LLs and tenants improving building energy use

In a recent Tenant Advocate article “Energy Management Apps Any Organization Can Afford”  Ashley Halligan, an analyst at Software Advice, describes the emergence of accessible low-cost applications that help building owners/operators identify opportunities to improve energy efficiency.  This article is encouraging because while there are large full service software suites that can be afforded by larger players, similar services are accessible to even mom & pop landlords who are equally motivated to improve their property’s energy consumption. This allows smaller owners to focus investment on actual upgrades or opportunities investment in driving efficiencies. Using software to identify and implement solutions is crucial in improving building energy use and while I am all for such an approach this article brought to mind another huge area to help drive improvements: Leases.

I am continuously encouraged by the approach owners & operators of commercial buildings are taking to improving energy use in their properties. These groups see such opportunities as not only a way to improve their bottom-lines but also as a way to attract tenants who are increasingly sensitive to green initiatives. However, on the tenant side it often seems the interest is mainly driven by motives to improve perception in the marketplace whether with talent or with customers, with perhaps the exception being corporate campus occupiers. Smaller players are limited in driving such improvements.

While these tools are great steps in the right direction and perception is indeed a healthy incentive for tenants, LL’s can align their common interests with tenants through lease structures and incentives. Even though careful consideration is given in many leases on how operating expenses are passed through to occupiers and how those expenses will grow based on base year consumption rates, the upside for improvement could be greater.  Leases could use more progressive terms with regard to energy use including opportunities to save on pass thru expenses/rent in the case of triple net (NNN) leases. Improving tenant’s incentives to reduce energy use both empowers those capable of changing their usage behavior and helps LL’s gain an ally in their quest to reduce opex.

This need not become a contentious point in leasing but rather an area that could establish common ground in a given transaction.

-Link to referenced article:    http://thetenantadvocate.wordpress.com/2013/01/22/energy-management-apps-any-organization-can-afford/


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