Recently, there has been an uptick in Environmental, Social, and Governance (“ESG”) factors being considered and incorporated into commercial real estate transactions. As the focus on mitigating climate change has risen, the commercial real estate industry has seen an increase in green buildings and clean energy infrastructure. The desire to incorporate ESG factors in the industry has even trickled down into commercial real estate leases. Leases, which include various provisions to promote energy-efficiency and environmental sustainability, are often referred to as “green leases.” Green leases can be tailored to meet landlord and tenant requirements, as well as building specific needs. Here are some common ways landlords and tenants can incorporate green leasing provisions into commercial real estate leases.

• Building Certification – For ground leases, landlords can require the building be constructed in a manner to meet the requirements for some sort of green building certification, such as LEED or ENERGY STAR. As a cheaper and more widely achievable approach, the landlord can require the tenant to include certain sustainable design components, materials, or construction methods recommended for green building certification, but not actually demand any certification be achieved.[1]
• Renewable Energy – Leases can be drafted to meet landlord and tenant needs with regards to renewable energy depending on the property. Parties can include language that permits the tenant to install solar panels on the buildings and receive all benefits stemming from the panels including any power generation revenue. On the other hand, the parties may desire for the landlord to be responsible for installation and maintenance of on-site renewables and require the tenant to purchase power directly from the landlord.
• Major Energy-Saving Improvements – When it comes to energy-saving improvements, leases can be structured in a manner that allows the parties to share the costs more evenly. Under a net lease, where the landlord is responsible for capital expenses and the tenant is responsible for utility and operating expenses, there is little incentive for the landlord to add energy-saving improvements because they do not directly reap any cost benefits from such improvements. By selecting a different cost sharing structure, landlords can be incentivized to implement major energy-saving improvements.[2] Alternatively, leases can include an amortization concept to stretch out the capital expenses over a specific period of time, if that makes sense given the length of the lease term.
• Equipment and Appliances – The inclusion of green leasing provisions does not always have to compel the parties to partake in major, expensive projects. Leases can specify that only ENERGY STAR-rated appliances and equipment such as computers, phones, data center storage units, and refrigerators are to be used within the leased premises. Furthermore, with regards to water fixtures and plumbing, such fixtures may be required to meet EPA WaterSense program standards.[3] Other more minor requirements may include LED lighting throughout the leased premises, installation of window shading to lower solar radiation and reduce cooling demands, and optimization of HVAC schedules and temperature precedents to improve HVAC efficiency and lower costs.
• Outdoor Spaces – If the leased property includes outdoor spaces, the parties can consider including language to reduce unnecessary irrigation and require native plants to be utilized.
• Employee/Occupant Benefits – Similar to green building certification requirements, leases can require the building to meet the WELL Building Standard. The WELL Building Standard addresses health and wellness of people by “measuring, certifying, and monitoring features of the built environment that impact human and well-being, through air, water, nourishment, light, fitness, comfort and mind.”[4] Such standards is meant to improve mood, performance, health and wellbeing of building occupants. On a smaller scale, a lease can limit the use of toxic cleaning products as a means to improve the indoor air quality. Another beneficial provision that parties can incorporate into their leases to positively impact the lives of tenant’s employees and the environment is by requiring the tenant to provide a certain amount of money towards a public transportation pass or vanpool pass to all employees who use such forms of transportation to get to work or require the tenant to provide bicycle storage for employees to encourage the consideration of alternative methods of transportation.

[1] Darren A. Prum, Commercial-Property Leases As A Means For Private Environmental Governance, 35 Ga. St. U.L. Rev. 727 (2019).

[2] Andrew Feierman, What’s In A Green Lease?, Institute for Market Transformation (2015).

[3] See WaterSense, United States Environmental Protection Agency, https://www.epa.gov/watersense.

[4] WELL Building Standard, International WELL Building Institute, https://standard.wellcertified.com/well.

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