Green Law for Real Estate_Green Legal Matters 2010_10-9-2010

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Green Legal Matters ConferenceNew Orleans, LA

Green Law for the Real Estate Practice

Jon F. “Chip” Leyens, Jr.

Steeg Law Firm, LLCNew Orleans, LA

jleyens@steeglaw.com504.582.1231

Robert C. Newcomer

The Lang Legal Group LLCAtlanta, GA

rnewcomer@langlegal.com404.320.0990

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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

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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.”

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13%Water Use

39%GreenhouseGas Emissions (CO2)

60%Total Waste(non-industrial)

72%ElectricityConsumption

U.S. Building Impacts

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GLOBAL COGLOBAL CO22 EMISSIONS EMISSIONS ( (BY SECTOR)BY SECTOR)

#1 Buildings#2 Transportation#3 Industry

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Global Warming?

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Scientific Basis

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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 . . . ???

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Green Building

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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

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Four Levels of LEED Ratings:

Green Buildings worldwide are certified with a voluntary,consensus-based rating system.

USGBC has four levels of LEED.

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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)

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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 -

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Cost of Green?

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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

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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

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Green Law for the Real Estate Practice

Government Mandates and Policy: Local

City of Atlanta (proposed) State Federal

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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?

= ???

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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

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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.

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Robert C. Newcomer The Lang Legal Group LLC rnewcomer@langlegal.com 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

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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

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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

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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

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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?

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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

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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

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How to “green” a lease

Current approaches to “greening” a lease Add green language to existing lease

clauses Use of a green rider

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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)

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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?

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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?

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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?

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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?

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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”?

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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?

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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).

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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