Issue link: https://resources.tangoanalytics.com/i/1525857
TACKLING THE CHALLENGES OF GREEN LEASING Green leasing presents a promising avenue for enhancing sustainability in commercial real estate, but it also comes with a set of challenges that can be daunting for both landlords and tenants. At Tango, we recognize these challenges and offer powerful tools to overcome them, ensuring that green leases fulfill their potential to drive sustainability and efficiency. Perception of Increased Costs A common perception is that implementing green leases will drive up costs, potentially deterring stakeholders from embracing them. However, this fear is often rooted in a lack of experience and understanding. While some low-cost measures, such as air quality testing or installing submeters, might be necessary, the long-term benefits of green leases—such as lower utility bills and alignment with ESG goals—far outweigh these initial investments. Furthermore, many green clauses, like requiring ENERGY STAR- certified equipment or day-cleaning programs, are already industry best practices with minimal cost implications. Another significant challenge is the need for robust collaboration and communication between landlords and tenants. Green leases require both parties to be on the same page regarding sustainability goals, which can be difficult in scenarios with high tenant turnover or differing priorities. Additionally, the complexity of green leases demands a certain level of expertise in energy efficiency and sustainability, often necessitating external guidance to implement and monitor the lease provisions effectively. To overcome these challenges, leases must be well-structured, with clearly defined roles, responsibilities, and sustainability targets that are mutually beneficial. Data sharing also poses a significant hurdle. Originally, green leases were designed to address the split incentive problem—where landlords and tenants benefit differently from energy savings. However, with the rise of ESG reporting requirements from investors, tenants, and regulators, green leases are now crucial for ensuring accurate data sharing. Particularly in triple-net leases, where tenants control the utility data, landlords often struggle to obtain the necessary information for reporting purposes. Even with green lease clauses mandating data sharing, the manual data transfer process can be cumbersome and error-prone, leading to inefficiencies and reporting gaps. A High Level of Collaboration & Expertise is Needed The Data Sharing Dilemma