Incorporating ESG in Commercial Leases: Building Certification, Use of Renewable Energy and Energy Improvements

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Thursday, June 30, 2022

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Course Materials

This CLE webinar will provide landlord-tenant counsel with guidance on incorporating ESG considerations into future leases. The panel will discuss specific provisions to consider, how to split costs among stakeholders to meet these requirements, and best practices for properties that desire to meet ESG standards while mitigating risks.

Description

ESG continues to be a factor in business development, including commercial real estate. As the goal of mitigating climate change has risen, the commercial real estate industry has seen an increase in green buildings and clean energy infrastructure. Leases, which include various provisions to promote energy efficiency and environmental sustainability, are often referred to as "green leases." Such leases can be tailored to meet both landlord and tenant requirements and building-specific needs.

At the beginning of the process, landlords can seek to construct buildings that meet the requirements of LEED or other green building certifications. Landlords can also require the tenant to include specific sustainable design components, materials, or construction methods recommended for green building certification. It is unclear whether a landlord can require a tenant to meet a particular certification standard.

Landlords and tenants can also incorporate renewable energy into a commercial lease. In some cases, renewables like solar panels can lead to tax and power generation revenue, for which the parties will have to determine who bears responsibility, risk, and potential benefits.

Tenant improvements are often provisions in commercial leases, and the parties can structure leases to share costs associated with energy-saving improvements. Under a net lease, where the landlord is responsible for capital expenses and the tenant is responsible for utility and operating expenses, there is little incentive for the landlord to add energy-saving improvements because they do not directly reap any cost benefits from such improvements.

However, by selecting a different cost-sharing structure, landlords have a reason to implement significant energy-saving improvements. Likewise, leases seeking to achieve ESG compliance could specify only energy-efficient appliances and equipment on the leased property.

Leases can also impose limits on toxic cleaning products to improve indoor air quality. Parties can also include provisions in leases that incentivize the use of public transportation or alternatives to motor vehicles by providing storage or monetary compensation. A commercial lease provides these numerous opportunities to affect potential environmental and societal issues.

Listen as our expert panel discusses the key provisions in commercial leases that can incorporate ESG concepts. The panel will address critical provisions and best practices when negotiating these leases to achieve ESG goals.

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Outline

  1. ESG factors to consider in commercial leases
    1. Building certification
    2. Renewable energy
    3. Major energy saving improvements
    4. Equipment and appliances
    5. Outdoor spaces
    6. Employee/occupant benefits
    7. Other provisions
  2. Best practices

Benefits

The panel will discuss these and other key topics:

  • How can landlords and tenants best incorporate energy efficiency in buildings that are not LEED certified?
  • What tenant improvement allowance restrictions can landlords and tenants negotiate to achieve ESG goals?
  • What incentives can commercial leases provide to reduce traffic or other air pollution?

Faculty

Lo, Margaret
Margaret Lo

Director, Business Engagement
Institute for Market Transformation

As IMT’s Director of Business Engagement, Ms. Lo provides resources and solutions to businesses that improve...  |  Read More

Molotsky, Brad
Brad A. Molotsky

Partner
Duane Morris

Mr. Molotsky’s primary practice is focused in the areas of commercial leasing, acquisitions and divestitures,...  |  Read More

Willis, Annette
Annette Michelle (Shelli) Willis

Partner
Troutman Pepper

Ms. Willis combines in-depth knowledge of all aspects of corporate law with her experience as in-house counsel when...  |  Read More

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