CURRENTS: “Green” or High-Performance Leases Offer a Solution to the Split Incentive Energy Challenge of Leased Buildings

By Jordan Decker, Local Government Commission

Most traditional building leases charge for energy using a standard rate (for example, a per square foot rate) and break the connection between the cost of a tenant’s energy bill and the amount of energy a tenant consumes. This not only takes away the direct cost-saving financial incentive an energy user typically has to save energy – it also reduces the building owner’s incentive to make energy-saving improvements to the building.

Luckily, this is an issue that has been recognized for years, and the proliferation of “green lease” language in building leases has reconnected energy users and savers to energy costs – and savings. Green leases (also called energy efficient leases, or high performance leases) are becoming common practice in Class A commercial real estate, the federal government, and markets with notable energy, cost and/or carbon savings-focused tenants and/or owners.

It’s no surprise that California’s local governments are getting on board to both promote green leases in their communities to help reconnect building owners and tenants with savings opportunities – and are also exploring how these leases can be leveraged in their own leased spaces. The Port of San Diego is considering a sustainable leasing policy, and new program to provide tenant incentives for agreeing to green practices, and has generously shared their Sustainable Incentives Best Practices Assessment they had prepared earlier this year covering best practices in incentive approaches to support tenant energy efficiency. Other local governments have shared a wealth of other resources, posted here, including:

You can get the latest on green lease information on the Coordinator website here.