For most commercial real estate projects in distress, the focus ultimately centers on the leases.  It is all about money, and the leases generate the money.

Hopefully, Laura Sims’ blogs on lease challenges and issues was of interest to you.

Green buildings make those challenges even more complicated.  In my earlier postings, I’ve covered "high level" issues, focusing on the building itself and the tasks of due diligence (and the impact upon negotiation agreements and forbearance agreements).

If your collateral is a green building (some times referred to as a "sustainable" building), the building leases demand you immediate attention.

What lease provisions could contain terms unique to a green or sustainable building?

Here’s a list (not in priority order):

  • covenants on indoor air quality (and pollution)
  • covenants with "green building" provisions covering exterior landscape, surface drainage (such as parking lot run off), building systems (from blinds to lighting), water consumption, trash and common area
  • compliance with specific tasks or services, each based on green building certification designations (such as LEED, Green Globes and Energy Star)
  • remedies or consequences for a breach (self-help is common!)
  • use of specific cleaning products or building materials
  • requirements on common area renovations or reconstruction
  • requirements on new improvements to future tenant space
  • special "use" provisions covering common area AND tenant space
  • operating expenses (including shared costs)
  • required capital improvements
  • allocation of carbon offset credits
  • landlord’s right of entry into tenant space should be expansive
  • building or project rules and regulations could contain unique provisions
  • record keeping
  • indemnification and hold harmless
  • compliance with laws 

If you’re not paying attention to these provisions, you can bet that the tenant is doings so.  And if you become the owner of the building, the tenants AND governmental regulators will be all over you.

  • What will you add to this list?

I’ll add to this list in the future.

Please post your comments and suggestions below.