Rent Control: Ways to Manage Energy Costs as a Building Lessee

Business owners have a number of issues to consider when deciding whether to buy or lease their operating facilities. One of the advantages of leasing space in a building is that the landlord is often responsible for inside and outside maintenance as well as repairs or replacement of vital equipment such as lighting and heating, ventilation and air conditioning (HVAC) systems.

Some California commercial business lessees may be tempted to believe that the building owners' responsibilities extend to efforts to reduce energy use. The fact of the matter is there are a host of reasons why it is in the tenant's interest to embrace green energy practices, not the least of which is the fact that most tenants are responsible for paying their share of a sustainable building's utility bill.

Taking steps to reduce energy use can help commercial business lessees save a significant amount of money, which enables them to control operating costs. But that's not the only reason why it's a good idea. Working hand in hand with a sustainable building owner to reduce energy use and carbon emissions is a win-win for landlords and commercial business lessees.

When a tenant embraces green practices, it helps the building owner comply with California's Title 24 Building Standards Code. That's why the concept of green leases in California has been gaining popularity.

Traditional building leases lay out how energy costs are divided between commercial business lessees and owners. These leases often are not structured in a way that promotes energy savings. Under most leases, for example, tenants would have no incentive to reduce energy use in their leased premises because their energy costs would be based on the square footage they occupy. At the same time, under a traditional lease, building owners would have no incentive to invest in energy efficiency equipment because they would pass the operating expenses through to the tenants.

Green leases in California are designed to give building owners and tenants an incentive to work together to save money, conserve resources and ensure the efficient operation of sustainable buildings.¹ California green leases promote energy efficiency by creating lease structures that equitably align the costs and benefits of efficiency investments between sustainable building owners and commercial business lessees.

Getting started with a green lease in California
There are plenty of public and private organizations that can help landlords and tenants design a green lease. The Environmental Protection Agency's ENERGY STAR program is the leading resource for this process. The U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) program is another popular resource for landlords and tenants to turn to for advice on California green leases.

Businesses should identify the type of energy efficiency applications and desired time frame for return on investment when implementing a California green lease program. This is especially important for businesses that have a short-term lease (e.g., 1 or 2 years) over a long-term lease (e.g., 10-plus years). Some green measures can generate immediate savings. According to one report, companies can achieve savings of 3% to 13% because of sustainable measures built into a lease.¹

Pursuing the ENERGY STAR label, LEED certification or the endorsement of another group with experience and expertise in the sustainable buildings field provides a road map of sustainable practices. It can also serve as a powerful tool to show customers and business partners that both the landlord and tenant are serious about instituting sustainable programs.²

Easy ways to be green
There are plenty of relatively inexpensive things building owners and tenants can do to save energy and money without compromising the comfort of customers or productivity of employees.

Take a load off: Enabling the sleep mode on computers and other electronic devices can significantly lower power loads. Businesses can also install PC power management software, which provides a networked approach to powering down computers without interfering with the needs of the user or information technology staff.

Shed some light: About 35% of the electricity usage in the average commercial building in the U.S. is consumed by lighting, and much of that is wasted.² Businesses can eliminate a lot of that waste by installing motion sensors that detect when there are people in spaces like conference rooms and walled offices and turn lights on and off accordingly.

Lead with LED: Replacing incandescent light bulbs and older fluorescent lights with light-emitting diode (LED) and other ENERGY STAR-qualified bulbs will result in immediate energy savings for any business.

Use the (work) force: One of the biggest weapons any business has in its efforts to curb energy waste is its work force. There are a number of ways businesses can engage employees in reducing electricity usage, such as creating a green committee made up of green-thinking co-workers who can provide ideas on ways to improve energy efficiency.

Help in defraying costs
When it comes to paying for energy efficiency products, building tenants don't have to go it alone. They can work with the building owner to pursue financing, rebates and incentives that are available for various energy efficiency projects for commercial businesses. For example, Pacific Gas and Electric Company (PG&E) offers 0% interest loans ranging from $5,000 to $100,000 with a 5-year repayment period.³ Businesses must consider factors that include project size, payback period terms and credit check requirements to identify the right program.

To learn more about financing options for improving energy efficiency for California businesses, download the free eBook "Insider's Guide to Financing Energy Efficiency Projects" today.

Sources:

1. Jones Lang LaSalle
2. U.S. Department of Energy
3. Pacific Gas and Electric Company