Reuben & Junius LLP attorney Stephen R. Miller has just published an article on commercial green leasing in the prominent Environment Law Reporter, one of the country’s most-cited environmental law journals, which is published by the Environmental Law Institute in Washington D.C. The article, “Commercial Green Leasing in the Era of Climate Change: Balancing Risks, Burdens, and Incentives,” is available free of charge at “http://ssrn.com/abstract=1600422.”
The article’s review of model leases available in the United States and throughout the world, including Australia, Canada and the United Kingdom, provides a global view of how real estate markets-both public and private-are navigating the dilemma of meeting climate change mandates through leases.
Green leasing is especially important since commercial office space is one of the largest sources of greenhouse (GHG) emissions, energy use, and resource consumption. The overwhelming majority of commercial office space is leased, which means that how commercial leases address issues of GHG emissions, energy use, and resource consumption will be an increasingly important issue in the next decade. Long-term leases negotiated today must anticipate coming regulatory and market shifts to meet the demands of the private parties involved in properly allocating green buildings’ risks, burdens, and incentives. Done right, such a lease also has the potential to play a substantial role in reducing climate change: one study estimated that the energy cost reduction in the typical office building could be as high as 50%. Not only does that provide a substantial social equity component in addressing a global problem, it could also provide a substantial marketing benefit, as well as carbon credits that could be redeemed in anticipated cap-and-trade programs. Such a lease may also put the parties in a better position to address the increasing number of green regulations being passed on a regular basis by municipalities.
The article points out that effective green leasing is not simply a matter of adding one or two provisions here or there in a lease, but rather, is an overlay on the entirety of the leasing enterprise. In addition to providing substantial background information on regulatory and market-driving factors to green leasing, the article provides insight into such issues as:
- whether a third-party rating system, such as LEED, should be integrated into a lease
- how to build a green negotiating team
- understanding today’s green leasing market, and anticipating tomorrow’s green leasing market; and
- drafting a green lease
In reviewing various approaches to drafting green leases, the article touches on issues such as:
- cooperative or top-down approaches to implementing green leases
- drafting an operations plan for green buildings
- housekeeping in green buildings
- allocating operating costs in green buildings
- tenant improvements and alterations in green buildings
- work letters and contractor obligations for green buildings
- drafting tenant handbooks for green buildings
- cooperation among tenants in multi-party buildings in achieving environmental objectives
- green insurance and endorsements
- remedying a green breach and green arbitration or mediation
- allocation of carbon credits in any future cap-and-trade system
- future changes to third party green building rating systems, such as LEED
The article’s global approach to the issue of green leasing makes clear that there is no one right approach to drafting a green lease; rather, green leases need to be tailored to the particular green building, particular parties involved, and the particular regulatory environment where the building is located.
If you would like to discuss green leasing issues further, feel free to contact Stephen R. Miller, who is also available to discuss these issues with your team.
Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
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