Leases and LEED v5
Photo by Kelly Sikkema on Unsplash
Lions and tigers and Green Leases, oh my!
I’ve been blabbing about this forever, and with the launch of LEED v5, I’m no longer alone. LEED v5 acknowledges the importance of owner / tenant collaboration, with up to six points for Green Leases!
This is a real opportunity for owners and tenants to leverage the market, and industry recognition of LEED, to make Green Leases standard. It is also an opportunity to emphasize the importance of aligning owners and tenants towards shared climate (and social impact) goals - through leases.
Quick Facts: Green Leases and LEED v5
BD+C: Core and Shell
Integrative Process, Planning, and Assessments, IPc2
Three Options, up to Six (Seven) points
So what does that mean? Let’s dive in!
In this post, we outline the framework, and highlight some of the key considerations. We also read the relevant public comments and responses (so you don’t have to), to get a sense of the issues that practitioners were seeing during the development stage.
There’s a USGBC response to a public comment, which outlines the background of the Green Leases credit. We think this response will be helpful to practitioners who are looking at the overall structure of LEED v5. It also helps explain the three EA credits that are requirements for Option ,:
“The EA Category has been restructured to shift all credit for future tenant improvements to the IP Green Leases Credit, and to independently reward each EA credit based on the strategies incorporated into the project scope of work, or clearly defined in tenant construction drawings at the time of the LEED certification submission. Credit thresholds have been adjusted accordingly to align with the Core and Shell scope.”
Overview
It is important to keep in mind that IPp4, Tenant Guidelines, is a Prerequisite, while IPc2, Green Leases, is obviously optional. Some of the content that is to be incorporated into the Tenant Guidelines relates to Green Leases, so it is important that project teams pursing IPc2 Green Leases try to make these two documents as integrated and consistent as possible. And it will be important to check other LEED credits, as there are various references to information that needs to be in the Tenant Guidelines, throughout LEED v5 (a good CNTRL+F catches many of them).
First, the Green Leases credit is only available for LEED BD+C, Core and Shell, and there are three options:
Standard Green Lease (up to six points)
Executed Standard Green Lease - (up to “one additional point” tied to Option 1)
Green Lease Leaders Recognition (up to six points)
This credit, and the generous allocation of up to six points (or seven, see below), acknowledges that the lease is the connection point between the Core and Shell and the tenant space, and an opportunity to drive deeper decarbonization through tenant engagement. The cadence is: (1) Develop a Standard Green Lease and commit to using it in all future leases, and for a “bonus” point (2) if that Standard Lease is actually executed; or pursue Green Lease Leaders recognition.
This credit really seems to be driving the market to make “Green” leases the standard.
Option 1: Standard Green Lease
The idea with the Green Leases credit is to continue the sustainability features implemented in the base building, by requiring the tenant to also commit to incorporate these strategies into the fit-out.
Baseline: For any tenant-installed systems, the lease should require tenants to comply with the nine listed Prerequisites:
IPp1: Climate Resilience Assessment
IPp2: Human Impact Assessment
IPp3: Carbon Assessment
WEp2: Minimum Water Efficiency
EAp2: Minimum Energy Efficiency
EAp3: Fundamental Commissioning
EAp4: Energy Metering and Reporting
MRp1: Planning for Zero Waste Operations
EQp2: Fundamental Air Quality
The Guidebook is not clear how this could or should be done, so some additional guidance would be helpful. In particular, questions remain as to how some of the IP Prerequisites (i.e. Climate Resilience and Human Impact Assessments) would relate to only a tenant space, or what would be sufficient to meet these credits; there are also questions regarding requirements and impacts for small spaces or vastly different uses. For now, owners may want to consider adding an addendum to the lease that specifically calls out these credits and requires tenant compliance.
It is good to see the prerequisite of requiring a Carbon Assessment, which acknowledges the embodied carbon impacts of tenant spaces, and hopefully helps drive reductions for fit-outs and TIs. That said, as pointed out in some of the public comments, some of the Assessment prerequisites could be overly burdensome for small tenants, or difficult for retail tenants (Climate Resilience Assessment, Human Impact Assessment and Carbon Assessment).
Points: After Prerequisites are met, owners can choose from eighteen optional best practices to incorporate into their Standard Lease; points are based on the number of best practices that are included (see Table 1 Points for incorporating best practices). Keep in mind that for several Prerequisites, additional points can be earned for going above and beyond, so that may be an easier pathway for some projects that plan ahead (i.e. EAp2: Minimum Energy Efficiency is a Prerequisite, and points can be earned fro requiring energy efficiency fit-outs for tenants that improve upon EAp2; though the question remains, what does “improve upon” mean).
That said, there is a need for greater clarity regarding what will qualify for some of the best practices, for example, what constitutes sufficient “training” for brokers and leasing agents (and how this would relate to a tenant’s use of the space / why it should be incorporated into a lease); what is needed for a “tenant energy efficiency engagement and training plan,” and what qualifies as implementing “best practices” for indoor air quality and thermal comfort. And how does the Prerequisite requirement of EQp2: Fundamental Air Quality differ from the best practice of “implement indoor air quality best practices”? There’s lots to discuss and figure out.
Plan ahead: Owners must ensure these documentation requirements are incorporated into future tenant leases (the “Standard” part), so plan ahead.
Option 2: Executed Standard Green Lease
Teams can earn “one additional point” by providing proof of an executed green lease or tenant letter of attestation meeting the Option 1 criteria. We read this as owners who develop a Standard Green Lease (Option 1) and provide evidence that lease was signed (Option 2) can earn up to 7 total points: six if you develop a Standard Green Lease, and one more (for a total of 7), if that lease is also signed. The AND/OR language can be confusing, but that’s our read (what’s yours?). This obviously assumes the project timeline (and market demand) allows for a finalized lease at the time LEED documentation is submitted, which is not the case for many Core and Shell projects.
The format of Option 1 and 2 provides flexibility for developers / owners who may not yet have a signed lease agreement, but who want to (and will commit to) doing so.
Option 3: Green Lease Leaders Recognition
This option ties points to Green Lease Leaders recognition levels, thus incorporating by reference this system, which was developed by the Institute for Market Transformation with support from the US DOE. GLL requires evidence in a standard lease form of at least two prerequisites (sustainability contact/information and for commercial a cost recovery clause) followed by a series of optional credits, with more credits resulting in higher recognition (Gold, Silver, Platinum). Based on our rough estimate, there’s about 70% alignment between the itemized best practices of Option 1 and all potentially available GLL credits (this is a very rough estimate as it’s just not an apples to applies comparison). GLL is also a third-party system with validation and available support, which makes it a helpful option, and also results in industry recognition that can be shared publicly in a recognizable format (i.e. “Silver”), which is also a plus.
One question that came up in public comment was whether Option 3 fairly values GLL recognition, as it translates to the individual best practices. Here’s part of the relevant comment:
The scoring mechanism for Green Lease Leaders recognition in the Green Leases credit does not fairly value the Green Lease Leasers (GLL) program….
For example, to earn GLL Silver recognition, an applicant would need to address, at a minimum, 7 best practices. According to “Table 1. Points for incorporating best practices,” this would earn 3 points. However, if the applicant submits their GLL Silver recognition to fulfill this LEED credit, they would only earn 1 point.
To earn GLL Gold recognition, an applicant would need to address, at a minimum, 7 best practices, plus provide an executed lease. According to the current scoring mechanism, this would earn 4 points. However, if the applicant submits their GLL Silver [Gold] recognition to fulfill this LEED credit, they would only earn 3 points.
This scoring discrepancy undervalues the GLL recognition program at the Silver and Gold levels. To fairly value the GLL recognition program, we recommend updating the GLL points awarded to 3 points for Silver and 4 points for Gold.
As noted above there is quite a bit of alignment, but the question is whether individual strategies are weighted over a collection of strategies compiled into GLL recognition, particularly at the Silver and Gold levels.
Key Considerations
According to IPp4, Tenant Guidelines must be shared with Tenants before signing the lease, and there are many references in LEED v5 to aspects that can or should be included in Tenant Guidelines, so consider this when planning your leasing strategy.
Data sharing is super important. To comply with efficiency requirements, tenants will need to agree to share utility and water use data with owners. Tenants (particularly those who are sensitive to where high-use spaces are located, will also want to know how that information will be further shared (with USGBC, other entities?). See our full article on that aspect, here and here. Also be sure to clarify any requirements that tenants install and maintain submeters.
Side note: We don’t love the phrase “Green Lease” as it tends to suggest something other than just a lease, or optionality, or in our experience, it seems to get cut if a deal becomes difficult (and what deal doesn’t become difficult?). IMT developed the phrase Performance Based Leases, which is helpful; or we also like “just a lease that meets the regulatory and market expectations for sustainability and social performance” (but that’s a mouthful).
Consider healthy building requirements or other aspects that are within tenant spaces or highly operational, such as Air Quality Sensors - ensure owner access to take readings/repair/maintain/replace.
Work with us! Need help developing a Standard Lease or complying with other LEED v5 requirements?
Disclaimer / Warning: This is common sense, but bears repeating: this blog is intended for informational purposes and does not contain or convey legal advice. The law is inherently fact specific. General information, including this blog, should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you.