Green leases aren’t taking root in the U.S. Marketplaces Industry as fast as they could, according to JLL’s Green Leasing 2.0 report. Landlords and tenants don’t trust each other enough to add clauses requiring sharing of data on energy, water and waste or requiring green certification or environmental performance rating protection. Lack of transparency and follow-through, legal complexities, split incentives and unrecognized value have blighted growth, according to the report. Green leases that have been implemented historically have been owner-led, compliance-based contracts with boilerplate clauses around energy, water and waste, according to JLL. And obligations are mainly imposed on the occupier to protect a building’s green certification. That’s not a recipe for holistically sustainable buildings, the firm warned.

As leases expire in 2023, tenants and landlords have a chance to work together to redirect their businesses. Successful green leases should include cooperation and cost-sharing clauses, fair distribution of benefits, and transparency, according to JLL environmental, social and governance and sustainability research lead Paulina Torres.

Owners also can exchange favorable lease terms for commitments to reduce energy usage or even can pair financial incentives with specific performance indicators, Torres said. Some owners present new occupiers with blank spaces and fit-out options that vary in cost and energy efficiency. The owner then can adjust lease structures and pricing depending on which option the tenant chooses. In one New York City lease cited in the report, a landlord and tenant formulated performance-based programs in which the landlord paid for the retrofit but the savings in the tenant’s energy utility bills helped cover the costs.

The U.S. Department of Energy and the Institute for Market Transformation’s Green Lease Leaders program has recognized Acadia Realty Trust, InvenTrust Properties, Kite, Phillips Edison & Co., Regency Centers, RioCan, ShopCore Properties, Site Centers and other retail landlords and tenants for the green lease language included in their leases in 2022. About 6.1 billion square feet space is under green leases, according to the program.

Small firms don’t have to wait to start greening leases, either. The Green Lease Library has tools, case studies and other resources to get started.

6 Lease Clauses That Signal Green Cooperation Between Tenants and Landlords

These boilerplate clauses curated by JLL are signs of a healthy landlord/tenant relationship that focuses on a property’s overall environmental impact rather than short-term goals and metrics.

A Clause to Encourage Ongoing Engagement and Collaboration

“Landlord and Tenant shall meet annually and review energy and water-use data, recommissioning outputs and recommendations and the effectiveness of efficiency programs, and mutually establish an energy optimization plan, including energy management and cost-effective savings opportunities for the building and the leased premises. Annual reports shall be produced summarizing both tenant and landlord efficiency efforts. Tenant and Landlord shall work together to attain third-party green building certifications.”

A Clause to Boost Cost Sharing

“All costs of any capital improvements made to the building that reduce the building’s energy expenses shall be cost capitalized and hereafter amortized as an annual operating expense under generally accepted accounting principles, only the yearly amortized portion of which shall be included in operating expenses. In no event shall the charge for yearly amortization be more than the actual reduction in operating expenses.”

A Clause to Motivate Teamwork in Renewable Energy Procurement

“Tenants shall purchase energy from on-site renewables as provided by the landlord via a Power Purchase Agreement (PPA). Landlord shall install, own and maintain the on-site generation and sell power directly to the Tenants at a fixed rate that is at or below electricity rate offered by local utilities.

A Clause to Create a Sustainability Contact

“Landlord and Tenant shall provide a point of contact to discuss issues related to sustainability and energy. Issues include, but are not limited to, retrofit projects, billing issues, energy efficiency upgrades, and data access.”

A Clause to Enforce Data Sharing

“Tenant shall be required to submit on a(n) [monthly, quarterly, annual] basis to Landlord energy and water consumption data, including total usage and total charges as they appear on Tenant’s electric, gas, water, and other utility bills, in a format deemed reasonably acceptable by Landlord. Landlord agrees to provide, at Tenant’s request, building level energy and water consumption, as well as (if applicable) the Energy Star score of the building.”

A Clause Promoting Climate Resilience Cooperation

“Tenant agrees to implement its own, or follow the Landlord’s directive, to support, improve, and/or maintain the project’s resilience. The Landlord and Tenant shall agree to which natural hazards are relevant to the project and the adaptation measures that should be covered in the building resilience plan. … Adaptation measures may include retrofits to the Premises where possible.”

More on Green Leases and Green Properties

Green Lease Leaders Reference Guide for Landlords
Green Lease Leaders Reference Guide for Tenants
Collaboration Is Key to Burlington’s Solar Strategy
How Macerich Is Cutting Waste
Rising Demand for Sustainability Among Both Shoppers and Commercial Property Investors