Efficiency and the tenant-landlord relationship

The majority of floor space in the U.S. commercial building stock is leased, and the split incentives dilemma creates several barriers to making that leased space truly efficient. The main questions have historically been financial: who pays the energy bill? How do the tenant and landlord split the upfront costs and long-term benefits of energy efficiency?

Green leases that address efficiency are a good step for the buildings industry, but building owners and landlords rarely accept the standard template green leases that several industry leaders have put forward. Roy Torbert, an analyst in the buildings practice at Rocky Mountain Institute (RMI), says this is partially because of the long timeframe for turning over leases. A tenant organization could occupy a building for five or ten years and never think about the lease until it’s time to renew. “The default, which is very easy to do, is just to renew your existing lease or put a minor modification on the existing lease to address new issues—it’s a change in procedure to use a green lease,” he says.

""RMI and Building Owners and Managers Association International (BOMA) conducted the Best Practices for Landlord/Tenant Relationships Workshop on October 25 that explored strategies for implementing energy efficiency beyond the lease. By bringing together key players with on-the-ground expertise, such as tenant representatives, building owners, lawyers, and non-profit experts, RMI and BOMA were able to spark a conversation about the resources and guidance the industry needs to become more energy efficient. Attendees included Jones Lang LaSalle, NRDC, City of Boulder, Grubb & Ellis, Hannon Armstrong, CresaPartners, and people who were involved in previous green leasing efforts.

The lack of true partnership between tenants and building owners, particularly in multi-tenant buildings is a predominant barrier, according to workshop participants. Responsibilities and concern about the building’s efficiency are split between parties. For example, the owner may know all the HVAC equipment, or the tenant knows the behavioral patterns of the occupants, but they don’t share the information. Consequently, a lot of efficiency measures aren’t considered and the ones that are considered are less effective. The success of the building’s efficiency measures is dependent on the relationship between the tenants or occupants and the landlord.

“Most big buildings do lighting and controls—all their basic five or 10 percent improvements, pretty regularly. They don’t go deeper,” Torbert says. “Perhaps what’s really missing to allow deeper savings to happen is owners and tenants coming together and saying, why don’t we put a bigger percentage of the building on the table to be discussed to make it more efficient.”

Stephanie Hodgin, RMI analyst, emphasizes that we need to educate both owners and tenants about their energy use. “While some tenants are very committed to sustainability and are working to incorporate it into all their business practices, many others have little awareness of sustainable practices and have never thought about how much energy they are using within their space,” she says. When it’s the tenants that are pushing for energy efficiency, often the owners don’t know enough about what the options are or how to best implement them. Building energy efficiency is rarely a priority for both parties.

“The information out there is too complicated, there are too many people giving guidance, and too many options,” he adds. That’s why RMI has partnered with BOMA to develop a free tenant and owner guide, scheduled to release in early 2012, as an addendum to the BOMA Green Lease Guide, as well as a stand-alone document.

“We want to provide something simple and say, here are some principles to follow. It will present the questions you need to ask and where to start to get the structures in place” to create a landlord-tenant partnership in the interest of building energy efficiency, says Torbert.

Hodgin says, “The piece that we are hoping to provide is, how do you take the first steps and foster collaboration? Deeper and faster energy savings is what we’re trying to get at. Our goal is to spark more conversations and get more collaborative processes going.”