Green Law for Real Estate_Green Legal Matters 2010_10-9-2010

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Green Law for Real Estate_Green Legal Matters 2010_10-9-2010

  1. 1. 1 Green Legal Matters Conference New Orleans, LA Green Law for the Real Estate Practice Jon F. “Chip” Leyens, Jr. Steeg Law Firm, LLC New Orleans, LA jleyens@steeglaw.com 504.582.1231 Robert C. Newcomer The Lang Legal Group LLC Atlanta, GA rnewcomer@langlegal.com 404.320.0990
  2. 2. 2 Green Legal Matters Conference New Orleans, LA Green Law for the Real Estate Practice  Green Building:  Sustainability  Environmental impact and economic opportunity  Rating systems and legal opportunity  Government Mandates and Policy:  Local  State  Federal  Model Green Building Codes:  Standard 189.1  International Green Construction Code
  3. 3. 3 Sustainability  “To meet the needs of the present without compromising the ability of future generations to meet their own needs.”  Green building is the practice of creating structures and using processes that are environmentally responsible and resource- efficient throughout a building's life-cycle from siting to design, construction, operation, maintenance, renovation and deconstruction.”
  4. 4. 4Test 13% Water Use 39% Greenhouse Gas Emissions (CO2) 60% Total Waste (non-industrial) 72% Electricity Consumption U.S. Building Impacts
  5. 5. 5 GLOBAL COGLOBAL CO22 EMISSIONSEMISSIONS ((BY SECTOR)BY SECTOR) #1 Buildings #2 Transportation #3 Industry
  6. 6. 6 Global Warming?
  7. 7. 7 Scientific Basis
  8. 8. 8 Carbon-based regulation . . . ?  Massachusetts v EPA (Sup. Ct., 2007)  EPA “Endangerment Finding” (April 2009)  Federal regulation . . . Waxman-Markey  Cap & trade, carbon tax, ??? Implications for real estate . . . ???
  9. 9. 9 Green Building
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  14. 14. 14 LEED-NC (v3)  Sustainable Sites  1 prerequisite + 14 credits = 26 possible points  Water Efficiency  1 prerequisite + 3 credits = 10 possible points  Energy & Atmosphere  3 prerequisites + 6 credits = 35 possible points  Materials & Resources  1 prerequisite + 8 credits = 14 possible points  Indoor Environmental Air Quality  2 prerequisites + 15 credits = 15 possible points  Innovation in Design  6 (bonus) points  + REGIONAL PRIORITY  4 (bonus) points __________________________________________ 8 prerequisites and 110 possible points
  15. 15. 15 Four Levels of LEED Ratings: Green Buildings worldwide are certified with a voluntary, consensus-based rating system. USGBC has four levels of LEED.
  16. 16. 16 LEED: “Certification” Process  Register project  Prepare/Submit application:  “LEED Online”  Prerequisites and each (eligible) credit  Regional Priority Credits  Credit interpretations and rulings (CIRs)  Respond to questions and submit any supplemental information requested  Certification (or Denial with Appeal Review)
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  20. 20. 20 LEED EB-O&M (projected 2009 – 2013) 2006 2007 2008 2009 2010 2011 2012 2013 <50 <100 <1,000 <5,000 10,000 22,000 30,000 50,000 50,000 - 45,000 - 40,000 - 30,000 - 25,000 - 20,000 - 15,000 - 10,000 - 5,000 - 1,000 -
  21. 21. 21 Cost of Green?
  22. 22. 22 U.S. Office Rental Rates: “Green” v. “Brown” Performance Market Bifurcation in 2010 . . . ? 2009 | 2010 | 2011 | 2012 | 2013 | 2002 | 2003 | 2004 | 2005 | 2007 | 2008 | CLASS A CLASS B AverageRentsPSF
  23. 23. 23 By default, “non-green” buildings will become known as BROWN buildings  Less demand  Lower rents  Higher operating cost _______________________________________ = Decreased value Go GREEN or go home
  24. 24. 24 Green Law for the Real Estate Practice  Government Mandates and Policy:  Local  City of Atlanta (proposed)  State  Federal
  25. 25. 25 Green Law for the Real Estate Practice Green Legislative Mandates: “Certified”  Register project  Pay fees  Document compliance  Prerequisites  Sufficient Credits  Supplement information = Certified “Certifiable”  Define:  What must be done?  Determine:  Who decides?  How is decision made? = ???
  26. 26. 26 Green Law for the Real Estate Practice Model Green Building Codes:  Standard 189.1  January 2010  USGBC, ASHRAE and IES  International Green Construction Code  March 2010 (v. 1.0)  v. 2.0 comment period open (Nov. 2010 release?) Movement toward integration
  27. 27. 27 Integrated Design  Each system affects the functioning of the others and all systems must be harmonized to perform together effectively.  Optimize performance and minimize cost.  Integrated design teams meet early and often during design and construction. Legal issue: Allocate and document responsibility for all tasks and manage YOUR client’s risk.
  28. 28. 28 Robert C. Newcomer The Lang Legal Group LLC rnewcomer@langlegal.com Atlanta, Georgia http://www.linkedin.com/in/robertnewcomer 404.320.0990 Commercial Litigation Business, environmental and real estate law LEED-AP (since 2008) Sustainable Building Taskforce (since 2008) Urban Land Institute:  Technical Assistance Program, Co-Chair  Sustainability Committee (former Co-chair, Community Assistance) Green Chamber of the South:  Inaugural Director, Board Secretary EduKalb, Inc.  Inaugural Director, Board Treasurer
  29. 29. 29 Construction  Negotiation of green requirements in contract documents with architect and contractor  AIA, DBIA & ConsensusDocs all have green riders &/or clauses  Be careful that design professional does not warrant green certification; warranties not covered by professional liability insurance  Coordination among consultant pursuing certification and all other parties involved in the design, engineering and construction process
  30. 30. 30 Insurance  Property Insurance  Additional coverage for builder’s risk and completed structure policies  Increased cost of certain green systems and building commissioning costs  Liability  Some coverage available if building does not meet green certification requirement
  31. 31. 31 What is a “green” lease?  No single answer  Is a “green lease” a “red herring”?  Depends on:  What is a “green” building  What does each party want to achieve by entering into a “green” lease  Cost Savings  Image  Corp. requirement  Government or contract requirements
  32. 32. 32 Lease Basics  Premises (that’s the easy part?) Hard Part  Who does what?  How is it paid for?  What happens if you don’t do what you’re supposed to do?
  33. 33. 33 Some Provisions to Consider in a Green Lease  Applicable Law (and applicable rating system?)  Operating Expenses  Maintenance & Repairs  Alterations  Use Clause  Operating Hours  Landlord Services  Utilities  Casualty  Default  Work Letter  Rules & Regs
  34. 34. 34 You have to be Gross to be Green?  Difference between a gross lease and a net lease  The argument that only a gross lease can be green  Problems with the argument  Market considerations: If landlord can’t recover $, landlord won’t spend $  Net lease gives landlord way to pay for improvements  Tenants look at triple net costs when evaluating space – landlord still has incentive to reduce operating costs  Triple net leases are not perfectly efficient – landlords don’t pass through all operating costs
  35. 35. 35 How to “green” a lease  Current approaches to “greening” a lease  Add green language to existing lease clauses  Use of a green rider
  36. 36. 36 Green Issues Under Existing Leases  Significant portion of green issues for next few years will be dealt with through existing leases (or extensions of existing leases)
  37. 37. 37 Existing Lease Issues  Applicable laws  If a new law mandates green standards, who bears the cost - can landlord pass through to tenant?  What if a new law mandates energy conservation measures, but tenant has 24/7 operations or other high energy consumption use?
  38. 38. 38 Existing lease issues (cont’d)  Operating expenses and capital expenditures  Landlord decides to install a roof-top garden  Nice amenity and might save energy costs, reduce stormwater run-off or produce water for irrigation  Justified in charging tenants for capex?  Consider the nature of a “green” expenditure and thus whether it can it be passed through to tenants:  Is it capital?  Is it routine O&M? Can increased costs or “green” materials be passed through?  Marketing expense in touting green measures?  What is effect of “comparable building” standard?
  39. 39. 39 Existing lease issues (cont’d)  Utilities  How is consumption measured/paid for?  Who pays if going green requires metering?  Can the landlord impose charges for above (or above-“green”) average consumption?  Alterations  Manner of performance (ventilation, disposal, etc.) and materials, fixtures, equipment can be important for green rating  LEED, Energy Star or similar criteria may apply to alterations, though not to original  Additional cost to tenant, and if so what can it do?
  40. 40. 40 Existing lease issues (cont’d)  Maintenance  Can the landlord impose new “green” requirements with regard to the tenant’s space?  What if the landlord’s new green program materially increases the cost to maintain common areas – can the increase be passed through to the tenant?  Rules and Regulations  Can the landlord amend to impose green operating requirements on tenants; if so, what are remedies for a violation?
  41. 41. 41 Some Hypotheticals  Tenant in a multi-tenant office building installs waterless urinals and low flow toilets in its bathrooms. Who gets the benefit?  The building owner wants to install a roof-top garden. What happens?  The brokers entered into an LOI that promises the tenant that the new building to be constructed will be green. What do you do?  The local jurisdiction enacts a green retro-fit code. Do you have to retro-fit your form lease (e.g., in order to “properly” allocate costs between landlord and tenant)? Is the new retro-fit code an “environmental law”?
  42. 42. 42 Some Hypotheticals  The tenant wants to install solar panels on the roof. What do you do?  Your client tells you that they need a green lease form. What do you do?  Your client tells you that they have to start leasing green space. What do you do?  Your client wants to use its renewal allowance to do a green retrofit of its existing space. How do you make sure that your client gets the full benefit of any cost savings (operating costs, tax credits, etc.) attributable to the retrofit?
  43. 43. 43 Additional Sources  ADDITIONAL SOURCES  Brooks, S. Michael. “Green Leases and Green Buildings.” American Bar Association Section of Real Property and Trust and Estate Law, Probate & Property Magazine (November/December 2008): 22-26.  California Sustainability Alliance, Green Leases Toolkit, www.sustainca.org  Connall Jr., Desmond D., Jeffrey A. Moerdler, and Eric Mullen. “Get Your Tenants to Comply with Your Building’s ‘Green’ Standards.” Commercial Lease Law Insider. www.commericalleaselawinsider.com, June 1, 2003.  Costa, Anthony E., Samuel J. Morris, III, and Sam Hunter. “Green Lease Policies and Procedures for Lease Acquisition.” Memorandum to Assistant Regional Administrators, PBS, Regional Realty Service Officers, December 27, 2007. (GSA Green Building Requirements)  http://159.142.162.71/gsa/cm_attachments/GSA_DOCUMENT/RSL2007- 12_R2-y08-l_0Z5RDZ-i34K-pR.pdf  EPA’s Green Buildings. http:// www.epa.gov/greeningepa/projects/index.htm (website regarding United States Environmental Protection Agency’s green leasing initiatives).
  44. 44. 44 Additional Sources  Grais, Ronald B. and Kristen M. Boike. “Evolving Model Leases – A Comparison of the BOMA and REALpac Green Leases.” Emerging Issues Commentary, Lexis Nexis Database, October 2008.  Grais, Ronald B. and Kristen M. Boike. “Green Leasing – The Changing Environment of Leasing.” Emerging Issues Commentary, Lexis Nexis Database, June 2008.  Green Lease Guide for Commercial Office Tenants, http://www.investa.com.au/Common/Pdf/Sustainability/GreenLeaseGuide.pdf  Milian, Rudolph E. The Retail Green Agenda: Sustainable Practices for Retailers and Shopping Centers. New York: International Council of Shopping Centers, 2008.  Natural Resources Defense Council (lease energy-saving work product expected Spring 2009).  Real Property Association of Canada. http://www.realpac.ca  Teitelbaum, Steven A. BOMA’s Guide to Writing a Commercial Real Estate Lease, Including Green Lease Language. Washington, D.C.: Building Owners and Managers Association International, 2008. www.boma.org  U.S. Green Building Council. http://www.usgbc.org

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