How Green Leases Help Tenants and Landlords Hit Their Sustainability Targets

April 26, 2023 4 Minute Read

Green Office Meeting

In the pursuit of ESG targets, businesses and governments around the world are committing to ambitious decarbonization goals.

With commercial and institutional buildings among the biggest energy consumers, forward-thinking landlords are introducing green leases in a bid to improve the situation.

What is a green lease?

A green lease is like a standard lease but with clauses that realign financial and sustainability objectives between a landlord and tenant. A report by the Institute for Market Transformation estimates that green leases could reduce energy consumption in office buildings by as much as 22%, resulting in significant cost savings.

A green lease can include changes in operational procedures, commitments to building retrofits using sustainable materials and appliances, and utility tracking requirements.

TD Bank has a green lease clause requiring an Energy Star rating of 75 or higher, a maximum water consumption rate of 9 gallons per square foot, and a waste diversion rate of 50% or more across its office portfolio. Dream Office REIT has committed to a 10% reduction of its energy consumption across its portfolio by 2025. First Capital REIT introduced the requirement for all their tenants to provide annual utility data to support energy benchmarking and disclosure efforts.

“Companies have sustainability targets to meet and green leases could be part of the solution.”

Green leases can also include changes such as changing fluorescent lights to LEDs, introducing recycling and composting programs, and swapping out old inefficient windows.

“Companies have sustainability targets to meet and green leases could be part of the solution,” says Amy Bugg, CBRE’s Senior Director of Client Care. “We’re learning a lot from the UK and Europe, and it won’t be long before green leases become the norm in Canada as well.

“Most of our clients have heard of green leases,” she adds, “but many aren’t sure how to get started or which questions to ask. We’re here to help.”

Sustainability Targets

When Ontario introduced public sector sustainability targets several years ago, institutional clients turned to CBRE for advice on green leasing their portfolios.
“Our team identifies efficiencies that benefit both the environment and everyone’s bottom line,” says CBRE’s Nicholas Foster, who supports institutional clients on green leasing strategies. “We create long-term value for tenants by working with building owners to improve the functionality of their spaces and enhancing their experience.”

CBRE’s Energy Management team works with clients to gather utility metrics on the water and electricity usage in their portfolios. The data is then used to determine where to best focus their greening efforts.

“We use benchmarking and energy performance metrics to recommend ways to minimize usage and costs related to operations,” says Melissa Yake, Director of Energy, Sustainability and Resilience for CBRE. This can include installing energy efficient appliances and fixtures and limiting lighting load.

Yake’s team also audits and reviews submeters to provide tenants with information on their performance data. Organizations often require this data to report on sustainability metrics and to enact changes to their consumption.

Creating Tangible Change

Foster and his team identify the lease clauses that will work to meet their client’s priorities and have the greatest impacts while mitigating risks to tenants.
“We’ve found that sustainability often goes hand-in-hand with other advantages such as health and safety and cost savings,” says Foster.

He points to the upgrading of HVAC systems as an example. Many properties benefitted from investments in modern HVAC systems supporting MERV13 filters as a COVID-related measure to improve air quality. But the perks related to these upgrades went beyond health and safety. They also boosted efficiency and reduced HVAC-related energy consumption.

Smart building technologies monitor the weather and adjust building temperatures accordingly. Such technologies save energy by only heating or cooling when necessary and can prevent damage to pipes during cold snaps by anticipating the need to heat the building.

“Technology is evolving quickly,” says Foster. “It’s giving us new opportunities to improve our buildings and reduce our footprints.”

Greener Future

Green leases are beginning to look beyond building systems and utilities. They’re taking into account construction methods and materials and the cleaning products used in buildings, ensuring they are free from volatile organic compounds (VOCs).

Green leases are re-evaluating what it means to create a sustainable working environment.

All of it promises to keep Foster, Yake and the rest of the team on their toes and working hard to ensure clients can meet their ambitious green goals.

“We’re in an exciting time where change is happening rapidly,” says Foster.

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