Working Together for Sustainability: The RMI-BOMA Guide for Landlords and Tenants


A guide supporting landlord and tenant energy efficiency activities is available from the Rocky Mountain Institute and the Building Owners and Managers Association (BOMA) International: Working Together for Sustainability: The RMI-BOMA Guide for Landlords and Tenants. This is a great resource for local governments considering use or promotion of green lease language, and other incentives or recognition for commercial or multi-family energy efficiency. See excerpts from the guide’s Introduction below, or click the link above to read in full.

Over the past decade, many commercial real estate leaders have been demonstrating the environmental and financial benefits of energy-efficient buildings. As a result, more and more building owners and tenants have been searching for the game changers that will result in widespread reductions in building energy use. While some buildings are performing well, with both the tenant and landlord reaping the benefits of more efficient spaces, the availability of new technologies and processes does not always result in people actually applying those solutions, even where there is a clear positive return on investment and a short payback period.

One of the main barriers is the “split incentive” issue, which results from the structure of many commercial leases. Net leases and modified gross leases, the most common types of leases, typically make the building owner responsible for bearing the cost of all capital upgrades. Energy costs, being a routine operating expense, are paid by the tenants. In other words, the owner makes the capital investment to improve the building and the tenant is the sole beneficiary of the reward of reduced operating expenses. The result is that commercial real estate owners have little direct financial incentive to upgrade their buildings to save energy. To further complicate the issue, unless the tenant space is separately metered or submetered1 , all of the tenants pay a pro rata share of the building’s energy costs. Therefore, tenants have little incentive to modify their behavior or implement any energy-reduction strategies because they must share the reward of their improved behavior while also sharing the costs of other tenants’ wasteful behavior.

In the fall of 2011, Rocky Mountain Institute (RMI) and the Building Owners and Managers Association (BOMA) International partnered to explore ways to overcome the split incentive barrier. RMI and BOMA assembled a select group of leasing and commercial real estate stakeholders, as well as individuals and organizations that have already explored these issues and developed potential solutions. Attendees included building owners and managers, tenant representatives, financing and leasing experts, city planners, environmental organizations, and energy service companies.

This guide is a result of the workshop. It provides a framework for instituting cooperative and productive relationships between landlords and tenants and seeks to address some of the non-technological barriers to energy efficiency, such as split incentives, tenant behavior, and transparency.

This guide outlines five actionable steps that building owners and tenants can take to partner in the shared goal of energy efficiency. While the steps are not necessarily sequential, they can build on each other in order to achieve greater energy savings. Each of these five sections offer simple solutions and ways to push for deeper and more aggressive energy savings:

1. Make Energy Use and Costs More Transparent

2. Engage Building Occupants in Saving Energy

3. Incorporate Energy Efficiency in Tenant Fit-Outs

4. Plan Ahead for Deep Energy Retrofits

5. Structure Agreements to Benefit Both Parties

Instead of reinventing the wheel, this guide provides links to other resources, information, examples, and breakthroughs to aid commercial buildings and their occupants in finding solutions that work to conserve energy without jeopardizing occupant health or productivity, thus creating financial and environmental win-win situations.

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