Green Leases: A Primer

Thu, Sep 2, 2010

Green Business

You’re a business owner looking for office space to rent. You want a cheap, long-term lease for a comfortable and productive environment where your company can thrive. You’re interested in green initiatives, but you’re unsure of their fiscal effectiveness. Is a green lease right for you? Read on to find out.

What is a green lease?

A green lease is a real estate lease agreement in which the landlord and tenant work together to reach a common goal: to use the property in an environmentally responsible manner. Both the property owner and the lessee are interested in promoting energy conservation and sustainability, but the conditions of the deal and the practices involved are specific to the nature of the building, its location, and its intended use. In short, every green lease is different.

To determine whether a green lease is cost-effective for you, take a look at its pros and cons:


The rent won’t increase as much as a traditional lease.

Though the rent of a LEED-certified building will probably be higher, lower utilities costs means that the amount you pay won’t change drastically over the course of a few years. If your landlord is paying for the utilities, then the savings should be passed on to you in your rent, and your rent should increase in smaller increments than in a traditional scenario. If you are responsible for your utilities, then there is clear motivation for you to use less energy. Either way, you’ll save money in the long run. Tax breaks are another possible financial bonus, as many states are considering deducing the amount taxed from a company’s profits if that company is under a green lease.

The building will be taken care of.

To make sure the building is running effectively, your landlord may provide regular maintenance of its utilities, including plumbing and heating. This interest in efficiency will make sure that your office is always in working order, saving you the cost and frustration of repairs and providing you with clean water and a pleasant temperature. Additionally, a janitorial staff may be included under the lease, so you won’t have to worry about finding a third party to clean up.

A green building may be glamorous, artistic, and comfortable.

Green office complexes like Providence, Rhode Island’s the Box Office-twelve office and studio spaces made from recycled shipping containers-are exciting, innovative pieces of architecture that inspire creativity and raise employee morale. Even in the case of older buildings, studies have shown that productivity increases as much as fifteen percent and absenteeism lowers by about fourteen percent when an office is retrofitted and LEED-certified.


It’s more complicated than a traditional lease.

Though the language of a green lease may sound simple, in actuality there are a number of legal and practical considerations that aren’t in place in a traditional lease. First, be aware that under some lease agreements, you may be fined if you surpass proper utility levels. Measuring your energy usage can be difficult if you haven’t set up a monitoring device or aren’t familiar with using one, so make sure to figure out how much electricity or water you’re using on a daily basis or else face the combined cost of energy expenses and fines. Second, read your lease contract carefully as there are no strict guidelines for a green lease and landlords may take this opportunity to incur unfair rules under the guise of green legal jargon. Finally, be aware that retrofitting can be costly and multi-faceted. Check out some of the guides on our site to learn the cheapest ways to retrofit your building.

You’ll have to be careful with your landlord.

Because most green leases include a clause that requires the sharing of energy data, your landlord will no doubt need to monitor the temperature, electrical, and water use of your building. Often this means that he or she will use submetering system to check your utility levels. Good landlords will check it frequently, but not too often as to be intrusive, while distrustful or greedy landlords may interfere with your business or allow you to rack up energy costs without any warning or explanation.

There are fewer new, unoccupied buildings.

While it’s easier to enter into a green lease agreement for a new-built, eco-friendly building, such offices are expensive and hard to come by. Build-out projects take years and a lot of money-hundreds of dollars per square foot in cites like New York, Boston, and Minneapolis. And though the popularity of green building means a greater amount of sustainable office choices in the years ahead, the number of potential lessees interested in such alternatives now makes the competition for a green lease fierce and competitive.

There are still many other factors to weigh such as the building’s longevity, room for expansion, and surrounding neighborhood, before entering into a green lease agreement. But no matter what, it might soon be the only option you have.

According to Eric Maurer, Director of Leasing Management at Eastman Management Corporation: “We are seeing an increased awareness and interest by existing and prospective new tenants in green-friendly and LEED-certified buildings, for this reason we are making strides now to convert, since we anticipate the entire market will embrace the concept within the next generation of tenancies.” He predicts, “There will come a time in the future when buildings not meeting certain LEED requirements may be dismissed off tours for prospective tenants.”

In any case, before entering into a green lease, ask yourself these five questions:

1. What are your goals?

Your company’s own energy needs and means of production have a huge impact on the way the building is being used. In-house internet hosting servers, for example, require that some computers be turned on and plugged in at all times. The number of your employees and whether they commute to work is a factor on the number and type of utilities you need.

2. What type of lease is it?

Traditionally, there are two kinds of leases: a gross lease and a net lease. In a gross lease, the landlord pays all property costs and charges the tenant a flat rental rate that increases annually to compensate for rising energy costs and inflation. In a net lease, the tenant pays property tax, building insurance, maintenance costs, or a combination of the above. A gross lease provides incentive for the landlord to save energy while a net lease provides incentive for the lessee to save energy. A green lease should provide some motivation for both parties to nurture green practices.

3. What kind of building is it?

Though it may be more expensive to construct a new green building, often the operational costs of an older, conventional structure are more expensive and complicated in the long run. It may be easier to get a newer building certified by a third party, but its upkeep and maintenance will require a specialist or particular janitorial supplies will be necessary. The location of the building is also important; think about whether it is accessible by bike or public transportation.

4. What amenities and services are included?

Low-flow toilets, bike racks, and low-energy light fixtures will save you money if they are already included in the building. Find out if there is any sort of recycling program included in the lease or if there is a cleaning staff for the building. Systems that are already in place will save you time, money, and effort.

5. Who’s responsible for regulation?

Is it the tenant or landlord’s responsibility to make sure the building is being used effectively? Does the landlord have any devices in place to submeter energy use? A good green lease should allow for the landlord to routinely enter and check the building’s heat, water, and electricity levels.

There’s no simple solution to the green lease dilemma because every instance has its specific questions and complications. If sustainability and cost-saving strategies are of interest to you, take a look at some of the green leasing opportunities in your area but be aware that there may be no perfect option.

Go home for more guides like this one.

Photo courtesy Adam Roberts, Creative Commons copyright 2008.

By Matt Lurie

Matt Lurie can be reached at MattLurie@gmail.com.

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