Energy Efficiency Lease Guidance

Issue Paper
November 19, 2011

Existing commercial buildings offer substantial opportunities to save energy and reduce carbon emissions. Yet landlords often defer opportunities to invest in commercial building retrofits that appear to generate strong financial returns, because leases fail to align the initial cost of energy efficiency improvements with the benefit of energy savings. This "split incentive" for operating efficiency is a result of standard leasing practices for commercial buildings in many major metropolitan areas, under which tenants are typically the primary beneficiaries of decreased operating expenses resulting from energy efficiency improvements implemented by landlords.

NRDC's Center for Market Innovation (CMI) is engaged in a number of efforts to facilitate the adoption of the energy aligned lease solution in New York City (and other major metropolitan areas).

Energy Efficiency Lease Guidance

The purpose of this guide is to provide direction for negotiating commercial leases that enable resource efficiency. By highlighting three principles—intended to be reflective of a general understanding between landlords and tenants seeking to invest in energy efficiency—this guide addresses the major barrier to more efficient buildings in a way that makes energy efficiency a shared objective between landlord and tenant. It also provides an accurate explanation of the incentives, so that landlord and tenant have sufficient information, as well as sufficient economic motivation, to make the most energy efficient choices.

Energy-Aligned Lease Language Model

The Energy-Aligned Lease Language Model is a financial calculator that shows how energy efficiency dollars will flow in high, low, and expected retrofit performance scenarios based on key input variables. The aim of the model is to illustrate potential scenarios and effects of implementing a performance buffer.

Energy Efficiency Lease Pledges

  • Property Owners
  • Property Managers
  • Tenants