What Are Green Leases and What Are the Benefits of Using Them?

Energy efficiency isn’t just a trend! Neither are green leases.

Working towards a more energy-efficient business is beneficial in a multitude of ways, both financial and environmental. Green leases are one of the ways you can work towards sustainability in your commercial real estate business. Our recent Facebook Live session with Karem Dale from Key HTX talked about this very topic!

What Are Green Leases?

Green leases are commercial leases with a purpose of aligning tenant and landlord interests for energy-efficient investments. A green lease isn’t a particular type of lease, so it can be a gross or net lease. 

Any commercial lease can be modified to become a green lease. Every green lease is different, so there aren’t particular clauses that all green leases include. 

Green leases will likely require that both parties take on additional ongoing responsibilities relating to energy efficiency. But even with the extra responsibilities and collaboration, green leases are beneficial to tenants and landlords in a variety of ways.

How Can Green Leases Benefit Your CRE Business?

Improve Property Value

Often, energy-efficiency initiatives can improve property values. Energy-efficiency retrofits, practices, and certifications can allow you to charge higher rents in the future. 

Green NNN leases frequently facilitate cost-sharing for energy-efficient building modifications such as renewable energy upgrades. You and your tenants will both benefit: you’ll be able to invest in energy-efficient upgrades that increase the desirability and value of the property. At the same time, your tenants will reap the benefits of lower utility bills once the modifications are complete. 

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Reduce Operating Costs 

The average building wastes about 1/3 of the energy it uses. Imagine the difference in operating costs if you can get rid of these inefficiencies! If a green lease helps you to work towards a more energy-efficient building, you can reduce operating costs in the long run, especially if you’re the one paying for utilities. 

Most of the time, energy-efficient retrofits will pay for themselves in about three years. In addition to investing in energy-efficient building modifications, there are simple ways to reduce operating costs that you can include in your green lease. For example, you can require that tenants close their blinds when the sun is directly hitting their windows, thus saving on cooling costs in the summer.

Obtain Certifications

A green lease can help to align landlords with tenants when working toward desirable certifications like LEED or Energy Star. Many tenants are motivated to gain these third-party certifications for the spaces they rent. They’re a great way to showcase corporate responsibility for you and your commercial tenants alike. A green lease is the best way to set each party’s expectations for getting these certifications. 

Impress Tenants

If you’re looking for a way to market to future tenants, highlighting your sustainability practices just might do the trick. Many individuals and companies have sustainability goals, so it’s desirable to find a rental space that uses environmentally-friendly practices. You’re likely to find tenants who are excited to partner with you to create a greener future.  

Lead the Way to a Sustainable Future

When considering the financial benefits, don’t forget to consider the environmental benefits as well! Your modifications can reduce your carbon footprint and make a difference in creating a greener, more beautiful future for everyone.

To learn more, check out BOMA’s Green Lease Guide, which provides an in-depth model green lease agreement for commercial real estate owners. And, if you need help managing tenants and leases, check out STRATAFOLIO! We are focused on helping our customers reduce costs and improve the bottom line.

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