Building performance standards (BPS) are reshaping the landscape for commercial tenants and landlords. Unlike traditional building codes that focus on construction and design, BPS require ongoing operational performance — measured by metrics such as energy use intensity (EUI) and greenhouse gas (GHG) emissions — over multi-year cycles.
While building owners are legally responsible for meeting these standards, tenants play a pivotal role in determining whether a building achieves compliance. Their daily operations from plug loads to HVAC schedules often account for a significant share of whole-building energy use.
Owners facing the pressure of BPS compliance increasingly request tenant cooperation. This might include sharing utility data, allowing submetering and granting access for audits and retrofit work. When approached collaboratively, these requests can benefit tenants by reducing wasted energy, lowering utility bills and improving comfort. But tenants must be vigilant in the way these responsibilities are defined and managed within their lease agreements.
Penalties for non-compliance are typically at the owner’s risk and, in most jurisdictions, cannot be passed through to tenants as operating expenses. This is one of the strongest protections for tenants under BPS. Some statutes even codify this safeguard, provided tenants cooperate with reasonable data and access needs.
The only caveat arises when a tenant fails to cooperate, such as refusing to share data or provide access. That failure directly causes a compliance breach. In these cases, certain BPS regimes, like Seattle’s building emissions performance standard, permit assigning penalty responsibility to the tenant for their sole actions. So tenants should ensure their leases include a "No penalty pass through” clause, with a clear cooperation standard that defines what constitutes good-faith support.
Even when penalties are off limits, owners might seek to recover capital costs for compliance upgrades — such as HVAC replacements, controls, lighting, submetering and envelope improvements — if the lease permits. The best practice is to negotiate guardrails that protect tenants while enabling owners to upgrade wisely.
Recovery should be amortized over a reasonable horizon, such as the useful life of the improvement or its simple payback period. Annual pass-throughs should be capped at predicted savings and reconciled with annual measurement and verification (M&V) so tenants never pay more than verified savings attributable to their share. Tenants also should require that rebates, tax credits and grants be applied first to reduce recoverable costs and that the scope and assumptions of upgrades are disclosed upfront.
Lease structure plays a significant role in determining the way BPS costs and obligations are allocated. In gross, full-service leases, tenants pay predictable all-in rent, and owners generally handle utilities and compliance, with penalty pass-through being rare unless explicitly stated. Single, double or triple net leases (N/NN/NNN) shift more expense variability to tenants, with common area maintenance (CAM), taxes, insurance and utilities often falling on the tenant.
Compliance penalties typically remain with the owner unless tenant-space obligations are assigned explicitly. Modified gross leases share responsibilities, making clarity essential to define who controls and pays for what. Percentage leases, which are common in retail and malls, hinge on precise CAM and utility language, while absolute net — bond — leases place all obligations, including compliance and penalties, on the tenant as standard practice for single-tenant, long-term assets.
For tenants in malls and strip centers, owners usually handle base building compliance, but CAM provisions can include audits, submetering, compliance administration and remediation if the lease allows it. Tenants should confirm what CAM covers, clarify utility metering and allocation rules and specify that tenant-caused costs are recoverable only if demonstrably attributable to their usage and documented via M&V.
Green lease language offers practical building blocks for negotiations. Tenants should ensure their leases require monthly energy and water data sharing or utility authorization, with strict limits on data use and explicit confidentiality. Operational standards should be reasonable, ensuring comfort setpoints and schedules do not unreasonably interfere with business, and tenants should maintain tenant-owned equipment to meet legal and performance standards.
Cost recovery for capital efficiency improvements should be allowed only when amortized and capped at M&V-verified savings, with annual true-ups required. Owner fines should not be treated as operating expenses, and only documented compliance costs should be recoverable. Remedies for non-performance should include cure periods for data or access defaults, and if tenant operations cause failure, tenants should implement remedial measures and pay only for their share.
Tenants have several key rights under BPS, which should be memorialized in their leases. Penalty protection ensures that BPS penalties are owner-side liabilities and may not be passed to tenants as operating expenses. Transparency and disclosure entitle tenants to see building performance data, compliance roadmaps and planned measures.
Data privacy requires confidential handling of tenant energy and operational data, used only for compliance purposes. Habitability and business continuity rights guarantee minimal disruption, reasonable notice, and relief if major work affects operations. Affordability and anti-displacement protections guard against rent hikes tied to compliance upgrades or retrofit-related displacement. CAM and utilities clarity ensures transparent definitions of what CAM includes and the way utilities are metered or allocated.
ESG and marketing rights allow tenants to use building compliance and certifications in public reporting and obtain owner cooperation for ESG disclosures. Performance-based alignment means rent or incentives can be tied to actual energy performance, so tenants benefit when the building performs better.
To navigate these complexities, use the following tenant negotiation checklist during letters of intent or lease renewals:
Scope and exposure. Confirm whether the building is covered by BPS and which targets and deadlines apply. Request the current performance score and compliance roadmap.
Penalty protections. Insert “No penalty pass-through” language, and define cooperation duties, such as data cadence, meter access and notice windows.
Cost recovery guardrails. Tie capital cost recovery to amortization and M&V-verified savings, with annual true-ups. Cap annual pass-through at predicted savings for the tenant share, and require rebates, incentives and tax credits to be applied first.
Operational standards and tenant equipment. Agree on reasonable operating standards and clarify responsibility for tenant-owned equipment.
Data, privacy and reporting. Define data cadence, format and delivery. Include confidentiality and permitted-use limits. Require annual benchmarking reports and compliance updates.
Access and habitability. Establish notice periods and disruption limits, and include temporary relocation or rent abatement triggers for significant impacts.
CAM and utilities transparency. Enumerate CAM categories and compliance administration items that are not recoverable, define utility metering and allocation rules and audit rights, and require M&V-based attribution for tenant-specific remediation or excess-usage costs.
ESG and marketing rights. Secure the right to reference building certifications and compliance in reporting, and obtain owner cooperation for ESG data requests.
Performance-based leasing options. Consider rent adjustments or incentives tied to achieving energy or GHG targets, and add an annual review to adjust terms based on verified performance.
BPS compliance is legally owner-centric, but tenant operations decide outcomes. Tenants who set clear cooperation standards, codify penalty protections and combine cost recovery with M&V-driven guardrails can help owners meet targets while securing lower utility costs, healthier workplaces and stronger ESG narratives.
Tenants can ensure compliance becomes a win-win by treating BPS as a value-creation opportunity — trading data access for retrofit timelines and co-investment, advocating for low-disruption, high-ROI upgrades, insisting on annual true-ups and savings caps and securing rights to reference high-performance space. Owners avoid fines and protect asset value, while tenants occupy better-performing, more affordable and reputationally stronger spaces.
Craig Walter is principal energy advisor at ENGIE Impact.
