Green Leasing: What Is It and Why Does It Make Sense?

Green leasing is becoming a popular trend. In a lease agreement, the tenant is concerned with the cost of rent per square foot, which is determined by an apartment's location, aesthetic quality, local demand for the location and aesthetic, and estimated monthly operating expenses.  In the past, a gross lease was a common practice amongst tenants and landlords, where a tenant made one payment to the landlord in order to cover the rent and operating expenses. Today, net leases are more commonly used, where tenants are charged for operating expenses monthly on an estimated basis, with a credit or charge for the difference from the actual cost at the end of the year.

Since the biggest hurdle to realizing energy savings is human behavior, incentives need to exist for tenants to minimize energy consumption.  One solution is for landlords to share with tenants the cost and benefits derived from increased efficiency. For example, having sensors to turn off light and HVAC supply will result in lower energy bills for the tenant while simultaneously improving the functionality and value of the property for the landlord. Therefore, the landlord should be able to apply some of the tenant's prospective savings toward these upgrades.  Installing sub meters and/or smart meters for individual spaces during construction is another possible step that landlords and tenants can collaborate in. Having devices for tracking energy usage can be useful.

A synergistic effort between tenants and landlords is ideal to make green efforts more plausible, since both can reap rewards from these efforts. Occupancy sensors, tighter envelopes, energy management controls, frequent HVAC commissioning, low-power light fixtures, and daylight harvesting are just some of the numerous examples of energy retrofits.  These measures can help to make operating expense rates more appealing for the lessee, while maximizing the value of their building on an income-producing basis. Additional benefits for the owner include reduced vacancy, increased flexibility in economic slumps, and greater tenant satisfaction.

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