As area businesses seek to “go green,” we are seeing an increasing interest in LEED (Leadership in Energy and Environmental Design) certified buildings. This raises important leasing issues for both landlords and tenants. In this post, I’ll outline the key issues that a landlord must consider when negotiating a lease with a prospective tenant in a LEED-certified building. In my next post, I’ll review the significant lease issues from a tenant’s perspective.
In general, LEED certification means that a building has met certain sustainability criteria. Space leases within the LEED building, therefore, must be drafted such that the tenant’s activities in the building are consistent with the building’s sustainability goals. The landlord does not want to be in a position where the tenant’s use within the building, or improvements to the building, cause the building to lose its hard-fought LEED certification. Examples of matters the Landlord should consider include the following:
- Who pays for the cost of capital improvements? The costs of capital improvements in a LEED-certified building may be significantly higher than in a conventional building. As a result, the tenant may be less willing to take on the additional cost. On the other hand, the tenant may be benefitting from a reputational advantage from locating in a LEED building, and, therefore, the additional cost may be justified.
- For a long-term lease, the landlord should be careful not to guarantee that the building will maintain its LEED certification status throughout the term. The landlord does not want the loss of certification to be a default under the lease.
- The landlord should pay special attention to improvements made to the space by the tenant as part of the initial build-out and throughout the term. Inefficient water or electrical improvements, or the use of non-renewable materials, could negatively impact the building’s LEED certification.
- The landlord should pay special attention to the “standard form” rules and regulations of the building. The rules and regulations should be carefully drafted such that the tenant’s activities maintain the sustainable nature of the building.
- Assignment and subleasing provisions should be drafted such that a subtenant or an assignee of the lease is also bound by the sustainability provisions of the lease.
- Lastly, the Lease should allow the landlord to show the premises to inspectors and other authorities who may need to view the tenant’s space to confirm or audit the building’s certification.