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by
Douglas White, Esq. and Paul D'Arelli, Esq.
Across California, government entities and agencies are looking to lease
buildings and spaces that have sustainable features and technologies.
Leasing staff are being tasked with locating, negotiating and securing
leases for "green" spaces to achieve several goals. First, lawmakers are
increasingly mandating or strongly encouraging, through state and local
regulation and orders, government agencies to lease space that is LEED
certified or rated through some other accepted third party program such as
U.S. EPA's Energy Star.
The impetus for many of these lawmakers is the perception and assumption
that certified or rated buildings will have a higher level of performance
and reduced environmental impact when compared to other non-certified
buildings. These same perceptions and assumptions form a basis for
government leasing staff, regardless of any regulatory requirements, to
seek space in certified green buildings, where they expect the government
agency or entity to realize a reduction in its operating expenses, an
increase in human resource benefits and a reduction in the environmental
impacts related to operation of the building.
Regardless of the factors driving the government to seek leased space in a
green building, whether it is a certification mandate or objective,
performance objectives, or both, there are certain preleasing
considerations that can contribute to a favorable outcome and better
ensure that anticipated results are more likely to be realized.
Understanding a Government Tenant's Green Goals
From the outset, leasing staff for a government tenant should clearly
define the government agency or entity's green or sustainability
objectives for the leased space. To that end, prior to commencing a
search for space, and certainly before negotiating a lease, staff should
spend substantial time identifying the government's green expectations
related to certification and performance of the building. Once a potential
building or space is identified, staff should also do sufficient research
to understand the building owner's green strategies and objectives to
determine if they are commensurate with the needs and objectives of the
tenant.
Identify Certification Objectives
There are a number of different reasons why a government tenant may want
to lease space in a certified green building. For instance, a California
agency, operating pursuant to Governor Schwarzenegger's Executive Order
S-20-04, will look to lease a LEED Silver certified building or higher to
comply with the order, which is aimed at combating climate change by
reducing the amount of greenhouse gases generated. If the focus is only on
the certification outcome to meet such a mandate, then the leasing efforts
would be focused primarily on ensuring that the landlord obtains the
requisite certification for the building and/or that the tenant will be
best positioned to obtain the requisite certification for the interior
space.
If, however, the objective includes not only obtaining the certification,
but enhancing the opportunity for the benefits that are perceived to
accrue from the certification (e.g., greenhouse gas reduction), then
leasing staff will want to focus on ensuring that any leased space is not
only certified, but has sought the credits under the rating system and
incorporated meaningful strategies and technologies that will achieve the
desired benefits.
There may be other reasons why a government agency desires to lease a
certified building, and it is important to identify each of these
objectives so that the expectations can be managed in the leasing process.
Identify Performance Objectives
Prior to leasing any space, including space in a green certified
building, staff should identify a government tenant's building performance
objectives and expectations. For instance, a government tenant may lease
space in a LEED Silver certified building with the expectation that its
energy bills will be substantially lower than other comparable
non-certified buildings - it may even pay a rent premium based on these
expectations. It is important to understand, however, that a building can
obtain LEED certification with marginal energy efficiency improvements and
that modeled energy performance may be based on model inputs that do not
reflect actual use and outcome.
Therefore, energy savings and other performance expectations must not be
assumed, but rather investigated and evaluated based on the proposed use
of the property. It may be prudent to have any energy or performance
modeling conducted by the building owner, particularly data modeled for
purposes of LEED certification, independently verified to ensure that it
is correct and germane based on the tenant's particular proposed use of
the space. These might include nature of the use, occupant density and
hours of operation.
There are a number of other performance objectives that a government
tenant may seek, including enhanced water conservation, daylighting of
interior space, introduction of outdoor air ventilation and use of
construction materials that will improve indoor air quality. Each of these
objectives is important and should be identified and evaluated in the
context of the building space to determine whether these objectives are
feasible and whether the government tenant's expectations can be met.
Understand the Building Owner's Strategy
In addition to flushing out and understanding the government tenant's
objectives, leasing staff should make sure they understand a potential
landlord's green goals and strategies for achieving the sustainability
objectives for the building. This will determine whether a government
tenant's green needs and demands are commensurate with the building
owner's objectives. For example, are energy allocations and parameters
workable for both landlord and tenant?
Examples of some of the many other issues that a government tenant may
need to evaluate include the suitability of daytime janitorial services
and the potential effect of reduced outdoor lighting on employee safety.
Typically, a building owner and government tenant can harmonize their
green objectives. Nonetheless, these issues must be reviewed and given
sufficient consideration, particularly in a multi-tenant building where an
owner may have less flexibility to accommodate the needs of a particular
government tenant.
Challenges to Achieving a Government Tenant's Green Goals
Several challenges remain in finding and leasing sustainable space to meet
a government tenant's green goals. Given the relatively low number of
certified green buildings in many marketplaces, for example, there may be
a lack of available space to lease in suitable certified green buildings,
and those buildings that are certified and on the market may not fit into
a government agency's rate structure.
For those tenants that are required to lease space in a certified green
building, the lack of availability of certified space is compounded by the
time lag between construction of a new building and the U.S. Green
Building Council processing the LEED certification paperwork and making a
rating determination. That time lag not only hinders supply but creates an
additional complication, because with certifications not issued until
after a building has been completed, tenants are faced with the prospect
of executing leases and moving into buildings that may in fact fail to
achieve the anticipated certification level.
Other challenges relate to reliance on general assumptions that certified
buildings will perform better than non-certified buildings. While this
generalization may be true when looking at building performance averages,
one must keep in mind that, as with any average, there will always be
those above the average and those below the average. In fact, emerging
data suggests that some certified buildings perform worse than their
non-certified counterparts.
In a study conducted by the New Building Institute for the U. S. Green
Building Council and titled "Energy
Performance of LEED for New Construction Buildings," they found
that, "program-wide energy modeling is a good predictor of average
building energy performance..." However, they also found wide scatter
among the individual results that make up the energy savings average. In
fact, the report goes on to say that while "some buildings do much better
than anticipated . . . nearly an equal number are doing worse -- sometimes
much worse." The report says that several certified buildings "use more
energy than the predicted code baseline modeling" and speculates that the
performance variations "likely come from a number of sources, including
difference in operational practices and schedules, equipment, construction
changes and other issues not anticipated in the energy modeling
process."
In another recent report produced by the GSA entitled "Assessing
Green Building Performance: A Post Occupancy Evaluation of 12 GSA
Buildings," some interesting deviations in operation and
maintenance costs were revealed for the sustainably designed buildings
studied: "As a group, the 12 buildings studied performed only slightly
better than the national average for US commercial buildings: 7 percent
below that baseline. However, the top-performing one-third of the group
did much better, at 41 percent below… On average, the bottom quartile of
the buildings studied had considerably higher costs than the industry
baseline: 45 percent above the national average for US commercial
buildings." (Emphasis added)
Of interest, in the bottom quartile of maintenance cost performance was a
LEED certified and a LEED registered building. While the authors do not
endorse or dispute the results of these reports, the important lesson of
such reports is the understanding that a green building certification may
not necessarily be a proxy for performance nor a substitute understanding
how a building will be operated and maintained over the course of the
lease term. It is also not a substitute for a thorough due diligence
effort or a carefully drafted green lease.
A Basic Introduction into a Green Lease
When leasing space in a green building, certified or uncertified, staff
should use a lease that specifically addresses the building owner and
government tenant's green goals and objectives. This type of lease, which
is often referred to as a "green lease," is simply a standard lease (net
or gross) that contains distinct provisions aimed at achieving the
sustainability requirements or objectives of the parties and addressing
the rights and responsibilities of the parties in the pursuit, or failure
to achieve, same.
In a green lease, the sustainability goals and objectives of the owner and
tenant will become specific lease provisions that will create requirements
and obligations on each party. The value of a green lease (as opposed to a
standard lease) is that an attorney has thought through and negotiated
each party's sustainability objectives to provide greater certainty,
rather than potentially leaving it to a court to construe whether standard
lease provisions adequately embodied the parties' intentions. For
instance, issues such as whether a building has to be recertified at some
point in time, provision of priority parking for hybrids and alternative
fuel vehicles, and scope of building commissioning can all be addressed
and agreed upon before the lease is signed. Thus, it is important to work
with professionals who understand green building, sustainability and the
objectives of each party.
Conclusion
For most government agencies and their staff, leasing space in a green
building is a new and exciting opportunity to potentially improve the
environment and derive other operational benefits. The likelihood of a
government tenant achieving its green objectives can be significantly
improved if staff is able to do their due diligence and think through all
of pre-leasing considerations, including those discussed above. Green
leasing remains an emerging and evolving area of the law. Nevertheless, it
is important to be mindful and conscious of the challenges owners and
government tenants may face when pursuing and implementing a lease
transaction when sustainability mandates or goals are at hand. By dealing
with these challenges up front, however, sustainability can be advanced
through a managed risk approach.
Douglas White is an attorney with Greenberg Traurig, LLP, where he
regularly advises cities, special districts, developers and businesses on
issues related to green building and sustainability. He is one of the
first attorneys in California to receive the LEED Accredited Professional
designation and is a frequent lecturer on, among other things, green
building risk management, real estate contracts and building standards.
Douglas can be reached at: whited@gtlaw.com.
Paul D'Arelli is Co-Chair of Greenberg Traurig's Green Building and
Sustainability practice group and works with attorneys across many
disciplines to help clients manage the legal and risk management issues
inherent in the implementation of a green building strategy. Paul was the
first attorney in Florida and fifth in the United States to receive the
LEED Accredited Professional designation. He can be reached at darellip@gtlaw.com.
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