Landlords and tenants must both now consider incorporating language in all new leases and renewals, even for existing buildings that are not Green, to include verbiage addressing issues of Green building.

While a compelling issue for all existing buildings, addressing matters of Green building in leases is a matter of great import and urgency for every building located within the ever increasing number of jurisdictions mandating by law that all privately owned new construction or major renovations, which exceed a certain square footage, must be constructed to a Green building standard. Within Maryland, today, Baltimore City, Howard County and Montgomery County have mandatory Green building laws for private building and renovation.

By way of background, many are aware that a newly constructed Green building requires a lease that is not the same old writing simply printed on recycled paper, but rather a new form of lease for buildings that are more resource-efficient and environmentally responsible, have lower operating costs and increased asset values, and enhanced occupant comfort and health. A Green lease allocates the risks and premiums associated with Green building when there are different incentives from the usual ones that arise from a typical triple net lease where, by way of example, the owner pays for the capital improvements to reduce energy use, but the tenant who pays the utility bills reaps a Green building’s benefit of energy savings.

This article, however, is to alert landlords and tenants to new language necessary and proper for leases and renewals for existing buildings that are not Green.

In the factual scenario highlighted above, a building owner contemplating a major renovation for a single tenant premises in a multi tenant building, when the owner is mandated by law to build that renovation or expansion of the building to a Green building standard (e.g., to a LEED Silver standard in Baltimore City), may find that work very difficult and cost prohibitive without the cooperation of the existing tenants. However, without verbiage in the existing tenants’ leases compelling their cooperation, a current tenant may simply balk at joining in.

Or in another scenario, even in a locale where there is no current statute requiring Green building, consider the situation of an owner desiring to lease to a prospective government tenant, that is mandated by law to be in a Green tenant premises certifiable by a third party (that may be within a non Green core and shell), or to a Fortune 500 company that has a corporate sustainability initiative such that it requires a Green tenant premises. Even when Greening an interior premises the failure of existing tenants to minimally participate (for example participate in a recycling program) is problematic.

Or in yet another alternative scenario, given the marketplace demand for Greening existing building, an owner at some point in the future, may wish to seek LEED Existing Building: Operations and Maintenance (LEED EB) or equivalent third party certification for an existing building. LEED EB has building owners measure operations, improvements, and maintenance with the goal of maximizing operational efficiency while minimizing environmental impacts and must be undertaken for a whole building. Without verbiage in an existing lease requiring a tenant to cooperate if an owner determines to seek LEED EB certification, it is almost certainly not possible to require each tenant to cooperate and join in whole-building Green cleaning and maintenance issues, or participate in recycling programs, maintenance programs, and systems upgrades or even participate in building user surveys. Without that tenant cooperation it may not be possible for an owner to qualify for LEED EB certification (required of the whole building) or the dollar cost of Greening the building may be significantly increased by the refusal of all tenants to join in.

To address the breadth of Green building issues, leases should now incorporate language, including requiring that the tenant cooperate, join in, and pay its proportionate share of costs for developing a plan for, and modifying, operating and maintaining the building to achieve LEED EB, or equivalent, certification. As noted above, without this concept incorporated into each lease, the owner of an existing building may not easily, or at least not at a reasonable cost, qualify for LEED EB certification.

Of course, a lease is not a monolithic document that will simply, in and of itself, overcome these issues with appropriate Green building language. There are real economic issues that need to be negotiated (including with the owner’s bank to finance Green retrofits) that serve to make the argument that every building needs a lease with Green building language; and that, obviously, no single form of boilerplate Green building verbiage will serve all buildings.

While the business terms that allocate risks and rewards are still evolving in this emergent field of leasing tenant premises with Green buildings and Green tenant premises with non-Green buildings, there are great opportunities for all involved to maximize the dollars from operating cost savings and minimize adverse environmental impacts from buildings and their operation. The market shift to Green building is gathering force. Green building will soon be the rule rather than the exception.

In an effort to comply with current and future federal, state, and local government mandates and to maximize dollar opportunities in this major market segment, the time is now to modify all commercial lease forms, including (in the largest number) leases for existing non Green buildings with the possibility of future Greening, including prospective LEED EB certification.

Given that leases for nonresidential buildings are long-lived agreements, in this time of economic uncertainty, building owners with current vacancies and leases soon to expire will be timely advantaged by being able to include Green lease provisions in new leases.

Drafting Green lease language is an art in its infancy. This article is by no means a comprehensive treatment of the subject. The goal is modestly to alert you to these issues such that you can participate in and take advantage of the Green building revolution.

And yes, every nonresidential lease should contain Green building language. It’s time to act.