Green Leases: One Way Managers and Tenants Can Share Net Zero Goals

July 31, 2023 • John Salustri

The wider adaptation of green leases is just one solution for owners, managers and tenants to work together on achieving net-zero carbon emissions. Of course, it is just one of a host of initiatives that can drive toward that goal, including data sharing and strategizing on tenant fit outs. 

Some 40 cities across the nation now have benchmarking requirements for decarbonization. So said Megan Saunders, director of ESG for Kayne Anderson Real Estate during the recent BOMA International Conference and Expo. She was joined in her presentation, “The Flight to Net Zero: Tenants and Owners as Co-Pilots,” by Ana Duffy, sustainability manager at Hudson Pacific Properties, and the Urban Land Institute’s Center for Sustainability senior director Kara Kokernak.

Why the urgency? It is not just about looming mandates. “The built environment is responsible for almost 40% of global carbon emissions,” Kokernak stated. And tenant spaces could account for over 50% of a building’s total energy consumption. Which means that, “If you're an owner, you have control of only 50% of the total.” Clearly, given the widening awareness of the need for decarbonization, and the mounting mandates, achieving net zero carbon emissions has to be a collaborative effort between tenants and owners. 

As stated above, there are a number of paths to decarbonization. Kokernak enumerated a handful of them–improving HVAC systems, windows and “anything on site that will improve the energy efficiency of your building.” This also includes avoiding embedded carbon in building materials and their transportation. Onsite renewables, such as solar photovoltaic panels on the roof, are certainly key, as is grid interactivity, which means “working with utilities to focus on demand response.” And certainly, taking advantage of offsite renewables when possible and getting renewable energy credits all fit into the net-zero strategy. 

Last, but integral to the discussion, is tenant alignment. This is an all-hands-on-deck approach, focusing, she said, on “how building owners can work with tenants on that journey to net-zero. 

“The biggest challenge here is split incentives,” said Kokernak. Most lease structures disincentivize one party from investing in sustainability upgrades. “Oftentimes, the party that pays upfront for the cost of those efficiency improvements is not always the one who benefits from future energy savings.” For instance, a tenant paying for programmable thermostats may not be paying a lower cost because the lease agreement specifies a set rate.

One solution is the green lease. “Green leases might sound simple,” said Saunders, “but there’s no one-size-fits-all solution. It’s all about what works for your company and what you’re trying to achieve. There’s a lot of work we have to do to get green leasing integrated,” and many stakeholders to engage. “We have to do a lot of work with multiple parties–our legal team, our asset management team, and certainly with my team to ensure best practices are in place to achieve our goals.” 

As just one example of a green lease clause, Duffy cited charging tenants for additional HVAC hours, which helps lower energy consumption–and ultimately costs–for all concerned. It should be noted that, in her experience, much of the push for green leases is actually coming from the tenants. 

Ultimately, no matter the specific path to net zero an owner or manager chooses, the panelists agreed that tenant engagement can be the toughest row to hoe. “Tenants and owners must work together to achieve net zero,” said Saunders.

“But it’s difficult to make someone care about sustainability,” added Duffy. Two solutions arose: Find a sustainability champion within the organization and communicate goals and progress every step of the way.

About the Author
John Salustri is editor-in-chief of Salustri Content Solutions, a national editorial advisory firm based in East Northport, New York. He is best known as the founding editor of Prior to launching, Salustri was editor of Real Estate Forum.