chapter 10: Green LeasinG – ForthcominG trend in south aFrican commerciaL ProPerty
Green LeasinG – ForthcominG trend in south aFrican commerciaL ProPerty André Ferreira South African Representative Global Real Estate Sustainability Benchmark (GRESB)
In South Africa, the Green Building Movement steadily gathers momentum, with 5 Buildings Certified and more in the process of undergoing certification. A critical discussion that is to arise, as witnessed in international markets, is the operation of these certified assets and the peculiarities from such designation. Green Leasing plays an important role in the distribution of rights and responsibilities between landlord and tenant in an, ideally, equitable manner that the maximum value can be extracted from a Green Star Certified Building. With the introduction of a Green Star SA Commercial Interiors rating tool in the tenant market in South Africa, the focus is definitely set to shift towards the errors of commission and omission of current leases and the role that Green Leases can play in ameliorating such transition. What is a Green Lease? It is a conventional lease that takes into account issues of sustainability as an added focus to the traditional leasing discussion of location, space, amenities, cost apportionment, duration , rental rate and escalation for renewal. The additional areas of focus relate in so much as to: 1. Ratio of Energy Cost Saving Sharing between tenant and landlord 2. Obligations for the landlord to pursue Green Building Rating at a future date 3. Specifications for minimum Green Star SA Commercial Interior Standards 4. Adherence to Environmental Benchmarks (Water, Waste, Electricity) 5. Determination of penalties and incentives for over or under performance relative to Environmental Benchmarks 6. Split in Tenant and Landlord Capex Contribution towards green measures 7. Access to Tenant Space for Building Fine Tuning and Commissioning of Systems 8. Common Area Charges and the role of incentives and rebates 9. Clauses for reasonable efforts by landlord and tenant to retain Green Building Certification during duration of the lease. The driving force behind Green Leasing internationally has been the issue of the Split Incentive Problem. This is where a tenant on a Triple Net Lease pays for utility costs, thus the landlord is not incentivised to invest in energy efficiency measures as such benefits flow through to the tenant in the form of lower operating costs which do not compensate for the return to accrue from the investment. Thus a clause is required in leases which stipulate the ratio of which energy savings are shared in particular for capex targeted at Energy Efficiency as well as to provide the tenant with the option of co-investing in such long term expenditure. Alternatively another creative method for the landlord to recover costs is to negotiate an extension of lease terms on the same rental rate with reduced operating costs. A building may be marketed to a tenant on the basis that it is in the process of securing a Green Star Office or Retail certification. In the case of an existing building this may be due to an overall planned refurbishment that is set to disrupt a tenant’s tradability. In order to ensure that a reward is attained from the resulting business disruption, it is important that a tenant include in the lease a commitment from the landlord for Green Star Certification with penalties for non-attainment. This together with the prospect of a lower rental escalation on the renewal of the lease. the SuStainable energy reSource handbook (energy efficiency)
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