Green Leasing

Tuesday, September 1, 2015

Purpose of the project

The goal of our Green Leasing initiative was to incorporate environmental language into our leases to align tenant and landlord environmental interests in our buildings. This lease language sets a strong foundation for sustainability projects in tenant spaces by, for example, allowing us to obtain tenant consumption data in triple net buildings. We then decided to earn recognition via applying for Green Lease Leaders designation through the Institute of Market Transformation. We did this to serve as an example to inspire other landlords, brokers and tenants to incorporate similar language into their own leases.

 Approach

The Green Leasing initiative launched as a result of a larger initiative at Kilroy to standardize our lease language. Our first step was a meeting between the Sustainability Department and the Training & Quality Control Department, who were running the lease standardization initiative. Training & Quality Control was excited to include the sustainability language into the leases to avoid ad hoc additions of sustainability language to future leases. Further, Kilroy was already familiar with some green leasing concepts, as all leases already contained investment recovery language that make energy and water efficiency upgrades possible. Using our experience with lease language required for LEED projects, as well as various disclosure laws, the Sustainability Department drafted lease language to address: green building operations, disclosure of utility data, sub metering, and minimum sustainability standards for tenant improvements. Our Training and Quality Control and Legal teams then refined this language and incorporated it into our new standard lease.

Our next step involved educating our asset managers and brokers, who often did not understand this language and struck it during negotiations. The sustainability department had many one-on-one conversations with our asset managers to resolve this issue, especially around the new utility disclosure language. After several months the asset managers understood and this language is no longer struck from leases.

Finally, we applied to join the inaugural class Green Lease Leaders through the Institute of Market Transformation.

Results

We successfully incorporated the sustainability language into our leases and were part of the inaugural class of Green Lease Leaders in 2014. This language has allowed us to get more tenant utility data, and we have increased our disclosure of tenant data in our GRESB by 81% compared with 2013 based on square footage. We have seen additional benefits in being able to launch recycling revitalization programs and in reducing energy consumption in tenant improvements via, for example, requiring the purchase of only ENERGY STAR equipment.

Further, earning Green Lease Leaders designation generated considerable and unexpected coverage in the media. Bisnow ran an article titled “Dropbox Lease Contains Special Language,” and The Motley Fool published two articles on the subject, including one titled “How You Can Save the World by Investing in this REIT.” Commercial Property Executive also covered it with an article titled “Incremental Progress: Green Leasing Takes Baby Steps, but Makes Headway on Key Fronts.” We also participated in numerous Green Leasing panels and webinars with, for example, the Department of Energy and BOMA. This publicity has changed the conversation on green leasing, taking it from a fringe concept to a mainstream practice with which brokers need to be familiar, and we are proud to be part of the inaugural class that has helped this movement gain industry acceptance.

 

“Incorporating environmental language into our standard leases ensures that avoidable tenant-landlord incentive issues will not hinder our ability to deliver a steady stream of sustainable, high quality, adaptable and productive work environments to our tenants.”