Last year, a joint group which included the Real Estate Board of New York, US Green Building Council, the Natural Resources Defense Council, the Environmental Defense Fund, and HR&A Advisors endorsed a Model Energy Aligned Lease Provision, which purports to remove the “split incentive” problem which can exist with respect to commercial “gross” leases. In a nutshell, the split incentive problem occurs in the gross lease context, where all utility costs are typically passed through to tenants on a square footage ratio, so the landlord is not motivated to retrofit their buildings with energy and other resource-saving improvements for which they will never recover the cost. For background on the split incentive issue, see my prior post, “The Net Lease and the Split Incentive”.
Archive for category: Energy
The “Split Incentive”, or as I have also heard it called, the “Split Incentive Disincentive”, is going to go away, and commercial real estate professionals had better be prepared for it. Here’s the “Split Incentive” problem in a nutshell: Building owners construct or buy a commercial building which they net lease to tenants, who pay the operating expenses, maintenance, insurance, etc., or in the context of a multiple tenant building, pay a proportionate share of such costs, typically based on rentable square footage. By paying only a proportionate share of, say, energy costs not based on actual use, the tenant has no incentive to save on energy costs by installing more energy efficient lighting and equipment. And, if the owner decides to incur the expense of upgrading its building by adding “green” improvements, it can’t recover that expense from its tenants, even if the “green” improvements result in energy savings to all the tenants (for more on the “Split Incentive”, check out my past article.
Energy facts as reported in the book Plan B 4.0 by Lester R. Brown:
- 2 – the number of times more expensive is the cost of a CFL bulb compared to an equivalent incandescent bulb
- 4 – the number of times more energy used by a large screen plasma television, compared to an old-style cathode ray tube television
- 10 – percentage of the world’s total energy consumption used by appliances in standby mode
- 10 – the number of times longer that a CFL bulb will last compared to an equivalent incandescent bulb
- 17 – the number of coal-fired power plants which could be closed if appliance standby mode electricity usage were reduced by just 1 percent
- 40 – the percentage drop in residential energy use in California between 1975 and 2002 due to stringent building codes (compare to 16 percent reduction in the U.S. for the same time period)
- 50 – the number of times longer that LED lights last compared to incandescent bulbs
- 75 – the percentage reduction in electricity use for lighting which can be saved by replacing incandescent bulbs with the new CFL’s