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Photo Credit: © Daniel J. Sheridan, 2011. All rights reserved. This is a photograph of the recently constructed Frick Chemistry Building at Princeton University. Sustainable building features include a photovoltaic panel array that generates power while providing shade to the glazed atrium roof, a gray water system to collect and recycle storm water for non-potable uses, and landscaped rain gardens and bio-filtration areas. For more information concerning Princeton's commitment to creation of a sustainable campus environment, visit www.princeton.edu/sustainability/
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A Conversation at the Crossroads of Law and Sustainability

Category: LEED EBOM

Building Energy Performance: The New Frontier of Transactional Due Diligence (and Contractual Liability)

The American Society for Testing and Materials (ASTM) recently published its much heralded Standard Practice for Building Energy Performance Assessment for a Building Involved in a Real Estate Transaction E-2797-11 (the “Standard”) in response to the perceived market need for a uniform methodology for evaluating energy efficiency in buildings.  The Standard is available for purchase and download here.  The Standard defines a careful process through which a “qualified Consultant” collects and analyzes “energy use” information, and specifies the format in which various “findings” are reported, the most relevant of which are (i) “pro forma building energy use” (reported in kilo (103) British thermal units (kBtu) per year), (ii) “energy use intensity” (reported in kBtu per square foot), and (iii) “pro forma  building energy cost” (reported in US Dollars ($) per year and $ per square foot per year).  The stated (and laudible) objectives of the Standard are to

(1) define a commercially useful practice for collecting, compiling, and analyzing building energy performance information associated with a building involved in a commercial real estate transaction; (2) facilitate consistency in the collection, compilation, analysis, and reporting of building energy performance information as may be required under building labeling, disclosure, or mandatory auditing regulations; (3) supplement as needed a property condition assessment conducted in accordance with Guide E2018 or an environmental site assessment conducted in accordance with Practice E1527; (4) provide that the process for building energy performance data collection, compilation, analysis, and reporting is consistent, transparent, practical and reasonable; and (5) provide an industry standard for the conduct of a BEPA [building energy performance assessment] on a building involved in a commercial real estate transaction, subject to existing statutes and regulations which may differ in terms of scope and practice.

The Standard references and in some respects parallels the Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (E1527), the ASTM’s effort to standardize the practices and procedures that satisfy the “all appropriate inquiry” element of CERCLA’s innocent landowner defense.  Having witnessed the evolution of environmental due diligence from the mid-1980s through the present, and the concomitant expansion in breadth and depth of contract representations, warranties and indemnities specifically addressed to environmental concerns, I cannot help but wonder when green building and energy efficiency issues will find their way into standard “due diligence” checklists and definitive agreements for corporate mergers and acquisitions transactions. Not long, I suspect. Read the rest of this entry »

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LEED EBOM AND EXISTING LEASES – A SQUARE PEG IN A ROUND HOLE?

Among the many significant changes under LEED v3 was the inauguration of the Existing Building Operations and Maintenance (EBOM) standard designed to certify the sustainability of ongoing operations of existing commercial and institutional buildings, and to encourage building owners and tenants to implement sustainable practices and reduce environmental impacts over a building’s life cycle.  EBOM is a welcome development from several perspectives, including the fact that it implements measurement standards that actually can document whether or not a building has lived up to its “design” potential. It also creates a path toward green building certification for owners and tenants of existing buildings willing to make the requisite investments.

Notice that I said “owners and tenants”, not “owners or tenants”.  Leased buildings that already are occupied present significant challenges to parties wishing to pursue LEED EBOM.  Because the EBOM standard can be achieved only for an entire building, occupants of at least ninety percent (90%) of the total square footage must agree to be part of the certification process.  For owner-occupied and single tenant buildings, this is not a major hurdle, but for multi-tenant facilities, the challenges can be substantial, especially if the existing leases do not provide a process allocating costs and benefits associated with “greening” the premises.

The old “triple net” paradigm under which building owners absorb up-front capital costs and tenants pay ongoing operating costs does not square with the lifecycle cost assessment paradigm employed under LEED.  This could leave a landlord in the position of making substantial capital investments (for example, in a more energy efficient HVAC system) that reduces the tenant’s operating costs yet does not allow the landord to share in that benefit.  These are not simple issues to negotiate mid-way through the term of a lease.

If both a landlord or tenant wish to consider a plan for achieving EBOM certification, step one is a careful review of the underlying lease and identification of those provisions that may require adjustment to accommodate an effective EBOM certification process.  These would normally include provisions covering the characterization and allocation of building operating expenses, provision of building services, including utilities and cleaning, tenant alterations and improvements, and building rules and regulations.  There are several useful starting points when considering potential approaches to these issues, including BOMA’s Guide to Writing a Commercial Real Estate Lease, Including Green Lease Language (available for purchase here), REALPac’s Office Green Lease National Standard (available for download here), the Corporate Realty, Design and Management Institute’s  Model Green Lease (available for purchase here), and the USGBC’s Green Office Guide (available for purchase here (under LEED Integration Guides).   While all of these publications have useful and thought-provoking approaches to common green lease issues, they all share in common one key advantage:  a clean slate. Read the rest of this entry »

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