August 30, 2014

6 Questions to Ask Before Signing a “Green Lease”

You might lease your facility or office, but that doesn’t mean it can’t be green.

More property managers and tenants are signing so-called green leases. While the term is used loosely, these essentially are lease agreements struck between landlords and tenants in buildings that adhere to environmentally sustainable operations and management. The building may be designed in eco-friendlier ways, such as maximizing natural lighting, while building operations may be carefully controlled to minimize energy and water use and waste.

Among benefits for commercial tenants are lower energy costs, better air quality and more comfortable work environments. Some studies, such as this one from the Rocky Mountain Institute, find that green buildings improve worker productivity and lower absenteeism. (Another study found that green buildings have 3.5 percent lower vacancy rates and fetch 13 percent higher rental rates than non-green ones.)

green lease

But while more properties are being touted as “green” and marketing themselves to businesses as eco-friendlier alternatives, business owners should do some homework to ensure they’re truly getting a good deal. Remember, the commercial real estate market is still soft, and there’s lots of room for negotiation right now.

Here are some questions to ask before signing a green lease:

1.  Is the building LEED-certified or Energy Star-labeled? A common way for commercial properties to verify they are indeed “green” is by meeting the criteria for two programs. LEED – or Leadership in Energy and Environmental Design – is an internationally recognized building certification system created by the U.S. Green Building Council that promotes green practices in buildings, such as indoor air quality and energy efficiency.

The Energy Star Building and Plants program, run through the U.S. Environmental Protection Agency, provides ratings to buildings on a 1 to 100 scale based on energy use per square foot. Buildings that score at 75 or above – meaning they’re in the top 25th percentile for energy use – can get the Energy Star label. You can feel good knowing you’re renting space in a building that has at least one of these certifications.

2.  Who pays the utility bills? Lower energy costs are a nice perk of parking yourself in a green building and can help offset any premium you might pay in rent. So it’s worth asking property management beforehand how utilities are handled and how much you should expect to pay for them. One benefit to paying utilities directly (rather than through your rent): You have direct control over your energy costs.

3.   How is the building’s performance measured and monitored? Make sure the landlord has procedures in place for ensuring the ongoing green operations of the building. Perhaps they do an annual audit or have other checks in place.

4.   How close is it to public transportation? It’s not just operations and design that make a facility truly green – it’s also accessibility to public transportation. Remember, employee commutes can take a big toll on the environment. The closer you are to a bus or commuter train or bike path, the more likely it is that employees will forgo cars.

5.   What are the cleaning procedures? Another aspect of green building is cleaning practices. Inquire how the building is cleaned, by whom and whether they can vouch that the cleaning products used are non-toxic.

6.   What’s my obligation as tenant? It’s not unusual for green leases to put some requirements on tenants to uphold green practices, such as recycling certain types of waste or following energy-efficient practices. Make sure you can uphold your end of the bargain before signing on the dotted line.

7 Comments ▼

Kelly Spors


Kelly Spors Kelly Spors is a former small-business and entrepreneurship reporter and blogger for The Wall Street Journal who has also written for Yahoo!, Entrepreneur, NFIB's MyBusiness magazine and The New York Times. Kelly is now a freelance editor and writer based in Minneapolis and has previously managed communications for an environmental non-profit that helps businesses find ways to be greener.

7 Reactions

  1. You’re definitely on the right track here, Kelly. I would suggest a couple of adds to your approach, namely to go a bit deeper / more specific on how upgrades to energy and environmental performance get paid for. Just like in your utility bills example, you want to know that whichever party is expected to make upgrades is financially incented to do so. I also like your suggestion about knowing the building’s performance metrics….go a bit further and strive for transparency in energy consumed, carbon footprint, water consumption, and even waste diversion rates. Tenants who get regular data will be better suited to improve.

  2. Working is an sustainable world is not an easy task. In small business all the other issues that arise affect time and effort. An example of this for our business was the use off eco pcs. We spent two weeks look for alternatives but in the end had to give up as the savings were economically and environmentally were nil. This process is going to take a long time as big business need to re-gear and find new technologies need to implement and proven.

  3. You should also check out “327 Questions to Ask Before You Sign A Lease.” It’s recommended by the SBA and is available at SquareFootage.net. All the questions are yes or no – yes means its in the tenant’s best interest.

  4. Kelly – Great points. There are a number of green leasing resources available, many of which I mention in a recent blog post. Here’s the link: legallygreenblog.com/green-leasing/leed-ebom-and-existing-leases-%e2%80%93-a-square-peg-in-a-round-hole . Sustainable real estate network (www.srmnetwork.com/solutions) has a great on-line tool for measuring building energy performance. Finally, there has been a great deal of press around the new lease of 7 World Trade which utilizes “split incentives” for allocating cost savings. Have a look at Steve Del Percio’s post at: greenrealestatelaw.com/2011/05/at-leed-gold-7-wtc-law-firm-signs-new-york-citys-first-green-lease/ which describes the cost/benefit sharing formula.

  5. Excellent post. I also appreciated your bit about attempting to be close to public transit lines and enquiring into the cleaning practices. It is unfortunate how important it is to be near that line in order to take public transit, yet it does make a big difference.

    http://www.simplifythis.com

  6. Great Article! I’ve been posting information to our web site on ‘Going Green’ and how existing building owners can positively affect their carbon footprint and make their buildings more environmentally friendly. While it’s quite involved to LEED certify an existing property, you can move it in a greener direction fairly easily.

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