Green Leasing: Legal Issues

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Presentation given on February 23, 2010 regarding sustainability, green building and green leasing legal issues.

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Green Leasing: Legal Issues

  1. 1. Robert C. Newcomer [email_address] The Lang Legal Group LLC 404.320.0990 <ul><li>Commercial Litigation </li></ul><ul><li>Business, environmental and real estate law </li></ul><ul><li>LEED-AP (2008) </li></ul><ul><li>Sustainable Atlanta: Building Taskforce: </li></ul><ul><ul><li>Sustainable Building Taskforce (2008) </li></ul></ul><ul><li>Urban Land Institute: </li></ul><ul><ul><li>Sustainability Committee – </li></ul></ul><ul><ul><li>Community Assistance, Co-chair </li></ul></ul><ul><ul><li>Technical Assistance Program </li></ul></ul><ul><li>Green Chamber of the South: </li></ul><ul><ul><li>Board Member and Officer </li></ul></ul>
  2. 2. Commercial Landlord–Tenant Law Green Lease Agreements <ul><li>Green Building: </li></ul><ul><ul><li>Sustainability </li></ul></ul><ul><ul><li>Environmental impacts </li></ul></ul><ul><ul><li>Rating systems </li></ul></ul><ul><li>Legal Issues: </li></ul><ul><ul><li>Green Leases </li></ul></ul><ul><ul><li>Legislation </li></ul></ul><ul><ul><li>Development and Construction </li></ul></ul><ul><ul><li>Managing Risk </li></ul></ul><ul><ul><li>Marketing Green </li></ul></ul><ul><ul><li>Buying and Selling Green </li></ul></ul>
  3. 3. Sustainability <ul><li>“ To meet the needs of the present without compromising the ability of future generations to meet their own needs.” </li></ul><ul><li>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.” </li></ul>
  4. 4. U.S. Building Impacts Test 13 % Water Use 39 % Greenhouse Gas Emissions (CO2) 60 % Total Waste (non-industrial) 72 % Electricity Consumption
  5. 5. GLOBAL CO 2 EMISSIONS ( BY SECTOR) <ul><li>#1 Buildings </li></ul><ul><li>#2 Transportation </li></ul><ul><li>#3 Industry </li></ul>
  6. 6. Global Warming?
  7. 7. Scientific Basis
  8. 8. Carbon-based regulation . . . ? <ul><li>Massachusetts v EPA (Sup. Ct., 2007) </li></ul><ul><li>EPA “Endangerment Finding” (April 2009) </li></ul><ul><li>Federal regulation . . . Waxman-Markey </li></ul><ul><ul><li>Cap & trade, carbon tax, ??? </li></ul></ul><ul><li>Implications for real estate . . . ??? </li></ul>
  9. 9. Sustainable Buildings: The Triple Bottom Line <ul><li>Less environmental impact </li></ul><ul><li>Greater energy efficiency </li></ul><ul><li>Increased marketability </li></ul><ul><li>Higher lease rates </li></ul><ul><li>Improved cap rates </li></ul><ul><li>Improved productivity </li></ul><ul><li>Reduced absenteeism </li></ul><ul><li>Community connectivity </li></ul>
  10. 10. Green Building
  11. 12. LEED-NC (v2.2) <ul><li>Sustainable Sites </li></ul><ul><ul><li>14 total points (1 prerequisite + 14 credits) </li></ul></ul><ul><li>Water Efficiency </li></ul><ul><ul><li>5 total points (no prerequisites + 5 credits) </li></ul></ul><ul><li>Earth & Atmosphere </li></ul><ul><ul><li>17 total points (3 prerequisites + 6 credits) </li></ul></ul><ul><li>Materials & Resources </li></ul><ul><ul><li>13 total points (1 prerequisite + 13 credits) </li></ul></ul><ul><li>Indoor Environmental Air Quality </li></ul><ul><ul><li>15 total points (2 prerequisites + 15 credits) </li></ul></ul><ul><li>Innovation in Design </li></ul><ul><ul><li>5 total points (no prerequisites + 5 credits) </li></ul></ul><ul><li>_____________________________________________ </li></ul><ul><ul><li>7 prerequisites + 58 credits (69 total points) </li></ul></ul>
  12. 13. LEED: Project “Certification” <ul><li>Register project </li></ul><ul><li>Complete online submittals and document compliance with </li></ul><ul><ul><li>All prerequisites; and </li></ul></ul><ul><ul><li>Each (eligible) credit sought </li></ul></ul><ul><li>Respond to questions and any requests for supplemental information </li></ul>
  13. 14. Four Levels of LEED Ratings: Green Buildings worldwide are certified with a voluntary, consensus-based rating system. USGBC has four levels of LEED.
  14. 19. 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 -
  15. 22. Cost of Green ?
  16. 23. By default, non-green buildings will be known as BROWN buildings <ul><ul><ul><li>Less demand </li></ul></ul></ul><ul><ul><ul><li>Lower rents </li></ul></ul></ul><ul><ul><ul><li>Higher operating cost </li></ul></ul></ul><ul><ul><ul><li>Decreased value </li></ul></ul></ul><ul><li>Go GREEN or go home </li></ul>
  17. 24. U.S. Office Rental Rates: “Green” v. “Brown” Performance <ul><li>Market Bifurcation Starts in 2009? </li></ul>Average Rents PSF 2009 | 2010 | 2011 | 2012 | 2013 | 2002 | 2003 | 2004 | 2005 | 2007 | 2008 | CLASS A CLASS B
  18. 25. Green Building Legal Issues <ul><li>GREEN Lease Agreements </li></ul><ul><li>Legislative Mandates and Incentives </li></ul><ul><li>Development and Construction </li></ul><ul><li>Marketing Green </li></ul><ul><li>Buying and Selling Green Buildings </li></ul>
  19. 26. Green Leases: Economic structure <ul><li>Gross lease: </li></ul><ul><ul><li>Rent (includes fixed share of operating costs) </li></ul></ul><ul><li>Gross lease with rent escalation provisions </li></ul><ul><li>Net lease: </li></ul><ul><ul><li>Rent (base) + some or all operating costs </li></ul></ul><ul><li>“Split incentive” problem </li></ul>
  20. 27. Green Leases: Sharing energy cost savings <ul><li>LL will install, at LL’s sole cost, energy efficient features to reduce electricity usage as more particular described in Exhibit A. </li></ul><ul><li>LL will deliver to T written certification from licensed engineer setting forth projected monthly energy savings (“Monthly Savings”). </li></ul><ul><li>On the day T is first obligated to pay rent and continuing throughout the term of the Lease, T shall pay to LL, as additional rent, __ percent (__%) of the Monthly Savings. </li></ul>
  21. 28. Green Leases: Key Terms <ul><li>Green features and sustainability/environmental standards </li></ul><ul><li>Building requirements </li></ul><ul><ul><li>Certification/Recertification </li></ul></ul><ul><ul><li>Leasehold improvements </li></ul></ul><ul><ul><ul><li>Work agreement </li></ul></ul></ul><ul><ul><ul><li>Operating expenses </li></ul></ul></ul><ul><ul><li>Relocation (if applicable) </li></ul></ul><ul><li>Use and occupancy </li></ul><ul><li>Services and Utilities </li></ul><ul><li>Maintenance and repair </li></ul><ul><li>Parking </li></ul><ul><li>Data collection and disclosure/reporting </li></ul><ul><li>Allocation of sustainability incentives </li></ul><ul><li>Compliance tools, remedies and damages </li></ul>
  22. 29. Green Leases: Repairs, alterations and improvements <ul><li>Standard lease: </li></ul><ul><ul><li>LL consent based on type of work or cost </li></ul></ul><ul><li>Green lease: </li></ul><ul><ul><li>LL retains consent without exceptions or specify requirements for work </li></ul></ul><ul><ul><li>Timing of work </li></ul></ul><ul><ul><li>(Pre-) Approved contractors </li></ul></ul><ul><ul><li>Reconstruction following casualty event </li></ul></ul>
  23. 30. Green Leases: Proposed T work letter provisions <ul><li>Comply with LL requirements for construction waste management and recycling </li></ul><ul><li>Certify commissioning of all HVAC, lighting and energy systems and provide data to LL </li></ul><ul><li>Utilize: </li></ul><ul><ul><li>Energy-efficient lighting fixtures and occupancy-based controls </li></ul></ul><ul><ul><li>Low-flow toilets, waterless urinals and sensor-controlled faucets </li></ul></ul><ul><li>Wood shall be FSC-certified </li></ul><ul><li>Paints, stains, sealants and adhesives shall be water-based, low- or no-VOC </li></ul><ul><li>Carpet systems shall be Green Label Plus </li></ul>
  24. 31. Green Leases: Green Cleaning Policy <ul><li>Products must be: </li></ul><ul><ul><li>Environmentally safe, phosphate-free, non-corrosive, non-flammable, low-VOC emitting, fully biodegradable </li></ul></ul><ul><ul><li>“ Green” (per Green Seal GS-37 Standard) </li></ul></ul><ul><ul><li>Packaged ecologically </li></ul></ul><ul><li>Paper products must be 100% recycled content </li></ul><ul><li>Garbage bags must be biodegradable or compostable </li></ul><ul><li>Vacuum cleaners must be capable of removing ___% of harmful particles, including dust, mold spores and most microscopic respiratory irritants and allergens. </li></ul><ul><li>Tenant shall properly separate recycling material from trash </li></ul><ul><li>Tenant shall provide MSDS to LL for all janitorial supplies provided by T </li></ul>
  25. 32. Green Leases: Double-edged Sword? <ul><li>T may have additional claims against LL under quiet enjoyment provision </li></ul><ul><li>LL may be held to a higher standard for building performance because of the green features </li></ul>
  26. 33. Legal Issues: Legislation <ul><li>Chamblee </li></ul><ul><li>Doraville </li></ul><ul><li>City of Atlanta (proposed) </li></ul>
  27. 34. Legal Issues: Legislation <ul><li>“ Certified”? </li></ul><ul><li>Register project </li></ul><ul><li>Meet prerequisites </li></ul><ul><li>Document compliance with sufficient credits </li></ul><ul><li>Supplement information </li></ul><ul><li>Certified </li></ul><ul><li>“ Certifiable”? </li></ul><ul><li>DEFINE? </li></ul><ul><ul><li>What must be done? </li></ul></ul><ul><li>Determine: </li></ul><ul><ul><li>Who decides? </li></ul></ul><ul><ul><li>How is decision made? </li></ul></ul><ul><li>??? </li></ul>
  28. 35. Legal Issues : Development and construction risk management <ul><li>Assemble experienced green project team </li></ul><ul><li>Document responsibility and allocate risk </li></ul><ul><li>For new green materials, products and technologies: </li></ul><ul><ul><li>Review technical data and warranties </li></ul></ul><ul><ul><li>Research product manufacturer </li></ul></ul><ul><ul><li>Include representations, extended warranties and guarantees when possible </li></ul></ul><ul><li>Certification consultant should review all change orders, material substitutions and construction practice changes </li></ul><ul><li>Request, collect and retain data and documentation </li></ul>
  29. 36. Failure to plan . . .
  30. 37. Legal Issues: Marketing green <ul><li>Brokers, agents and marketing professionals </li></ul><ul><li>Agree on proper message </li></ul><ul><li>Address marketing message in contract </li></ul><ul><li>FTC “ Green Guides ” claim standards: </li></ul><ul><ul><li>Substantiated </li></ul></ul><ul><ul><li>Clear and qualified </li></ul></ul><ul><ul><li>Does not overstate benefits </li></ul></ul>
  31. 38. Legal Issues: Buying and selling green buildings <ul><li>Data collection and disclosure: </li></ul><ul><ul><li>LEED is no guarantee of performance - MPRs </li></ul></ul><ul><ul><li>Mandated by government </li></ul></ul><ul><ul><li>Demanded by tenants/buyers </li></ul></ul>
  32. 39. Test
  33. 41. Robert C. Newcomer [email_address] The Lang Legal Group LLC 404.320.0990 <ul><li>QUESTIONS? </li></ul>

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