Leases and Third-Party Certification
Leases are the document that forms and defines the relationship between owners and tenants. Leases are also a key tool for protecting owners’ and tenants’ valuable investment in third-party certification. Entities including the Global Real Estate Sustainability Benchmark (GRESB), the International WELL Building Institute, and the U.S. Green Building Council, have all recognized the important role leases play in high-performing projects.
Let’s walk through three quick examples of certification and benchmarking programs that specifically call out leases.
WELL v2
There are many features of WELL Core Certification that should be included in a lease (longer article on that coming soon). Additionally, there is one Optimization specifically calls out the importance of leases in the WELL Standard:
W07 Optimization - Moisture Management
This Feature includes three parts: Part 1, Design Envelope for Moisture Protection; Part 2, Design Interiors for Moisture Management; Part 3 Implement Mold and Moisture Management Plan.
Core Guidance for Part 2 states, “Meet these requirements in the whole building. Feature requirements may be communicated within tenant lease agreements.”
Again, particularly given WELL’s heavy reliance on operations and Tenant collaboration to obtain and maintain certification, leases should be revised to address additional Features. We are creating a comprehensive guidebook on this issue (if you want to stay up to date, make sure you sign up for our newsletter, here).
LEED v5 - public comment 1 (draft)
The latest draft version of LEED v5 (public comment 1) also incorporates several references to Green Leases, including a significant weighting in Core and Shell (see p. 10 -11).
As currently written, project teams can earn up to 6 points by pursuing various strategies to ensure that Tenants support sustainability features in the base building through leases, including (1) establishing a standard green lease (2) providing documentation of an executed green lease, and/or (3) earning Green Lease Leaders recognition. Points are awarded based on the number of strategies incorporated, or for achieving higher levels of Green Lease Leaders recognition.
Global Real Estate Sustainability Benchmark (GRESB)
GRESB is not a certification program, but an assessment framework that results in a “score,” which internal and external stakeholders can then use to benchmark entities against one another.
GRESB addresses green leasing in the "Tenants and Community" (or TC) section of the Assessments. Specifically, TC4, "ESG-specific requirements in lease contracts (green leases).” Entities can increase their scores by up to 1.5 points, depending on the number of ESG-related topics that are included in the lease. More information, including the list of topics, is available in the reference guide.
And both LEED (link here) and WELL (link here) have created crosswalks that demonstrate alignment with GRESB, further demonstrating the importance of holistic lease language that supports all project goals.
Leases are key risk management tools
Leases that incorporate sustainability and social requirements are no longer “nice to haves,” but key risk management tools. In fact, an increasing number of risk management partners - including insurers, lenders, and others - are requesting documentation, often in the form of leases, that demonstrates that Owners and Tenants have clarified roles and responsibilities and the regulatory requirements will be met. For example, risk management partners want to see that Owners can obtain the information they need from Tenants, such as energy use in leased spaces, to ensure compliance with Building Performance Standards, ESG reporting requirements, or other carbon disclosure laws.
As outlined in the three examples above, third party certification and benchmarking programs are also recognizing the importance of leases for projects pursuing deep sustainability and social equity goals. If Owners and Tenants that want to realize the full value of certification, they should take a close look at their lease templates.
If you need support reviewing, drafting, and revising lease language to align with third-party certification programs, email us - climate law is all we do!
DISCLAIMER: This is common sense, but bears repeating: this blog is intended for informational purposes and does not contain or convey legal advice. The law is inherently fact specific. General information, including this blog, should not be used as a substitute for competent legal advice from a lawyer you have retained and who has agreed to represent you. Climate Aligned Law is licensed in Washington state and does not practice Securities law or give specific securities advice or counsel.