Why we need to stop using the term “green lease”
The term “green lease” needs to go away. In this post we explain why, and offer some solutions.
Sustainability has come a long way, and the rise of Environmental, Social and Governance (ESG) has moved sustainability into the business world. With that comes a necessary and appropriate revision to the language.
Sustainability has evolved; the language needs to keep pace
Photo by Mediamodifier on Unsplash
Additionally, sustainability (specifically carbon) and ESG have become increasingly regulated (learn more here and here), which means we need to be more mindful with our language. Building Performance Standards, climate-disclosure laws (including SB 253) and the SEC’s forthcoming ESG rules, all demonstrate that sustainability is now serious business, and precise language is just good risk management.
Well-crafted leases that address current market realities, while allowing enough flexibility to accommodate expected change, are just good risk management and good Governance.
With that context a “green” lease implies a novice level of sophistication that does not fit the current market reality.
All leases should be “green”
As an industry, we need to move away from sustainability as something “separate.” This is similar to the evolution of “green” buildings; we once thought of “green” as slapping on a solar panel and a bike rack. That has evolved to integrated, holistic sustainability and increasingly technical concepts like building materials and embodied carbon. Similarly, with respect to the structure of the leases that govern these spaces, we need to move away from a separate “green” lease or “green rider” and towards full integration of lease language that addresses sustainability-driven aspects into the sections of the lease that they impact or where they can provide clarity.
Integrated, holistic, high-performing buildings need integrated, holistic leases.
Separating out sustainability-driven clauses makes it easier to strike them (or in the case of a rider, completely remove them) as “non-standard.” But that type of short-sighted thinking is not good risk management, given the pace of change in sustainability and the length of average lease terms.
Leases that meet the moment
As an industry, we need to stop using leases that were never designed to meet the reality of deeply embedded sustainability, and the current regulatory requirements that Building Performance Standards and climate disclosure laws, as just two examples, have placed on buildings. There is no other context where we would keep using a contract that does not manage – or even mention – key regulatory and market shifts. Leases are no different.
Building Performance Standards are a great example: we have never, from a regulatory standpoint, required existing buildings to operate at specific levels, or face real, monetary penalties. Yet, because Building Performance Standards are so new, virtually every lease that exists today did not even contemplate the lease-driven issues related to building performance. If that doesn’t make you (or your insurance company, lender, or ownership group) want to update your leases and your lease template, we don’t know what will.
Virtually all leases that exist in the market today do not properly address these issues. If anything, we actually need “nonstandard” leases for our “nonstandard” world. So, let’s all clean up our language and stop talking about “green” leases.