Boulder Commons

US-based sustainability think-tank Rocky Mountain Institute (RMI) has created a best-practice guide for the growing field of net zero energy (NZE) leases.

It’s a novel field, with just a few examples in the States, but the market is expected to grow rapidly as the building sector transitions to a low-carbon economy.

“There are only a handful of leased buildings that have achieved NZE, so there was little precedence on what works and what doesn’t, particularly regarding the lease,” report authors Cara Carmichael and Alisa Petersen said in a blog post.

The authors said there were more owner-occupied net zero buildings than leased ones due to lack of knowledge, hassle and, most importantly, the split incentive issue – the misalignment of capital costs for efficiency (borne by the owner) and cost benefits from energy savings (borne by tenants).

“The good news is a well-designed lease can solve the split incentive issue and taking the time to prove the business case for NZE can help overcome other barriers,” the report says.

To achieve net zero energy for a leased building, RMI says there are four critical components that must be included in the lease process and structure:

  • Energy budget – the amount of energy allocated to each tenant based on the building’s renewable energy generation capacity, which requires landlord tracking, buy-in from tenants, tenant incentives and education, and enforcement
  • Submetering and disclosure – a basic level of submetering between tenants and common areas, with data shared with or visible to tenants on an ongoing basis (which could also spur friendly competition between tenants)
  • Recommissioning – a requirement for recommissioning in the lease as an operating expense, ensuring the building continues to operate as efficiently as possible
  • Cost recovery – leases should have language that allows the costs and benefits for solar and efficiency upgrades to flow back to the proper party or parties

The report has been informed by RMI’s own net-zero lease at the 9300-square-metre Boulder Commons building in Colorado, where it is anchor tenant.

According to RMI, there are a number of reasons for developers to aim for net zero energy, including 3-7 per cent higher occupancy rates, 3.5 per cent higher rental rates and 13 per cent higher sale value. A building held for 10 years could be see profits 19 per cent higher than standard when sold, the report said.

The report said a building with a 10 per cent cost premium for NZE would see that paid back within eight-years through higher operating income. Cost premiums are typically between 1-12 per cent, the report said, though these would continue to fall as NZE became the new normal.

The authors said net zero was a way to future-proof investments, as the world moved to a low-carbon economy.

“Being ahead of the curve and designing to NZE from the onset of a project reduces risk as codes become more stringent and sustainability becomes a higher priority to tenants.”

A growing focus on healthy buildings was another reason to get into the NZE leasing game, the report said.

“Employers are placing an increasing priority on healthy, productive and engaging spaces that can attract and retain top talent and the leadership that businesses need to thrive today. This is embodied by good daylight, improved thermal comfort, fresh air and innovative technologies such as solar PV.”

In Australia, the Better Buildings Partnership released the BBP Leasing Standard in 2016, which assesses a lease’s environmental credentials with a bronze, silver or gold rating.

The Fifth Estate also worked with the BBP on the Tenants and Landlords Guide to Happiness, which covered best practice and green leasing.

Projects such as Barangaroo South in Sydney are aiming for zero carbon, with obligations on tenants to assist in meeting that goal.

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