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Why Are Green Leases on the Rise?


By Greg Zimmerman Green
Green Lease Office Building

The real estate industry has long looked for ways to leap the biggest hurdle to sustainability in leased space — the so-called split incentive. The split incentive is the idea that in a gross lease, where landlords pay the electric bill, tenants have no particular motivation to be energy efficient. So they leave on lights and computers and crank up setpoints, and there are no limits on space heaters, mini-refrigerators, and other energy-hog appliances.

In a triple-net lease structure, in which tenants pay the electric bill and other expenses in addition to rent, there’s no hurry from landlords to invest in energy-efficient equipment in tenant space because they don’t receive an immediate bottom-line benefit.

The green lease is the best possible way to overcome the split incentive, according to Chris Brown of the Institute of Market Transformation (IMT) in an article in Building Operating Management. Whatever the lease structure, green leases can result in a true tenant-landlord partnership on sustainability issues, leading to a win-win situation for both parties. Brown’s article quotes an IMT study showing that green leases can reduce energy use in U.S. office space by 22 percent, which could save $3.3 billion.

For several years, the Green Lease Leaders recognition program, which IMT administers, has showcased best practices and success of both landlords and tenants in green leasing. The deadline to apply for the 2019 program is March 31.

Greg Zimmerman is executive editor of Building Operating Management. Read his cover story on how buildings are tackling climate change.

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