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‘Green leases’ are raising legal issues

More and more commercial buildings are being designed to meet environmentally friendly, or “green,” standards. In addition, a growing number of communities around the country are adopting “green ordinances” that mandate certain environmental standards for large commercial buildings or developments.

As a result, commercial leases in these buildings need to take green issues into account. And since this is a new area, how these issues should be handled isn’t always clear, and can lead to considerable negotiation between the parties.

Here’s a look at just a few of the issues that both sides should consider before signing a green lease:

  • A landlord will likely want to be able to pass along to tenants the cost of “green” building improvements. But if the tenant agrees, what qualifies as an improvement? Anything intended to reduce utility costs or greenhouse gases? What about fees for green certification, or the cost of promoting alternative transportation? This should be spelled out in the lease.
  • If a landlord can pass along these costs, the tenant might want to limit its expense by paying only a fraction of the cost of the improvement – equal to the portion of the useful life of the improvement covered by the lease term. A tenant might also want to pay for improvements only if they actually do reduce utility costs, since some improvements might not work out as planned.
  • If there is damage to the building, must the landlord and tenant reconstruct all their green improvements? If they must rebuild to meet certain green certification requirements, are they the ones in effect at the time of the lease or at the time of the rebuilding?
  • Can the landlord require that janitorial services be performed during the day to reduce electricity use after hours?
  • To what extent must the tenant comply with the landlord’s energy conservation, air-quality and recycling efforts? Do the landlord’s restrictions apply to contractors hired by the tenant? What can the landlord do to enforce these rules?

The more of these sorts of issues you can cover in the lease, the less likely it is that disputes will arise down the road.

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