Home ESG Does Your Lease Need Greenhouse Gas Provisions?

Does Your Lease Need Greenhouse Gas Provisions?

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yes. It would be one thing if this topic was only forward-looking about leases to be concluded in the future, but the reality is that renewal terms for facilities regulated by urgent greenhouse gas There are numerous existing leases, including Laws, rules and regulations regarding emissions disclosure and reduction.

As there is no single homogeneous building type, this topic has different implications depending on location, but from Maryland to California, from New York City to Denver, and from Seattle to Washington, D.C. jurisdictions, the energy We are building performance standards. Regulations for GHG emissions have already been enacted. And state and local government actions aimed at building owners lie beneath the surface of the country’s ESG mandates aimed at businesses that are tenants, and new laws often target disclosure of GHG emissions. Emphasis is placed on

Leasing is the most common real estate transaction in America. And just as many, if not most, of these issues don’t go unquestioned, most of these issues apply to multifamily leases as well as commercial leases.

Buildings are a sweet spot for reducing GHG emissions, as buildings generate nearly 40% of annual GHG emissions in the United States.

To help review this broad subject, this blog post examines leases in Maryland.

The purpose of this post on how to fix the planet through leasing is to set the stage for new ideas.

lease reviewAs a starting point, all existing leases should be reviewed in light of the issue of GHG emissions (a subject that may not have been considered when this document was written). Landlords and tenants should carefully consider existing provisions regarding their obligation to comply with laws and governmental requirements related to rental properties or buildings (for example, in the past, such provisions have been ADA compliant or sprinkler may have affected the modification). And while such provisions may have dramatic implications for this subject, they are only a starting point.

share dataAs a threshold edit, almost all existing leases should be amended and new leases drafted to include the sharing of GHG emissions data. Of note, Maryland law was amended last year by SB 528, which now provides:

Electricity and gas companies shall provide energy data, including overall building and aggregate data, to covered building owners for benchmarking purposes. ”

Maryland Senate Bill 2022 528

However, that information is not sufficient for building owners to comply with state-mandated GHG emissions disclosures and reductions. The owner will receive more additional information (employee census, employee census, number of computer screens, etc.). And that provision requires her GHG emissions data from the landlord so that many tenants, including public companies, federal contractors, etc., can report as part of their required ESG disclosures. It doesn’t even try to deal with

Newly defined termIn jurisdictions with mandates to reduce GHG emissions (..a step beyond mere disclosure), it is important to include applicable building energy performance standards as defined terms in leases. A contract that is a written lease agreement.

Borrowing from a concept widely used in Europe but not in the United States, when tenants must state “energy consumption limits” in their leases. Sometimes this also includes a “plug load standard”. In that case, the term should also be defined. This doesn’t necessarily align with past concerns about who pays for electricity, but now the entire building goes on an energy diet to meet his GHG emission limits.

Work to reduce GHG emissions often involves the “retro-commissioning” of buildings. The term should be defined to include what is recommissioned (i.e. HVAC, lighting, plug loads, etc.). roofs, windows, etc.), appropriate LEED enhancement credits, ASHRAE, etc.?

Leases should ideally provide sub-metering of tenants’ leased facilities (which may not be so easy with existing building utility systems). Electronic submetering software that provides simulated consumption data may need to be used in place of the real thing, but submetering is often regulated by public service commissions and others. The goal is to measure the tenant’s consumption of electrical energy (by a meter that can read demand and his KW hours to measure the demand and consumption of electrical energy). It is often installed by the landlord in the rental property at the tenant’s expense. and costs.

Currently, the definition of operating costs includes, but is not limited to, not only the actual cost of retro-commissioning, but also the cost of meeting the building’s energy performance standards, including but not limited to the pro rata share of the cost of retro-commissioning of the entire building. may also be included. And perhaps that definition of operating expenses should also include the capital expenditures made to comply with building energy performance standards, and should provide amortization of work over time (lease term or other for a reasonable period of time). Tenants are required to participate in retro-commissioning which includes providing required resident data and other information.

Going forward, leases must include a requirement that the tenant’s initial improvements (i.e. building additions) and subsequent renovations comply with the building’s energy performance standards and do not increase the tenant’s utility usage. This may include things like design standards, landlord approval of the plan, and scope of work.

incentiveIncentives to tenants could be key to rebalancing the stakes of traditional landlord tenants. Borrowing from an idea seen in some Canadian leases, based on an energy model, landlords can pay tenants a “GHG reduction bonus” equal to __% upon completion of tenant improvements. This GHG reduction bonus is paid to tenants as a credit against their monthly rent.

As a separate incentive, tenants may become beneficiaries of available government incentives, including tax credits (e.g. 179D tax credit), and may receive these incentives through allocation and other creative drafting in leases.

If the landlord has installed an on-site renewable energy system in the building that can be used to power the building, the lease requires the tenant to purchase electricity directly from the landlord from that on-site renewable energy source. I have. Landlords must sell electricity directly to their tenants at a rate no higher than the electricity rate provided by the local utility. Also, as another incentive, if the landlord participates in the building’s Power Purchase Agreement (PPA), the tenant may be given the opportunity to participate in her PPA.

penaltyRecognize that the tenant is responsible for paying any penalties or excess emissions fees, alternative compliance fees, etc. incurred by the landlord under applicable building energy performance standards laws such as Maryland Climate Solutions Now. A clarifying clause should be inserted. The 2022 Act (or in New York, Local Law 97), not only fails to report, but tenant behavior may result in a tenant’s energy consumption or GHG emissions exceeding the energy consumption limit provided in the lease. Non-compliant building if caused. If the cost of the credit is included in the operating expenses, it complicates the negotiations somewhat as all credits and alternative compliance fees must be taken into account with respect to any restrictions acquired by the landlord.

On the other hand, the landlord, for failing to timely fulfill its reporting obligations under relevant laws, or for consumption of public utility charges due to other reasons, shall be solely responsible for any part of the penalties or charges imposed on the building under such laws. You have to take responsibility. Failure of the building tenant or landlord to properly operate and maintain the building.

it’s time to actLease drafting with clauses specific to GHG emissions is still in its infancy, but these risks and opportunities are not new. Do Green Buildings Need a Green Lease?although dated, identify most of the same risks and opportunities.

This blog post is not intended to be a comprehensive commentary on this subject. This has many of the same considerations for multifamily rentals, except there are opportunities for active property management, such as time and space limitations. am. Our goal here is to help you in a humble way to join him in his fearless goal of disclosing and reducing his GHG emissions in real estate.

Today, Maryland lease agreements urgently need to be changed to provide a minimum of shared data and other information. This allows the building owner to comply with his 2025 state’s GHG emissions reporting requirements and the tenant to meet his current and evolving ESG disclosures.

Yes, leasing needs provisions specific to GHG emissions to comply with new laws and fix the planet. It’s time to act. I would be happy to talk to you about all things Reese and her GHG emissions reductions.

Live Webinar “Is Your Lease Ready for the New GHG Law?” 30 Questions in 30 Minutes, Tuesday, January 24, 9:00 am EST, Stuart Kaplow and Nancy on behalf of ESG Legal Solutions, LLC Presented by Hudes.Free, but registration required here.

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