Don’t Get Stuck

by Ellen Sinreich on May 27, 2014

A lot has been written recently about the costs that companies are incurring and the risks they are facing as a result of climate change. A recent survey of top multinationals by the Carbon Disclosure Project (CDP) revealed that higher operating and capital costs and reduced demand for goods and services are the most common impacts of changing and severe weather patterns, rising sea levels and the volatility and uncertainty of resource availability.

These costs and risks are just as important for the real estate industry as they are for the ConAgra’s, Pepsico’s and HP’s of the world that responded to the CDP survey. One critical way for real estate companies to mitigate this exposure is to make sure they don’t get stuck with the whole bill for implementing climate change solutions or an even bigger bill for not implementing climate change solutions at all.

The Beauty of Green Leases

You might think, and rightfully so, that only a leasing attorney could appreciate the “beauty” of a green lease. But here is why a wider audience can behold this beauty…

A meaningful green lease is a tool for landlords and tenants to co-invest in solutions that financially benefit both parties and help mitigate climate change. It’s a win-win-win.

win-win-win 500px

The catch, for many, is that standard leasing operating procedures do not result in green leases. That’s why I partnered with a prominent real estate association to publish a book on green leases (see below) and why I was asked to present a seminar on green leases at a global real estate conference attended by 34,000 professionals last week in Las Vegas.

Here’s what I told the attendees of my seminar and what I believe real estate companies need to do to get to the green lease finish line.

Formulate Green Goals. The first steps are identifying your organization’s green goals and how each property can contribute to achieving those goals. Green goals can range from improved energy efficiency and increased use of renewable energy, to lowering water consumption, reducing waste, improving the indoor environment, and the using sustainable materials.

Quantify the Costs and Benefits. Once your organization knows how a particular project will contribute to realizing its overall green goals, the costs and benefits must be quantified. Logically, those goals that will have a positive bottom line impact for both parties should be a priority.

Educate Your Team. Next, you need to make sure everyone on your team that “touches” the tenant or the lease, from construction to legal, understands the green goals and the related costs and benefits. Only then will they be able to discuss these goals effectively with the tenant.

Communicate Early. If you raise green lease co-investment terms for the first time in the lease document, you are very likely to be met with big, fat NO. The discussion about why this strategy is in the best interest of the tenant must start with the very first conversation about the lease, and ideally even before that. Keep in mind that change is HARD and will be met with resistance and skepticism.

Make it Easy. After all the effort that the tenant will have expended to understand and accept the fact that landlord-tenant alignment on going green will be mutually beneficial and should be memorialized in the lease, the last thing you want is for the tenant to have to re-invent the wheel to comply. Therefore, make it easy by spelling out where tenants can get the necessary materials and third party expertise to build and operate their premises in the “green” fashion now required under their leases.

Billions are at Stake

With the annual cost of wasted energy alone at $150B and rising, there is no time like the present to start greening your companies, your properties and your leasing process so you don’t get stuck with a whopping bill for not planning ahead.

Previous post:

Next post: