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Colliers International - Houston

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Title: Slide 1 Created Date: 7/31/2009 1:00:38 PM Document presentation format: On-screen Show Company: Jackson Walker L.L.P. Other titles: Arial Century Wingdings ... – PowerPoint PPT presentation

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Title: Colliers International - Houston


1
March 1, 2010 Michael K. Kuhn Vytas A.
PetrulisJackson Walker L.L.P.
Colliers International - Houston Pitfalls in
Green Leases
2
OPERATING EXPENSEPASS-THROUGHS
  • Operating Charges shall also include (i) all
    costs of maintaining, managing, reporting,
    commissioning, and recommissioning the Building
    that was designed to conform with Energy Star or
    LEED rating system, and (ii) all costs of
    applying, reporting and commissioning the
    Building to seek certification under Energy Star
    or LEED provided however, the cost of such
    applying, reporting and commissioning of the
    Building or any part thereof to seek
    certification shall be a cost capitalized and
    thereafter amortized as an Annual Operating
    Charge under GAAP.
  • Source BOMA Model Lease

3
PITFALLS FOR THE TENANT
  • What benefit is LEED certification to the Tenant?
  • Where are the controls to prevent Landlord from
    overspending?
  • What are costs of maintaining the LEED rating?
  • Could equipment purchases be included within this
    provision?

4
SOLUTIONS FOR THE TENANT
  • Determine whether the Tenant would benefit if
    not, then seek to have the costs placed back on
    the Landlord.
  • Add a cap either a dollar limit or percentage
  • Clarify that the costs are for services and
    application fees, not to purchase equipment

5
GENERAL SUSTAINABILITY REQUIREMENTS
  • Tenant shall use proven energy and carbon
    reduction measures, including energy efficient
    bulbs in task lighting use of lighting controls
    daylighting measures to avoid overlighting
    interior spaces closing shades on the south side
    of the building to avoid over heating the space
    turning off lights and equipment at the end of
    the work day and purchasing ENERGY STAR
    qualified equipment, including but not limited to
    lighting, office equipment, commercial and
    residential quality kitchen equipment, vending
    and ice machines purchasing products certified
    by the U.S. EPAs Water Sense program.
  • Source BOMA Model Lease

6
PITFALLS FOR THE TENANT
  • Who determines whether the Tenants measures are
    proven?
  • What is the penalty for the Tenants
    non-compliance?
  • What if ENERGY STAR rated equipment is not
    available or is unsuitable?

7
SOLUTIONS FOR THE TENANT
  • Qualify the obligation to one of use reasonable
    efforts to
  • Use ENERGY STAR rated equipment only if
    available, cost-effective and suitable
  • Clarify that there is no penalty if the Tenant
    fails to comply

8
CONTRACTOR RULESAND REGULATIONS
  • All construction and maintenance methods and
    procedures, material purchases, and disposal of
    waste must be in compliance with minimum green
    building standards and specifications as defined
    in these Contractor Rules and Regulations and the
    latest version of the U.S. Green Building
    Councils Existing Buildings Reference Guide.
    Where there is a difference between the two, the
    more restrictive shall prevail.
  • All projects shall be reviewed for potential
    impact to reduction targets and environmental
    programs. For any project over 10,000,
    Contractor agrees to engage a third party LEED
    Accredited Professional or similarly qualified
    professional to oversee and validate that the
    project has met the standards for Landlords
    sustainability practices.
  • Numerous provisions regarding erosion control,
    indoor air quality, water use efficiency, energy
    management, purchasing, waste removal, etc.

9
PITFALLS FOR THE TENANT
  • Green construction regulations can dramatically
    increase the cost of build-out
  • Hiring a LEED Accredited Professional will add to
    construction costs
  • Who is benefiting from these regulations? Is the
    Tenant seeking LEED certification for its
    build-out?
  • Construction regulations may not be part of the
    Lease they may be furnished later
  • Landlords attorneys draft the construction
    regulations without an appreciation for the costs
    involved

10
SOLUTIONS FOR THE TENANT
  • Have a contractor thoroughly review the
    construction regulations
  • Identify wasteful, costly and redundant practices
    or requirements
  • Have the cost of the LEED AP covered by the
    Landlord unless the Tenant is seeking LEED CI
    certification

11
RECYCLING WASTE MANAGEMENT
  • Tenant covenants and agrees, at its sole cost and
    expense
  • (a) to comply with all present and future laws,
    orders and regulations of the Federal, State,
    county, municipal or other governing authorities,
    departments, commissions, agencies and boards
    regarding the collection, sorting, separation,
    and recycling of garbage, trash, rubbish and
    other refuse (collectively, trash)
  • (b) to comply with Landlords recycling policy as
    part of Landlords sustainability practices where
    it may be more stringent than applicable law
  • (c) to sort and separate its trash and recycling
    into such categories as are provided by law or
    Landlords sustainability practices
  • (d) that each separately sorted category of trash
    and recycling shall be placed in separate
    receptacles as directed by Landlord
  • (e) that Landlord reserves the right to refuse to
    collect or accept from Tenant any waste that is
    not separated and sorted as required by law, and
    to require Tenant to arrange for such collection
    at Tenants sole cost and expense, utilizing a
    contractor satisfactory to Landlord and
  • (f) that Tenant shall pay all costs, expenses,
    fines, penalties or damages that may be imposed
    on Landlord or Tenant by reason of Tenants
    failure to comply with the provisions of this
    Section.
  • Source BOMA Model Lease

12
PITFALLS FOR THE TENANT
  • The Tenants exact obligations are not clear
  • Landlords sustainability practices could be
    anything the Landlord dreams up
  • The Landlord could claim that the Tenants
    non-compliance resulted in significant damages

13
SOLUTIONS FOR THE TENANT
  • Limit to requirements of law
  • Tie to a specific standard (e.g., LEED-EB OM)
  • Specify single stream recycling or that the
    Landlord will supply all labor and receptacles
    for collection and sorting

14
PURCHASE OF GREEN POWER
  • Landlord reserves the right to change electricity
    providers at any time and to purchase green or
    renewable energy.
  • Source BOMA Model Lease

15
PITFALLS FOR THE TENANT
  • Green or renewable energy could be substantially
    more expensive
  • No benefit to the Tenant
  • Only helps the Landlord to attract new tenants
    (i.e., a marketing expense)

16
SOLUTIONS FOR THE TENANT
  • Apply limits to increases in costs
  • Tie to practices at comparable buildings
  • Tie to a specific LEED category (i.e., of
    green/renewable energy used)

17
REPORTING OF ELECTRICITY USAGE
  • Tenant shall be required to submit to Landlord
    electricity consumption data in a format deemed
    reasonably acceptable by Landlord.
  • Source BOMA Model Lease

18
PITFALLS FOR THE TENANT
  • What exactly being required is unclear
  • Cost of collecting data may be onerous
  • Landlord could try to charge the Tenant if high
    usage is shown

19
SOLUTIONS FOR THE TENANT
  • Limit to situation where the Tenant is paying the
    electricity provider directly
  • Specify exact information to be reported and have
    limits on the Tenants costs
  • State that it is being provided for informational
    purposes only

20
Michael K. Kuhn Jackson Walker L.L.P. 1401
McKinney Street, Suite 1900 Houston, Texas
77010 713-752-4309 mkuhn_at_jw.com
THANK YOU!
Vytas A. Petrulis Jackson Walker L.L.P. 1401
McKinney Street, Suite 1900 Houston, Texas
77010 713-752-4456 vpetrulis_at_jw.com
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