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In the Spotlight: Enforcing the Green Lease

By Ronald W. Ruth

The primary focus of “green lease” discussions has been on the economic aspects: the interplay of the rent (whether gross or net) with the utility cost. A pure net lease provides little incentive for a landlord to invest additional capital to conserve energy or water if the tenant is the only party to enjoy the savings. A pure gross lease aligns the landlord's capital cost with the savings in lower operating costs, but does not invite the tenant to conserve utility and water use. As one commentator notes, a “modified gross” lease, which requires the tenant to pay usage costs above a defined base, is best suited to the “green lease.” (Friedenberg, “Green Leases” Green Development News, April, 2009).

To date, the green lease discussion has avoided the complications of enforcing “green lease” provisions. Many leases simply advise the tenant that the building is being operated as a green building and provide the tenant with a handbook. This approach demonstrates lack of familiarity with green practices in commercial real estate and does not address the consequences of failure to adhere to green practices. The fact that Leadership in Energy and Environmental Design (LEED) Certification for buildings was originally tied only to its construction or renovation (and not its operation) reinforced this approach.

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