Get Your Tenants to Comply with Your Building's ‘Green’ Standards
As energy costs and environmental concerns increase, some owners are choosing to construct their buildings according to environmental standards set by the “Leadership in Energy and Environmental Design” (LEED) program of the U.S. Green Building Council. The resulting “green” buildings are often more energy efficient than comparable buildings, giving them lower operating expenses. Plus they have better indoor air quality than comparable buildings, making them attractive to tenants.
If you decide to follow the LEED program's standards when constructing your building, make sure that your tenants are on board, too, warn Washington, D.C., attorney Desmond D. Connall Jr. and New York City attorney Jeffrey A. Moerdler. Otherwise, your tenants could undermine your efforts. For instance, a tenant might decide to install lighting fixtures that consume too much electricity or an HVAC system that guzzles too much water.
CLLI, with the help of Connall and Moerdler, has put together a checklist of six points to cover in your lease that can help keep your tenants in compliance with the LEED program's standards. There's also a Model Lease Clause on p. 3 that you can adapt and use in your leases for this purpose.
What's the LEED Program?
The LEED program grants you credits for each item of work in the building that meets certain standards, says New York City architect Eric Mullen. Depending on how many total credits you get, your building will be certified at one of four levels, Mullen explains: Platinum (the highest level— 52 credits and above), gold (39 to 51 credits), silver (33 to 38 credits), or certified (the lowest level—26 to 32 credits). The higher the level, the “greener” your building.
For example, you would get one credit for using fixtures that reduce water consumption in the building and one credit for using a minimum of 20 percent of construction materials that are manufactured within a radius of 500 miles of your building (which saves on energy/fuel consumption needed in transporting nonlocal materials), Mullen says. The LEED program covers all aspects of the building, from initial plans through the completed structure, he says.
Benefits and Drawbacks of LEED Program
Following the LEED program has both benefits and drawbacks for you. For example:
Benefits. Constructing a building according to the LEED program's standards can help you save on energy costs and other operating expenses, says Mullen. The higher the level, the more money you should save. And following the LEED program's standards can help you attract tenants that are interested in having their employees work in a healthier environment, he says. You can tout that it's a green building with a LEED program certification in your building's leasing program, marketing materials, advertising, and public relations program, Moerdler suggests. You also have the satisfaction of knowing that you're helping the environment.
Drawbacks. The downside of following the LEED program's standards is that you'll have to spend more money in the short run to save on operating expenses in the long run, says Mullen. And sometimes you won't know if you've reached the LEED certification level that you wanted until your building is complete, he adds. Mullen has seen owners forced into unexpected expenditures to retrofit newly constructed buildings to achieve the LEED certification level that they wanted. To keep that from happening to you, Mullen suggests that in the building's design phase you hire a LEED-certified professional who'll help you plan how to reach the certification level that you want.
Practical Pointer: For more information about the LEED program, visit the U.S. Green Building Council's Web site at www.usgbc.org.
Six Points to Cover in Lease
To make sure your tenants don't undermine your efforts to meet the LEED program's standards, your lease, like our Model Lease Clause, should cover these six points:
* Require Tenant to Acknowledge LEED Program's Standards
Require the tenant to acknowledge in its lease that your building is being or has been constructed in accordance with the LEED program's standards, says Connall. Then the tenant can't later claim that it had no idea that you were following these standards.
Also, mention which level of certification your building has reached or you expect it to reach, says Connall [Clause, par. a].
* Require Tenant's Compliance with LEED Standards
Require the tenant to agree to comply with the LEED program's standards throughout its lease, as long as you do, says Connall. So that the tenant knows and understands what those requirements are, attach a copy to the lease, he adds. Also, note in the lease that the standards may be supplemented and changed from time to time—and that the tenant must comply with the standards as supplemented or changed once you've notified the tenant, says Moerdler [Clause, par. b]. For instance, the U.S. Green Building Council may release a new version of the LEED program in the future.
Practical Pointer: Check that your lease also requires the tenant to comply with all similar federal, state, and local environmental regulations, laws, and guidelines, says Connall.
* Get Option to Stop Following LEED Program
Get the option to stop operating the building according to the LEED program's standards, says Moerdler [Clause, par. a]. There's always a chance that for financial or other reasons, you may decide at some point that following these standards no longer makes sense for your building, he explains. If you get this option, the tenant can't claim that you violated the lease by not following the LEED program's standards. And you won't be forced to follow an inappropriate program that doesn't make sense for your building.
Practical Pointer: If you ever decide to stop following the LEED program's standards, notify the tenants in writing about your decision, says Moerdler [Clause, par. b].
* Get ‘Self-Help’ Right
Make sure you give yourself a “self-help” right, Connall advises. This right lets you step in and take whatever action is necessary to put the tenant's space into compliance if the tenant fails to comply with the LEED program's standards or the other environmental regulations, says Connall.
A tenant will demand that before exercising your self-help right, you must give it written notice and enough time—say, 30 days—to put the space back into compliance, says Moerdler. You can compromise by agreeing to 30 days unless a shorter period is necessary for you to put the space back into compliance, he says [Clause, par. c(i)].
* Require Tenant to Reimburse Your Costs
Have the tenant agree to promptly reimburse all costs you incur (including your attorney's fees) if you're forced to exercise your self-help right. This would also include any losses you incur or fines or penalties you must pay because the tenant didn't comply with the LEED program's standards, says Moerdler. And try to get the right to charge interest on those costs, he adds [Clause, par. c]. Don't set the interest so high that the tenant could challenge it as an unenforceable penalty, warns Connall.
Practical Pointer: In your lease, label any reimbursement by the tenant as “additional rent,” says Connall [Clause, par. c]. Then, if a tenant fails to reimburse you, it has committed a nonpayment violation and you can exercise the lease's standard nonpayment remedies against it, he says.
* Require Tenant to Pay Governmental Penalties It Incurs
Clarify that the tenant is responsible for paying any fines, penalties, or other costs it incurs as a result of its failure to comply with the LEED program's standards, says Connall [Clause, par. d]. The LEED program's standards aren't mandatory now, but that may change over time, says Moerdler.
CLLI Sources
Desmond D. Connall Jr., Esq.: Member, Womble Carlyle Sandridge & Rice, PLLC, 1401 Eye St., Ste. 700, Washington, DC 20005; (202) 857-4403.
Jeffrey A. Moerdler, Esq.: Member, Mintz Levin Cohn Ferris Glovsky and Popeo PC, 666 3rd Ave., New York, NY 10017; (212) 692-6700.
Eric Mullen, AIA: Principal, Eric Mullen Architects, 66 W. Broadway, New York, NY 10007-2113; (212) 285-2340; emarchitect@aol.com.