Energy Aligned Leases
The “split incentive” issue occurs because building owners often pay the capital expenses for energy efficient upgrades to the base building, but tenants receive the financial benefits of energy savings through a reduction in their proportionate share of base building operating expenses.
Since PACE assessments are considered “property taxes,” payment of the PACE assessment generally flows to the same party that benefits from the cost savings—thus solving the split incentive problem. While PACE solves the split incentive in many triple net or full service gross leases without any modifications being necessary, in the case of a modified gross lease it may be beneficial to append the energy aligned lease provision to clearly and fairly address the issue.
Key Features of the Energy Aligned Lease Provision
- Solves the split incentive problem in modified gross leases
- Standardized and easy to use
- Both parties benefit from energy savings
- Owners recover capital costs more quickly
- Tenants see energy savings right away
- Energy Aligned Lease Provision
- Property Owner Pledge to operationalize the Energy Aligned Lease Provision
- Property Manager Pledge to operationalize the Energy Aligned Lease Provision
- Tenant Pledge to operationalize the Energy Aligned Lease Provision
This language has been endorsed by: The Real Estate Board of New York, The US Green Building Council, The Natural Resources Defense Council, The Environmental Defense Fund, and HR&A Advisors.
- Lower operating costs
- Increase property value
- Funds up to 100% of installed costs