Greening leases: owners and managers must spell out sustainability in leases.(legalease)

With the number of sustainable buildings growing in the marketplace, leasing practices have followed suit. Once property owners and managers build or integrate sustainable processes into their buildings, they must clearly articulate this in the leases with their tenants. Issues of non-compliance may arise, especially when tenants wish to make alterations to their areas of the property.

[ILLUSTRATION OMITTED]

[ILLUSTRATION OMITTED]

The remedies for non-compliance of a green initiative vary. If an owner has committed to a LEED-certified building and a tenant threatens that certification, the owner should seek traditional remedies--repair at the tenant's cost or termination of the lease. The owner may also want to consider judicial rights, like a court injunction to cease action by a tenant.

In cases where owners and managers are simply implementing certain green initiatives like recycling, an intermediate remedy, such as a fine, may be more appropriate.

Creating remedies is not only the owner or manager's responsibility. Tenants who influence a manager or owner to adopt green initiatives should provide solutions to help prevent an owner or manager from abandoning any established green policies and practices.

When it comes to cost recovery of going green in an existing building, owners should ensure they recapture the costs of green improvements through the additional rent clause of the lease. By clearly defining the green standard in the lease, owners will protect their right to pass through costs related to the green operation of the building.

For example, assuming a negotiated lease provides for pass through of capital improvements reducing tenant operating expenses, the owner should be able to pass through the costs of the green improvements to the tenant. Some owners and managers may find resistance to these new programs from tenants who fear increased costs. In that case, owners and managers should provide tenants with a report showing their savings by going green, in addition to the annual operating expense report.

Currently, there are very few areas where an owner would be required to implement green practices in their buildings, but that trend may be changing. New facilities not built in conformance with LEED or Green Globes standards may become obsolete in the future. Some office development experts have speculated that in order to remain a Class A office building, owners must obtain LEED or Green Globe certification within the next few years. In addition, some lenders who have made a commitment to environmental initiatives are contemplating a requirement of LEED certification on all new projects. Certain municipalities are already requiring new public buildings to obtain LEED certification, and many are considering a requirement for privately owned buildings.

More and more projects are going green, and owners, managers and tenants need to consider how the change affects their legal relationship and obligations to one another. All parties must consider the lease, as well as the operation of a green building going forward.

Jim Fredericks (jfredericks@polsinelli.com) and Alison Marischen (amarischen@polsinelli.com) are attorneys at Polsinelli in St. Louis.

Print Get the Mag Weekly Updates