February 19, 2009

Tenants can go green even if the landlord isn't

Even tenants in less-than-ideal buildings can gain LEED certification if they play their cards right.

By LOUISE ADAMSON and DENISE LIETZ
K&L Gates

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Adamson

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Lietz

With climate change now firmly established as a mainstream policy concern, there is increasing interest in the impact of commercial buildings on the environment.

Corporations across a wide spectrum of industries — spurred market forces, regulatory requirements and incentives, and the falling cost of green technologies — are carrying out sustainability policies aimed at mitigating this impact. For corporate tenants, green leases can provide a valuable tool both for implementing sustainability goals and communicating responsible environmental stewardship to the market.

Green incentives

The past few years have seen the development of several significant state and local initiatives designed to encourage green building in Washington. In 2005, the state Legislature enacted a statute requiring that most large buildings and remodels funded with state money be designed to meet or exceed the LEED silver standard.

Local governments have also incorporated a preference for sustainable building practices by offering incentives for LEED certification, energy efficiency and water conservation efforts. For example, Seattle provides height and floor space incentives for projects that achieve a LEED silver, gold or platinum rating.

Seattle also offers financial incentives for developers who install equipment that reduces energy or water use. In King County, there is a dedicated “Green Track” for permitting green building projects, staffed with county employees who have expertise in alternative building design and construction.

King County also makes grants in support of commercial and residential green building projects. Now, as the state focuses on its climate change and sustainability strategy, we expect to see even more attention on green building requirements and incentives.

Market momentum

Just as the number of regulations and incentives designed to encourage green building has grown rapidly, the market forces have also gathered increasing momentum.

As a result, many corporations now find themselves under increasing pressure from internal and external constituencies, including shareholders, customers and employees, as well as governmental agencies, to operate in a sustainable manner.

In a 2008 global survey of more than 400 corporate tenants, 47 percent of the respondents stated that sustainability is already a critical issue and another 40 percent stated that they believe sustainability will become a critical issue within the next one to three years.

While sustainability is clearly on the corporate agenda, the practicalities of “going green” can seem a daunting task. It need not be that way.

For corporations that lease their space, putting into effect a green lease program can not only provide a mechanism for meeting sustainability goals, but perhaps just as important, it can also facilitate LEED certification for the tenant space — which in turn can be used to demonstrate that the corporation takes environmental sustainability seriously.

The LEED-CI rating

LEED has become the established benchmark for the certification of sustainable building projects. The rating system is at the heart of many green building incentive programs and is one cost-effective way to meet sustainability goals.

While many are familiar with LEED as it applies to the certification of new and existing commercial, institutional and high-rise residential buildings, fewer are familiar with LEED for Commercial Interiors, a program for tenant buildouts that has perhaps been perceived as being too difficult for the average tenant to implement.

However, the fact is that LEED-CI is all about the art of the doable, and is structured in a way that anticipates that the tenant may have only limited ability to leverage landlord behavior.

Consequently, certification under LEED-CI can be achieved through the implementation of measures that are entirely within the tenant’s control and that are limited to the four corners of the leased premises.

The importance of this narrow purview is that it means that tenants can secure LEED certification for their space on a standalone basis regardless of the typically less-than-environmentally-optimal condition of their building. In situations where the tenant is able to leverage landlord behavior — in a build-to-suit or single tenant situation, for example — the tenant will have the opportunity to achieve higher levels of LEED-CI certification.

An integrated approach

Green leasing is not simply a matter of working a few green provisions into the lease.

In order to be successful, the entire leasing process — starting with site selection and continuing with the request for proposal, the letter of intent and the lease itself — must be informed by, and integrate, the following objectives in a holistic way:

• Identification of sustainability goals. Many corporations have already taken this initial step, often by incorporating sustainability objectives into a policy or mission statement.

• Communication of sustainability goals to the leasing team. Communicating as early as possible one’s sustainability objectives to all parties involved in the lease negotiation process is key — this includes brokers, real estate managers, contractors, operations managers, attorneys and landlords, many of whom may have a limited understanding of green building practices.

• Development of site selection guidelines. LEED-CI encourages tenants to select premises that are located in areas of maximum density, in established urban communities with access to public transportation, and in buildings that already incorporate sustainable features or are LEED certified.

To meet the corporation’s own sustainability goals — such as space for employee bicycle racks or preferred parking for hybrid vehicles — other site selection criteria should also be defined.

• Request for proposal. RFPs are commonly used to solicit and evaluate proposals from landlords and set forth basic requirements and business terms.

The RFP should also describe the tenant’s sustainability objectives and include a sustainability/LEED questionnaire that solicits information from the prospective landlord. Responses allow the tenant to compare the green characteristics of the various premises under consideration and assess the potential for LEED certification before lease negotiations.

• Letter of intent. Material business terms (including sustainability provisions) are negotiated and documented in the LOI. The LOI should include a sustainability standards exhibit that once negotiated can then be attached as an exhibit to the lease.

• Lease agreement. Sustainability provisions are incorporated into the lease and directly track LEED-CI requirements where applicable. Tracking the LEED-CI standards throughout the lease documents, including the RFP and LOI, helps to make the LEED certification process as straightforward and easy as possible.

Meaningful action

Most companies lease their premises and do not have the luxury of being able to design the buildings within which they are located to take advantage of innovations in energy efficiency, water conservation or green building materials. However, being a tenant need not a limit a corporation from using its leased space to advance sustainability goals.

A green lease program not only provides a vehicle for carrying out corporate sustainability goals, but by facilitating LEED-CI certification for the space, also provides an opportunity for the corporation to communicate its commitment to sustainability to the market in a measurable and meaningful way.

Louise Adamson, a partner in K&L Gates’ San Francisco office, is one of fewer than 10 lawyers in California to be certified as a LEED Accredited Professional. Denise Lietz is an associate lawyer in K&L Gates’ Seattle office.

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