Green leases: principles and applications

“Green leases,” which are already widely used in Europe and the United States, are gradually gaining popularity in Canada.

A green lease is a type of commercial leasing agreement designed to align the interests of lessees, owners and sometimes property managers around the principles of sustainable development. It can also be part of a company’s ESG (Environmental, Social and Governance) strategy.

Under a green lease, the owner and the lessee agree, on a voluntary basis, to include certain clauses providing for measures to improve the environmental performance of a building, whether in terms of construction, operation, or use of commercial space.

Environmental measures included in a green lease

Green leases are not yet subject to specific legal requirements in Québec. The main focus of most green leases is the setting of standards for reducing consumption (energy, water and other) and reducing greenhouse gas emissions.

Although certain standards do exist, the environmental performance provisions for buildings agreed under a green lease vary according to the specific priorities of the owner and the lessee.

Several types of environmental measures can be identified in the context of a green lease, including:

• Waste reduction: for the owner, this is the obligation to provide recycling and composting facilities. As for the lessee, he could undertake to implement a recycling program;
• Energy efficiency: energy-efficient improvements to the building or installation of energy-efficient equipment (lighting, heating, ventilation, air conditioning, etc.);
• Reduction of transportation-related emissions: measures supporting the reduction of greenhouse gas emissions, including the obligation for the owner to provide bicycle storage facilities or the obligation for the lessee to provide public transportation benefits for their employees;
• Water conservation: installation of low-flow toilets, taps and showerheads;
• Sustainable procurement: commitment to use energy-efficient appliances and low-carbon building materials;
• Indoor air quality: standards for ventilation and air filtration or requirement for lessees to minimize or eliminate the use of chemical cleaning products or construction materials;
• Green certifications: obligation for the owner to obtain and maintain a certification (e.g. LEED, BOMA BEST or BREEAM).);
• Optimization of systems and equipment based on ecological certification maintained or at agreed intervals;
• Data sharing: owners and lessees do not always control access to public utilities. Yet they may need energy data to document their sustainability and ESG compliance programs, or to raise the other party’s awareness of the need to adopt more sustainable practices. Provisions to this effect should identify the types of public utilities, the information to be shared and the frequency of reporting;
• Renewable energy: a clause covering the financing, installation and operation of solar or geothermal energy on site, or defining a certain percentage of the electricity purchased by the lessee that must come from renewable sources;
• Cost shifting for capital improvements: in triple net leases where lessees pay utilities directly, provide a financial incentive for owners to invest in capital improvements that increase energy efficiency by treating them as operating expenses.;
• Compliance with local laws: sharing of costs and fines in case of non-compliance with government standards.

Benefits of green leases

In addition to being part of a corporate social responsibility approach sometimes imposed by shareholders and directors, green leases can bring tangible financial benefits to the commercial activities of the parties involved.

For owners, the reduced environmental impact of their leasing spaces increases the value of their assets over the long term by making them more attractive, generating more income and increasing their lessee retention rate.

For lessees, energy-efficient offices are less costly to operate and maintain. They also provide a healthier and more pleasant working environment for their employees.

Duties and obligations of real estate brokers

As a real estate broker, it is important to identify your clients’ needs so that you can give them proper advice. However, you must also consider your own skills and the limits of your knowledge, and refer your clients to experts in leasing law for advice when necessary to protect their interests.

Make sure you document the information obtained by your clients and these professionals by confirming your meetings and telephone discussions by text message or email, in addition to keeping written proof of the information received, follow-up action taken, and advice given.