Green leases are real property leases that include language addressing sustainability and green building criteria, primarily relating to the operation of a green building. A green lease aligns the financial and energy incentives of building owners and tenants to save money, conserve resources, and ensure the efficient operation of buildings.
Lease clauses addressing expense allocations between tenant and landlord are a primary feature of a green lease. These clauses will generally address the “split incentive” issue where a landlord has paid for a performance upgrade, but some benefits flow to the tenant via lowered expenses. It is important for the appraiser to consider identifying and discussing these clauses and report how the lease cost-saving measures are expected, are being calculated, as well as their value impact.
Extracting the precise cost savings due from the operating statement can be complex. Savings might have been supported from historic operating statements and monitoring performance can assure they will continue. In addition to energy cost savings, lease terms might address on-site power systems (solar PV, fuel cell, co-generation, etc.) impacting the tenant’s utility costs such as a Power Purchase Agreement or a PACE obligation on the tax bill.
There is a growing body of standardized green lease clauses. These include information from GSA. Specific implementations include New York City.
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