Green leasing news here in North America has been generally hard to come by thus far in 2013, but some interesting activity continues abroad. These foreign transactions involving environmental obligations are instructive for us to consider for a number of reasons, but particularly in the context of market trends and regulatory changes that could be on the horizon closer to home. For example, you may recall our discussion earlier this year about South Africa’s first major green leasing foray, just north of Johannesburg at the Alice Lane Offices in Sandton. Now, in what appears to be a Nordic first, the Helsinki-based real estate investment firm Sponda Plc has announced its first transaction incorporating green lease obligations with Nordea, a Swedish bank.
Along with its tenant, which occupies retail space at the historic Kaivokatu 12 building in Helsinki’s central business district, Sponda has committed in the lease to, among other items, reducing energy and water consumption, increasing recycling efforts, and reducing overall waste generated. While the specific language to which the parties have bound themselves is unclear from Sponda’s press release, “economic incentives linked to energy consumption, among other things, are used as motivation for the environmentally responsible use of the property.” For example, Sponda and Nordea have agreed to divide the savings and excesses in heating and cooling costs on an annual basis.
The lease also includes guidelines for any future changes to – or investments in – the property that Sponda may pursue. But they must be agreed to jointly with Nordea, “taking the mutual profitability of the investments into consideration.” Sponda will also provide Nordea with real-time information on its energy consumption, as well as submeter the demised space. It is unclear whether the green obligations in the lease are “hard” – entitling one party to some sort of prescribed remedy in the event of a breach – or merely aspirational. But given the language surrounding the transaction’s announcement the latter seems a more likely proposition.
“Nordea is the first customer we have signed a green lease with. I am pleased that we have this opportunity to expand our environmental partnership by engaging in even closer cooperation to reduce the environmental load of the property. Adopting the green lease model is part of the implementation of environmental responsibility, which is one of our strategic focus areas,” said Sponda Senior Vice President Ossi Hynynen in a press release about the transaction. “Signing a green lease agreement with Sponda promotes the efficiency of operations and use of resources, and therefore helps us achieve our goals. At the basis of the lease agreement is the close and open cooperation between the lessor and the tenant, the property user. I firmly believe that our cooperation and the investments in the property will benefit the property owner, the tenant as well as our environment,” said Mauri Tolonen of Nordea Group Premises Finland.
Sponda’s building containing Nordea’s new space is noteworthy too. Dating from 1913, Kaivokatu 12 is located directly across from Helsinki’s Central Railway Station. It was designed by Armas Lindgren and is generally considered one of the best-preserved historic buildings from Helsinki’s pre-World War I era. The mixed-use tower features 30,000 square feet of office space, 16,000 square feet of retail, and a 65,000-square-foot hotel. Spondo has already enrolled Kaivokatu 12 in its Energy Efficiency Programme, an initiative that aims to achieve energy savings across its portfolio through cooperation with its tenants. The firm’s hope is that the program will both support and complement the parties’ green leasing objectives, as well as lay the groundwork for future green lease transactions.
These foreign green leasing trends – though afield from our geographic focus here at gbNYC+ – are important to note as we consider the status of energy efficiency and environmental obligations in domestic commercial real estate. For example, last year we noted the Green Building Council of South Africa’s launch of its Green Lease Toolkit in the context of how “hard” green lease obligations may evolve. In the Toolkit, GBCSA noted that “the absence of regulation governing the operational energy use of buildings means that performance-driven green leases with penalties are unlikely to be widely adopted in the short term.” But it also pointed out that the regulatory climate could change as it relates to energy efficiency requirements, carbon taxes, and new building regulations such that “occupying and/or owning green buildings provide a buffer against these potential future regulatory changes.”
Those types of future regulatory changes are not pie-in-the-sky, particularly in Europe. For example, France’s Grenelle de l’Environnement legislation is an aggressive legislative initiative that includes a number of laws aimed at curbing energy use within the built environment. The Grenelle de l’Environnement was launched in 2007 as a working group with representatives from both private and public sector players in France to develop policy initiatives aimed at addressing climate change. (Grenelle I and II refer to the sequence in which those initiatives are to be adopted by France’s National Assembly and Senate.)
Grenelle II requires that an environmental appendix must be included with leases entered into for office or retail purposes larger than (approximately) 22,000 square feet. The requirement took effect as of January 1, 2012 for leases signed or renewed as of that date, and will trigger quite soon – on July 14, 2013 – for existing leases. The environmental appendix must include information on actual water and energy consumption, waste treatment, heating, cooling, ventilation, and lighting equipment in the building. It also requires the landlord and tenant to establish a mechanism for continuously monitoring the energy performance of the premises in order to reduce consumption. Already private sector entities in France have started compliance efforts by incorporating green lease obligations into their leases.
Although we have yet to see private players in North America announce similarly prospective green leasing steps to guard against future regulatory changes impacting energy efficiency in the built environment, the possibility is worth considering. Indeed, in a climate where increased calls for more robust sets of building performance data seem to be driving much of the current backlash against green certification programs generally, it is not unreasonable to think that regulatory changes could aim to increase governments’ access to different types of data. In that regard, we will continue to look abroad for similar trends that might inform future developments in the North American green leasing markets. Stay tuned.