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”.

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