain some “leverage” over the Landlord, or may be a
mandated pre-requisite by the Landlord.
Restrictions in the Lease that limit the ability of the Tenant to go green. Examples
include:
o Requirement that the Tenant must use only new materials in all Tenant
improvements,
o The Tenant cannot alter base building features, common areas, or central
systems;
o Inability to install any equipment outside the leased premises;
o Inability to compel more recycling by the Landlord;
o Inability to compel installation of bike racks on or adjacent to the ground floor of a
building;
o Inability to install on-site power generation facilities such as solar photovoltaics;
o Inability to compel different water-saving fixtures to be installed in common area
washrooms.
ANNEX 2
SETTING ENVIRONMENTAL SUSTAINABILITY GOALS IN GREEN LEASING
The goals could be set through many routes:
General environmental objectives
All objectives that could be set for a Green Building, could be used in a Green Lease. There are
lots of guidances available on this, including from many of the Green Building certification
schemes. A short generic list is provided below:
 Integrating the Building into its environment, by promoting greener modes of transport,
ensuring that the Building fits into its surroundings, preventing air, noise and visual
pollution and protecting biodiversity;
 Limiting greenhouse gas emissions;
 Reducing the consumption of energy for heating, cooling, lighting, hot water, ventilation
and other operating systems and promoting the use of renewable energy sources;
 Limiting the consumption of potable water;
 Managing rainwater;
 Managing the waste produced;
 Limiting nuisances caused by any works or actions undertaken in the Building (waste
management, limiting nuisances and pollution);
 Ensuring the well-being of the occupants from temperature/humidity, acoustic, visual and
olfactory perspectives;
 Ensuring the sanitary quality of the environment, air and water.
Specific environmental objectives or targets
This could be in terms of performance ratios, percentages or absolute figure. Examples include:
o consumption of electricity does not exceed [--] kilowatt hours per square metre of the
usable surface area of the Building per year (KWh/m²/year);
o to ensure that the consumption of potable water does not exceed [--] litres per square
metre of the usable surface area of the Building per year (l/m²/year)];
o ensure that the proportion of waste from the Building that is recycled amounts to at least
[--]% per year
Standards, Labels and Certifications for the Buildings/ Facilities
Guidance from standards, certiification and labeling could be applied by the Landlord and/or the
Tenant6.
Standards, Labels and Certifications related objectives pertaining to the Parties'
business
These could again be applied to the Landlord and/or the Tenant’s business. Examples include
reporting requirements based on voluntary programmes and their standards such as the Global
Reporting Initiative , Carbon Disclosure Project, US EPA Climate Leaders initiative, US EPA
Energy Star Portfolio Manager, etc or as part of compliance with the ISO 14001 or EMAS or BS
7750 environment management systems.
Regulatory Standards
Government or corporate regulations would oblige the Landlord or Tenant to follow them.
Examples include energy efficiency building codes and specific mandates which are part of
energy or environmental management laws.
6 A list of green building standards, certification schemes and labels is given at http://www.greeningtheblue.org/rating-standardsand-labels