the greenest lease around: neea and unico

The Greenest Lease Around:
NEEA and Unico Collaborate on a Win-Win
In October, the Northwest Energy Efficiency Alliance
(NEEA) completed the move into our new offices
in downtown Portland’s Commonwealth Building,
securing a cost-effective, energy-efficient space with
an environmental footprint well below the market norm.
Earlier in this series, you read about the carbon factor
(how the carbon footprint of our employees’ commutes
factored into our choice of locations) and the human factor
(how a cross-functional team collaborated to identify
and create an office that meets our needs). Now, learn
how we introduced innovative green concepts in another
traditionally tricky area – the commercial lease.
Wins All Around
Because all parties ultimately felt the lease package made
financial sense, it would be a misnomer to say that some
items were “wins” for the tenant and others for the landlord.
So, here are some of the green provisions that ultimately
made it into the lease, which really were wins all around.
Portland’s Commonwealth Building
Photo Credit: Steve Collins, Small Ritual
“If you decide sustainability practices
are important to you, you should
make your landlord commit to them.
There are enough landlords out there
who will.”
–Brian Pearce, Unico
Category
Lease Provision
Implications
Design and construction
Tenant
improvement (TI)
practices
The lease specifies that NEEA agrees to
perform all TI work in accordance with
sustainability practices, engage a thirdparty sustainability consultant to assist
with our TI, and pursue and maintain LEED
for Commercial Interiors certification for
our space. The landlord, Unico Properties,
is obligated to cooperate with these
efforts, including such specific activities
as modifying their construction waste
processes. (We didn’t let ourselves off the
hook there: we’re required to recycle or
reuse construction waste and report this
activity to the landlord.)
NEEA and Unico both proactively
committed to these activities, a rare sight
in today’s market. Because of this and
other sustainability commitments, our
brokers are confident we have the greenest
lease in the city. Though these provisions
might impose additional costs on NEEA
and Unico, our executives supported them
with the understanding that they’re part of
our mission and core values, and Unico was
confident that the built-out space would
be more re-leasable in the future if it were
built green now.
The Greenest Lease Around: NEEA and Unico Collaborate on a Win-Win
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Category
Lease Provision
Implications
Design and construction (continued)
Tenant
improvement costs
Unico agreed to a “turnkey” TI, where
they essentially incur all the costs of
building out the space and oversee
the process, then hand us the key to
the space. If the project exceeded the
agreed-upon budget, those extra costs
would be assumed by Unico.
NEEA’s TI posed some challenges for the
process. For example, the construction
budget assumed building-standard lighting,
but NEEA’s selected lighting package was
more costly; the indoor bicycle storage area
is an unusual allowance, but one we felt
was critical to our corporate culture. These
items required us to negotiate and redefine
what exactly “turnkey” means – what
specifications and standards should be used
to price the project, what is considered
an “additional” cost beyond the building
standard, and who should pay for it?
Interior of NEEA’s office
The Greenest Lease Around: NEEA and Unico Collaborate on a Win-Win
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Category
Lease Provision
Implications
Unico is required to benchmark energy
and water use in ENERGY STAR’s national
benchmarking tool, Portfolio Manager,
and disclose performance data to
NEEA quarterly.
Though benchmarking is a common
practice among environmentally-conscious
real estate owners like Unico, the lease
kicked their efforts into high gear.
Benchmarking creates transparency into the
building’s utility consumption and costs.
The lease requires Unico to strive to attain
an ENERGY STAR label for the building
(applicable to buildings earning a 75 or
higher in the 1-100 energy performance
rating system within Portfolio Manager).
The lease holds Unico accountable for
making every effort to meet a welldefined, accepted industry standard for
energy performance – removing some
of the ambiguity about what constitutes
“energy efficiency.”
NEEA’s electricity consumption must
be separately metered. This makes it
possible to structure our lease as a net
lease, in which our utility costs are our own
responsibility – and are under our control.
In theory, a net lease with separate
metering ensures that a tenant is financially
motivated to operate their space efficiently
and invest in energy-efficient technologies.
On a practical level, the accounting is tricky
unless all other tenants in the building are
sub-metered as well. Other tenants at the
Commonwealth Building have expressed
an interest in separate metering in pursuit
of LEED-CI certification; the property
management team is currently assessing
the best way to implement this, while
determining how to track and allocate
energy costs in the meantime when only
some tenants are directly metered.
In many leases, utility costs are charged as a
total “utility” line item that includes multiple
building services. However, Unico is required
to disclose specific, itemized energy costs,
separate from other utility items such as
janitorial, water, and trash removal.
This gives NEEA insight into the true impact
of efficiency measures on the total cost
of occupancy. If utility costs were lumped
together, changes in the costs of one
service (such as janitorial) could be confused
with changes in another (such as energy).
In this example, decreasing janitorial costs
could mask increasing energy costs, and the
tenant may not realize that efficiency goals
are not being met.
Operations
Benchmarking
The ENERGY STAR®
label
Separate metering
Itemizing energy
costs
The Greenest Lease Around: NEEA and Unico Collaborate on a Win-Win
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Category
Lease Provision
Implications
The lease stipulates that Unico will form a
Tenant Sustainability Committee to act as
a voice for all tenants in decisions about
building operations. NEEA is obligated to
comply with the Sustainability Committee’s
current and/or future programs intended
to promote sustainability at the building
(including recycling, energy and water
conservation efforts, and indoor air
quality), and we’re prohibited from
operating our space in a manner that
would negatively impact our ENERGY STAR
rating or LEED certification.
Some landlords might feel that they’d lose
some control over building operations
by having a committee provide input on
decisions, but Unico was open to the idea.
The committee will give other tenants the
chance to easily join NEEA in sustainable
practices and procedures – whether or not
they previously considered them. Future
leases at the Commonwealth Building will
incorporate similar provisions for tenant
compliance with building sustainability
initiatives. Certain building-wide services
mandated in NEEA’s lease (such as green
cleaning) will inevitably impact other
tenants in one way or another, so why not
involve them more directly?
The hours of operation specified in the
lease are 7:00am to 6:00pm, Monday
through Friday. For HVAC services to be
provided on Saturdays, we’re required
to give the landlord advance notice –
in contrast with the many commercial
buildings that regularly condition empty
space on weekends.
Most landlords believe that if Saturdays are
included in lease hours, the building must
always be conditioned during that time –
even if it’s sitting empty. In our lease, we
reversed these customary assumptions
about Saturday HVAC service, setting an
example for other landlords and tenants
looking for mutually-agreeable, financiallysound efficiency strategies.
Most leases define the operating expenses
that the landlord is allowed to pass
through to the tenant. In NEEA’s lease,
this definition is expanded to include the
costs of energy-efficiency improvements –
meaning Unico is incentivized to improve
efficiency because they can recover these
improvement investments fairly quickly.
The next challenge? Convincing the other
90% of the building tenants to agree to this
model, so that it can be used effectively for
common-area projects.
Operations (continued)
Ongoing green
initiatives at the
building
Hours of operation
Operating expenses
“People are fixated on the lease itself, but there’s a whole package of documents that all link
together. If you don’t have your ducks in a row, something might slip through the cracks in
one of those other documents. It’s not a green lease, it’s a green lease document set.”
–Jack Davis, NEEA’s BetterBricks Initiative
The Greenest Lease Around: NEEA and Unico Collaborate on a Win-Win
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Category
Lease Provision
Implications
General lease provisions
Because longer leases are inherently more
sustainable (and earn a LEED credit), NEEA
committed to a 10-year lease.
Some tenants don’t have the flexibility or
stability to commit to a long lease, but all
parties tend to benefit from them. The
landlord gets a steady income, NEEA locks
in our green lease terms and our rental
rate, and fewer office moves mean less
waste and natural resource consumption.
The lease gives NEEA the right to share
some of its provisions with third parties in
connection with its work...
…the reason that you’re able to read this
article today!
Lease term
Educating the
market
In our lease negotiations, we often aimed pretty high. One of our bolder ideas that didn’t make it into the lease:
a financial penalty for the landlord if the building were to fall below a specified energy performance threshold.
We also originally wanted the landlord to post the ENERGY STAR rating in the building’s lobby each month, but
settled for the requirement that Unico must disclose this data directly to NEEA quarterly.
Before diving into the leasing process, our brokers
(Gordon King and Mike Holzgang of Colliers
International) coached us on setting reasonable
expectations as well as consistently and continually
communicating our needs to the landlord so both
parties always knew what was coming next. Our
brokers also played the critical role of organizing
all of NEEA’s diverse, dynamic requirements and
–Gordon King, Colliers International
understanding their implications for not only our
lease, but also the various associated design documents: materials that stipulate ongoing operating conditions,
the tenant improvement plan, and contractor rules and regulations. Some of the most substantive components
of the “lease” actually appear in these other documents, including
requirements that contractors use practices and products compliant with
our LEED goals. It’s important to put leases in context: you’re not just
negotiating a lease – you’re determining the plan for your occupancy of
the building over the next ten years.
“It’s a ‘win’ to get these elements in the
actual lease documents. On the tenant’s
behalf, this will hedge against future sales
of the building: if the building sells, ‘I’ll try
my best’ clauses don’t really cut it.”
A Two-Way Street
From day one, our lease was intended to be a partnership with the
landlord (including the Commonwealth Building’s General Manager,
Brian Pearce). Our brokers only introduced us to landlords they
deemed to be willing to enter into such a partnership. To make
the cut, not only did the owner need to have space available in our
target location priced within our budget, they also had to share our
sustainability vision to some degree – and come to the process with
an open mind. A number of buildings in Portland would have met
Exterior of the Commonwealth Building
The Greenest Lease Around: NEEA and Unico Collaborate on a Win-Win
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most of our criteria for location, available
space, and rent; and a number of landlords
would have happily partnered with us on
a groundbreaking green lease. At the
Commonwealth Building, we found the
intersection of both.
Economics certainly flavored the discussions.
It is a tenant’s market throughout most of the
real estate industry, with landlords making
concessions to attract or retain tenant
Interior of NEEA’s offices
companies. NEEA’s lease was also important
to Unico and the Commonwealth Building
for building-specific economic reasons. Though this backdrop may have tipped the scale in NEEA’s favor on some
items, Unico was already pursuing sustainability initiatives and green leases in their portfolio, making them betterpositioned to respond to our requirements than other landlords might have been.
So why push for these items to be included in the lease at all, if the landlord is also environmentally-conscious?
Wouldn’t it be sufficient to have a separate policy document in which the tenant and owner put their mutual
sustainability goals in writing? The advantage is that if the building sells, the next owner will be required to stick
to their predecessor’s commitments if they are written into the lease.
Brian is confident that Unico will be able to continue to do business with NEEA and Colliers International on a
long-term basis because of their willingness to partner and innovate in this lease. Unico is also embracing the
Commonwealth Building’s new role as a hub for green businesses, hosting publicity and networking events
and promoting tenants’ green leases in the local media. In the real estate industry, such relationships and
reputations are critical to success.
Moving the Market
Embodying the emerging culture shift among some eco-minded owners, Unico accepted the costs of our green
build-out and the burden of some of our green lease provisions, with the knowledge that this would put them at
the forefront of a market transformation to redefine “normal” landlord costs and services. Unico is now expanding
the use of its green lease addendum for new and extended leases, partly inspired by the NEEA transaction.
Our brokers from Colliers International are also recommending green leasing to their other clients, using the
NEEA lease as a model. They’ve found that perhaps seven out of ten tenants have some level of interest in
discussing the pros and cons of a green lease. If the green lease provisions are considered early and often,
and all team members informed and educated about the process from the start, those that take action will find
themselves with mutually-beneficial results that are good for the environment and the bottom line. In NEEA’s
new home, we look forward to seeing how our green lease plays out in practice.
Additional Resources
To learn more about NEEA’s move into new space, visit http://neeasuitesearch.wordpress.com. Stay tuned
for upcoming articles on the space planning process and our LEED CI certification.
For more on green leases, read the briefing 10 Goals for Green Leasing. See also the briefing Leasing
& Energy: Allocations.
BetterBricks. Powerful Energy Ideas. Delivered by NEEA.
The Greenest Lease Around: NEEA and Unico Collaborate on a Win-Win
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