Tenants and landlords we work with in commercial properties often face the same the question: who absorbs the financial cost and who actually receives the efficiency benefits from energy efficiency upgrades? Anytime there are multiple stakeholders involved in the management and usage of a building, mismatched and often conflicting incentives can create a stifling barrier to investing in efficiency upgrades that would effectively benefit both parties. Here is a summary of the scenarios we see:
Profitability is the main concern of any property owner/landlord. Energy efficiency can directly affect the bottom line in a number of ways whether it is by lower operating costs by consuming less energy, or reducing vacancy rates by improving the usability and appeal of the facility. Upgrading the technologies within a building certainly increases the facility value, but it does not come without an initial financial investment. The immediate returns on these upgrades are typically more beneficial for the tenants than the owners, which suddenly makes it a harder pill to swallow when considering this investment could benefit your tenant at virtually no cost to them.
Operating costs are the main concern for tenants, and rental rates are a key part of operating costs for businesses who do not own their facilities. Utility bills and how they are structured into their lease agreements often play a big role in the relationship between landlord and tenant. For those tenants who pay flat fees per square foot, there is little to no incentive to use less energy. When considering the financial investment of efficiency projects, payback periods could also be another disincentive if lease agreements end before the project payback is achieved.
The Green Leasing Solution
Despite the misaligned incentives for tenants and landlords, there in fact is a middle ground that is mutually beneficial for both parties. Green leasing aligns the long-term energy benefits of the owner with the short-term financial benefits of the tenant and helps bring both parties together to save money and improve operational efficiencies.
The basic concept is for owners and tenants to agree on sharing the cost for the efficiency upgrade, splitting the resulting savings until the investment is paid back or for a predetermined period of time. Terms surrounding the split of the project cost and sharing of the resulting savings are subject entirely to the negotiations between the two parties. The collaborative and highly customizable nature of green leasing presents a number of benefits: