Implementing green initiatives in commercial leases

Incorporating sustainable working conditions in commercial buildings has presented a new state of lease issues for landlords and tenants alike. Both landlord and tenant must approach lease negotiations with an awareness of the costs and benefits that a green lease will bestow on each party. While the landlord seeks to recoup its investment in sustainable practices through higher rents or lower operating costs, the tenant also endeavors to realize at least part of the tangible financial rewards in addition to the benefits of a healthier working environment. In order to negotiate a lease that emphasizes sustainability, the landlord should develop an environmental management plan (EMP) that outlines the landlord's goals and how those goals will be achieved and monitored on an ongoing basis. The landlord may wish to engage its own design professional to create uniform guidelines that will ensure compliance with sustainability certifications and goals. The EMP should identify the applicable requirements of governmental agencies on the local and state levels, such as building codes and zoning laws. Additionally, the landlord must determine whether it will meet minimum standards or whether it desires to implement the more stringent requirements legislated in many states to qualify for green tax credits. Regardless of the initial goals, and particularly with long term leases, the landlord should retain flexibility in the lease language to enable modifications as sustainability requirements continue to develop. Once the landlord's program has been established, it should be clearly incorporated in the lease and specifically referenced when identifying the tenant's obligations in ensuring compliance. This can be achieved by inclusion of a new lease provision or a rider that articulates the landlord's goals, be it maintenance of an existing certification or the quest for future LEED or Green Globes certification. If the goal is simply implementation of cost-saving and environmentally friendly practices, those specific goals should also be articulated. Landlords should provide clear system benchmarks to enable prospective tenants to determine whether their practices will enable them to meet these goals. Lease language can also require specific measures such as the use of Energy Star approved equipment, energy efficient light bulbs, lighting controls, and use of appropriate receptacles to implement recycling or other waste management programs. Language should be added to standard clauses such as "permitted uses" provisions to contain a representation that the tenant's use will conform to the landlord's designated certifications or to the landlord's sustainability program. Assignment clauses should similarly provide that the landlord can withhold its consent to any proposed assignee/sublessee if that party's proposed uses would run afoul of these same certifications or goals. Provisions relating to tenant alterations, an area where landlords already have the ability to exercise a great deal of control, are ripe for revision to ensure compliance with sustainability goals. While tenants often rebuff landlords' efforts to dictate too many details of their initial fit-out or subsequent alterations, such restrictions can be critical to achieving the EMP's sustainability goals, particularly where third-party ratings are sought. Depending on the nature and scope of the alterations, the tenant can be required to have its plans reviewed by a Green Globe or LEED Accredited Professional and, after construction, certified for compliance with the landlord's sustainability goals. Alternatively, the landlord can obtain that review and include the cost as part of the tenant's alteration allowance. While sustainability provisions often make a lease more complex, it is important to remember that the goal is to try to foster a spirit of cooperation between the parties and shared pride in the results. Therefore, a landlord should consider including a separate dispute resolution procedure for lease provisions related to sustainability practices and compliance rather than allowing any breach of such a provision to trigger a material default under the lease. However, such an alternative dispute resolution procedure may need to be drafted to carve out an exception where the tenant's non-compliance threatens to jeopardize the unit or building's certification or tax credits. These are just some of the customary lease provisions that will require a makeover to adapt to the changing times. Specific terms will vary based upon factors such as the length of the lease term, square footage, number of tenants in the building, and whether the space is in a new or existing building. Sustainability provisions require careful drafting given the relative absence of legal precedent interpreting lease obligations. Investment in a thorough EMP with clearly stated goals that can be referenced throughout the lease will enable both parties to benefit from the rewards of a cleaner and healthier work environment. Lori Samet Schwarz is a partner with Zetlin & De Chiara, LLP, New York, N.Y.