1
Green Legal Matters ConferenceNew Orleans, LA
Green Law for the Real Estate Practice
Jon F. “Chip” Leyens, Jr.
Steeg Law Firm, LLCNew Orleans, LA
Robert C. Newcomer
The Lang Legal Group LLCAtlanta, GA
2
Green Legal Matters Conference New Orleans, LA
Green Law for the Real Estate Practice
Green Building: Sustainability Environmental impact and economic
opportunity Rating systems and legal opportunity
Government Mandates and Policy: Local State Federal
Model Green Building Codes: Standard 189.1 International Green Construction Code
3
Sustainability
“To meet the needs of the present without compromising the ability of future generations to meet their own needs.”
Green building is the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building's life-cycle from siting to design, construction, operation, maintenance, renovation and deconstruction.”
4Test
13%Water Use
39%GreenhouseGas Emissions (CO2)
60%Total Waste(non-industrial)
72%ElectricityConsumption
U.S. Building Impacts
5
GLOBAL COGLOBAL CO22 EMISSIONS EMISSIONS ( (BY SECTOR)BY SECTOR)
#1 Buildings#2 Transportation#3 Industry
6
Global Warming?
7
Scientific Basis
8
Carbon-based regulation . . . ?
Massachusetts v EPA (Sup. Ct., 2007)
EPA “Endangerment Finding” (April 2009)
Federal regulation . . . Waxman-Markey Cap & trade, carbon tax, ???
Implications for real estate . . . ???
9
Green Building
10
11
12
13
14
LEED-NC (v3)
Sustainable Sites 1 prerequisite + 14 credits = 26 possible points
Water Efficiency 1 prerequisite + 3 credits = 10 possible points
Energy & Atmosphere 3 prerequisites + 6 credits = 35 possible points
Materials & Resources 1 prerequisite + 8 credits = 14 possible points
Indoor Environmental Air Quality 2 prerequisites + 15 credits = 15 possible points
Innovation in Design 6 (bonus) points
+ REGIONAL PRIORITY 4 (bonus) points __________________________________________
8 prerequisites and 110 possible points
15
Four Levels of LEED Ratings:
Green Buildings worldwide are certified with a voluntary,consensus-based rating system.
USGBC has four levels of LEED.
16
LEED: “Certification” Process
Register project Prepare/Submit application:
“LEED Online” Prerequisites and each (eligible) credit Regional Priority Credits Credit interpretations and rulings (CIRs)
Respond to questions and submit any supplemental information requested
Certification (or Denial with Appeal Review)
17
18
19
20
LEED EB-O&M (projected 2009 – 2013)
2006 2007 2008 2009 2010 2011 2012 2013
<50 <100 <1,000<5,00010,00022,00030,00050,000
50,000 -
45,000 -
40,000 -
30,000 -
25,000 -
20,000 -
15,000 -
10,000 -
5,000 -
1,000 -
21
Cost of Green?
22
U.S. Office Rental Rates:“Green” v. “Brown” Performance
Market Bifurcation in 2010 . . . ?
2009 | 2010 | 2011 | 2012 | 2013|
2002 | 2003 | 2004 | 2005 | 2007 | 2008 |
CLASS ACLASS A
CLASS BCLASS B
Avera
ge R
en
ts
PS
F
23
By default, “non-green” buildings will become known as BROWN buildings
Less demand
Lower rents
Higher operating cost
_______________________________________
= Decreased value
Go GREEN or go home
24
Green Law for the Real Estate Practice
Government Mandates and Policy: Local
City of Atlanta (proposed) State Federal
25
Green Law for the Real Estate Practice Green Legislative Mandates:
“Certified” Register project Pay fees Document compliance
Prerequisites Sufficient Credits
Supplement information
= Certified
“Certifiable” Define:
What must be done?
Determine: Who decides? How is decision made?
= ???
26
Green Law for the Real Estate Practice
Model Green Building Codes: Standard 189.1
January 2010 USGBC, ASHRAE and IES
International Green Construction Code March 2010 (v. 1.0) v. 2.0 comment period open (Nov. 2010 release?)
Movement toward integration
27
Integrated Design Each system affects the functioning of the
others and all systems must be harmonized to perform together effectively.
Optimize performance and minimize cost. Integrated design teams meet early and
often during design and construction.
Legal issue: Allocate and document responsibility for all tasks and manage YOUR client’s risk.
28
Robert C. Newcomer The Lang Legal Group LLC [email protected] Atlanta, Georgiahttp://www.linkedin.com/in/robertnewcomer 404.320.0990
Commercial LitigationBusiness, environmental and real estate law
LEED-AP (since 2008)
Sustainable Building Taskforce (since 2008)
Urban Land Institute: Technical Assistance Program, Co-Chair Sustainability Committee
(former Co-chair, Community Assistance)
Green Chamber of the South: Inaugural Director, Board Secretary
EduKalb, Inc. Inaugural Director, Board Treasurer
29
Construction
Negotiation of green requirements in contract documents with architect and contractor AIA, DBIA & ConsensusDocs all have green riders &/or
clauses Be careful that design professional does not warrant
green certification; warranties not covered by professional liability insurance
Coordination among consultant pursuing certification and all other parties involved in the design, engineering and construction process
30
Insurance
Property Insurance Additional coverage for builder’s risk and
completed structure policies Increased cost of certain green systems and
building commissioning costs
Liability Some coverage available if building does not
meet green certification requirement
31
What is a “green” lease?
No single answer Is a “green lease” a “red herring”?
Depends on: What is a “green” building What does each party want to achieve by
entering into a “green” lease Cost Savings Image Corp. requirement Government or contract requirements
32
Lease Basics
Premises (that’s the easy part?)
Hard Part
Who does what? How is it paid for? What happens if you don’t do what
you’re supposed to do?
33
Some Provisions to Consider in a Green Lease
Applicable Law (and applicable rating system?) Operating Expenses Maintenance & Repairs Alterations Use Clause Operating Hours Landlord Services Utilities Casualty Default Work Letter Rules & Regs
34
You have to be Gross to be Green?
Difference between a gross lease and a net lease
The argument that only a gross lease can be green
Problems with the argument Market considerations: If landlord can’t recover $,
landlord won’t spend $ Net lease gives landlord way to pay for improvements Tenants look at triple net costs when evaluating
space – landlord still has incentive to reduce operating costs
Triple net leases are not perfectly efficient – landlords don’t pass through all operating costs
35
How to “green” a lease
Current approaches to “greening” a lease Add green language to existing lease
clauses Use of a green rider
36
Green Issues Under Existing Leases
Significant portion of green issues for next few years will be dealt with through existing leases (or extensions of existing leases)
37
Existing Lease Issues
Applicable laws If a new law mandates green standards, who
bears the cost - can landlord pass through to tenant?
What if a new law mandates energy conservation measures, but tenant has 24/7 operations or other high energy consumption use?
38
Existing lease issues (cont’d)
Operating expenses and capital expenditures Landlord decides to install a roof-top garden
Nice amenity and might save energy costs, reduce stormwater run-off or produce water for irrigation
Justified in charging tenants for capex? Consider the nature of a “green” expenditure and
thus whether it can it be passed through to tenants: Is it capital? Is it routine O&M? Can increased costs or “green”
materials be passed through? Marketing expense in touting green measures?
What is effect of “comparable building” standard?
39
Existing lease issues (cont’d)
Utilities How is consumption measured/paid for? Who pays if going green requires metering? Can the landlord impose charges for above (or
above-“green”) average consumption?
Alterations Manner of performance (ventilation, disposal, etc.)
and materials, fixtures, equipment can be important for green rating
LEED, Energy Star or similar criteria may apply to alterations, though not to original
Additional cost to tenant, and if so what can it do?
40
Existing lease issues (cont’d)
Maintenance Can the landlord impose new “green”
requirements with regard to the tenant’s space?
What if the landlord’s new green program materially increases the cost to maintain common areas – can the increase be passed through to the tenant?
Rules and Regulations Can the landlord amend to impose green
operating requirements on tenants; if so, what are remedies for a violation?
41
Some Hypotheticals Tenant in a multi-tenant office building installs
waterless urinals and low flow toilets in its bathrooms. Who gets the benefit?
The building owner wants to install a roof-top garden. What happens?
The brokers entered into an LOI that promises the tenant that the new building to be constructed will be green. What do you do?
The local jurisdiction enacts a green retro-fit code. Do you have to retro-fit your form lease (e.g., in order to “properly” allocate costs between landlord and tenant)? Is the new retro-fit code an “environmental law”?
42
Some Hypotheticals
The tenant wants to install solar panels on the roof. What do you do?
Your client tells you that they need a green lease form. What do you do?
Your client tells you that they have to start leasing green space. What do you do?
Your client wants to use its renewal allowance to do a green retrofit of its existing space. How do you make sure that your client gets the full benefit of any cost savings (operating costs, tax credits, etc.) attributable to the retrofit?
43
Additional Sources ADDITIONAL SOURCES Brooks, S. Michael. “Green Leases and Green Buildings.” American Bar
Association Section of Real Property and Trust and Estate Law, Probate & Property Magazine (November/December 2008): 22-26.
California Sustainability Alliance, Green Leases Toolkit, www.sustainca.org Connall Jr., Desmond D., Jeffrey A. Moerdler, and Eric Mullen. “Get Your
Tenants to Comply with Your Building’s ‘Green’ Standards.” Commercial Lease Law Insider. www.commericalleaselawinsider.com, June 1, 2003.
Costa, Anthony E., Samuel J. Morris, III, and Sam Hunter. “Green Lease Policies and Procedures for Lease Acquisition.” Memorandum to Assistant Regional Administrators, PBS, Regional Realty Service Officers, December 27, 2007. (GSA Green Building Requirements)
http://159.142.162.71/gsa/cm_attachments/GSA_DOCUMENT/RSL2007-12_R2-y08-l_0Z5RDZ-i34K-pR.pdf
EPA’s Green Buildings. http://www.epa.gov/greeningepa/projects/index.htm (website regarding United States Environmental Protection Agency’s green leasing initiatives).
44
Additional Sources Grais, Ronald B. and Kristen M. Boike. “Evolving Model Leases – A
Comparison of the BOMA and REALpac Green Leases.” Emerging Issues Commentary, Lexis Nexis Database, October 2008.
Grais, Ronald B. and Kristen M. Boike. “Green Leasing – The Changing Environment of Leasing.” Emerging Issues Commentary, Lexis Nexis Database, June 2008.
Green Lease Guide for Commercial Office Tenants, http://www.investa.com.au/Common/Pdf/Sustainability/GreenLeaseGuide.pdf
Milian, Rudolph E. The Retail Green Agenda: Sustainable Practices for Retailers and Shopping Centers. New York: International Council of Shopping Centers, 2008.
Natural Resources Defense Council (lease energy-saving work product expected Spring 2009).
Real Property Association of Canada. http://www.realpac.ca Teitelbaum, Steven A. BOMA’s Guide to Writing a Commercial Real Estate
Lease, Including Green Lease Language. Washington, D.C.: Building Owners and Managers Association International, 2008. www.boma.org
U.S. Green Building Council. http://www.usgbc.org