“Green leases” may encourage tenants and landlords to increase green practices

February 09, 2011 02:37PM

Many small business owners may be choosing not to go green at their buildings, since they lease their properties rather than own them, the New York Times reported. As tenants, they typically lack the motivation to invest in the buildings’ heating or cooling equipment because it is purchased and maintained by the building’s owner. But building owners may lack such incentives as well, according to Sean Neill, a principal at Cycle-7, a sustainability consulting firm based in New York City. “In most commercial leases the tenants pay a pro-rated portion of the building’s operating costs, while the owner pays for capital improvements,” he said, meaning that the owner could pay for a new, energy-efficient heating and cooling system, but the benefit of lower energy bills would go to the tenants. Commonly referred to as the “split incentive,” this conflict blocks more widespread adoption of energy efficiency measures in commercial buildings, Neill said. His firm advises clients like real estate developers and managers to address this conflict by adding sustainability clauses to existing leases. Neill recommends a shared incentive approach where the tenants divide the savings with the landlord, and those savings are then used to pay for new equipment or building upgrades. Eventually, Neill expects awareness of these so-called “green leases” to grow because “landlords are coming under increasing pressure to green their spaces and become more environmentally sound,” he said. [NYT]