Set Three Energy Conservation Responsibilities for Tenant
In the past, utility costs have been the impetus for owners to encourage their tenants to conserve energy while operating their businesses. But in recent years, environmental concerns have compounded many owners’ concerns about tenants using excessive amounts of energy once they move into the space they’ve leased—especially if the owner will be paying for a significant amount (or all) of the cost. And a tenant that inefficiently uses energy may actually be its own worst enemy if it has a triple net lease under which the owner ultimately charges utility costs back to the tenant.
If you’re worried about unreasonable energy consumption in your building or center, is there a solution? The answer is yes, but, like most other owner concerns, you’ll have to address it in the lease with your tenant.
Create Incentive
Ideally, a tenant should be in favor of energy conservation because utility cost increases lead to increases in operating expenses and CAM costs, which are passed on to the tenant. But if energy conservation interferes with the tenant’s specific type of business, it might balk at the suggestion that it watch its energy habits.
What’s the most effective way to get your tenants to conserve energy? Discouraging unnecessary energy usage isn’t enough. To ensure that tenants take this issue seriously, go a step further. Set objective conservation responsibilities for the tenants in your building or center. Then incorporate these responsibilities in either your leases or the property’s rules and regulations—or both. The threat of being in breach of its lease is a good incentive for a tenant to meet the responsibilities you’ve laid out.
Require Cooperation
The first step is to make the tenant promise that it’ll conserve energy and comply with your energy conservation programs. Ask your attorney about adding the following language to your leases or your building’s or center’s rules and regulations (which should be attached to the leases as an exhibit) to give your tenant a reason to cooperate.
Model Lease Language
a. Efficient Operation of Systems. Tenant agrees to cooperate fully with Landlord to ensure the most effective and energy-efficient operation of the [Building/Center]. Accordingly, Tenant agrees as follows:
Then specify exactly what the tenant must do.
Specify What Tenant Must Do
After getting your tenant’s assurance that it’ll cooperate, spell out exactly how you expect the tenant to avoid wasting your building’s or center’s utilities.
Responsibility #1: Only efficient usage. If you don’t stop the tenant from inefficiently using utilities—such as leaving lights and equipment on after hours, when no one is in the tenant’s space, your efforts to control utility costs and usage will be undermined. Although it’s difficult to enforce this prohibition, it may give the tenant a reason not to be wasteful.
Model Lease Language
(i) Tenant shall not use inefficiently or unnecessarily electricity, water, heat, air conditioning, and other utilities and services at the [Building/Center]; and
Responsibility #2: No obstruction of systems. Next, require the tenant not to obstruct or tamper with your heat, ventilation, and HVAC systems. Otherwise, these systems won’t run efficiently.
For instance, say that the tenant must: (1) not place furniture in front of any vents, because furniture could block air flow to or from the heat, ventilation, and HVAC systems, making them work harder and use more energy; (2) not change the thermostats in the building or center, because those changes could cause the heat and HVAC systems to work harder and use more electricity; (3) keep corridor doors closed and not open any windows unless the air circulation is off, because this stops heat and cooled air from escaping from the space, building, or center; and (4) during hot months, lower or partially close window blinds if the sun is shining through the windows, because this will stop the sun from heating up the space.
Model Lease Language
(ii) Tenant shall not obstruct, alter, or in any way impair the efficient operation of the [Building/Center]’s heat, air conditioning, and ventilation systems. To this end, Tenant shall:
(A) Not place furniture, equipment, or other objects where they would interfere with air flow;
(B) Not tamper with or change the setting of any thermostats or temperature control valves;
(C) Keep corridor doors closed and not open any windows (except that if the air circulation shall not be in operation, windows may be opened with Landlord’s consent); and
(D) During hot weather months, lower and partially close window blinds or drapes when the sun’s rays fall directly on windows of the Premises.
Responsibility #3: Compliance. Remember to require compliance with mandatory energy programs. You may decide now or in the future to set up a formal energy conservation program in your building or center. You have the right to set up mandatory programs, including energy conservation programs, that you believe—in your sole judgment—are in the best interests of the building or center. Or a local utility company may set up a similar program that will affect your building or center. It’s reasonable to make the tenant promptly comply with any obligations you or the local utility company set for the mandatory programs. (Your tenants shouldn’t have a problem complying with mandatory programs, as long as they’re applied fairly.) So cover the following points in your lease or rules and regulations:
Model Lease Language
b. Compliance with Mandatory Programs.From time to time, Landlord may institute for the [Building/Center] certain programs that Landlord believes, in its sole judgment, will be in the best interests of the [Building/Center] and its tenants. Similar programs may be established by a local utility company. Such programs shall include, but not be limited to, energy conservation programs. Tenant shall promptly comply with and carry out, in good faith, any and all obligations issued by Landlord or the local utility company, as the case may be, under such programs, as the same may exist from time to time, so long as such obligations are applied in a nondiscriminatory manner.
Carve Out Right to Enforce Rules, Regs
The energy rules and regulations that you set out for a tenant are useful only if the tenant follows them. You should make sure that the clause in your lease that gives you the right to come onto the premises to inspect for repairs, for emergency purposes, or to show a prospective tenant the space when the current tenant is planning to leave, also gives you the right to come onto the premises “from time to time” to determine whether the tenant’s protocols and procedures are complying with your energy rules and regulations, recommends Toronto attorney Stephen J. Messinger.
“You have to show that there will be enforcement of the rules, not just suing the tenant if it doesn’t comply,” he stresses. Carve out the right to come into the tenant’s space every once in a while to see whether the desks are blocking the ventilation system or if the tenant is leaving lights on in areas that aren’t in use. You should have the right to take the necessary steps to make sure that after notice is given to a tenant that isn’t complying with your requirements, it has cured by complying with them. It’s important to follow through with enforcement.
“It’s somewhat self-defeating if you wait until the end of the lease term or for a long period of time after the tenant has been inefficiently using energy to try to correct the problem,” warns Messinger. It might be too late if the lack of enforcement has set a precedent that the tenant can use energy any way it wants.
Insider Source
Stephen J. Messinger, Esq.: Partner, Minden Gross LLP, 145 King Street West, Ste. 2200, Toronto, Ontario M5H4G2; www.mindengross.com.