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Green lease buildings that are sustainably operated are more efficient and less expensive to run in the long run.iStockPhoto / Getty Images

Commercial real estate developers, owners and tenants are finding that when they enter into new leases, it’s now important to read the green print.

Green leases are agreements that include clauses about good environmental, social and governance (ESG) practices, and they’re becoming more common, says Samantha Sannella, national managing director of Total Workplace Canada at Cushman & Wakefield.

“In Canada, we’re a bit behind Europe and the United States. But as government and other programs come in to bring us toward net zero carbon [greenhouse gas] emissions, we’re catching up,” Sannella says.

“Most green leases focus on provisions that set standards for reducing a building’s energy use for a start, but they also have other components that relate to social responsibility and good governance. There are no legal requirements for what areas and wording go into a green lease yet, but a lot of guidelines are emerging,” she adds.

Guidelines are being developed both in Canada and internationally. In the U.S., an organization called Green Lease Leaders has been advising landlords and tenants since 2014 on how to collaborate on green lease provisions.

It says a total of 6.1 billion square feet of commercial property in the U.S. are now under green leases, and internationally, there has been a 390-per-cent increase in the number of applications to have leases certified as green by the group.

There has also been a 22-per-cent savings in utility bills for office buildings in the U.S. compared with those without green leases, according to the Institute for Market Transformation.

In late 2019, the European Union adopted rules that specify what makes leases green; and earlier this month the European Parliament passed a regulation that will require buildings that don’t meet green standards to be renovated by 2033 and to be carbon neutral by 2050.

It’s something we need to develop, through schools and training. The need to be green is not something that’s going to go away.

Samantha Sannella, national managing director, Total Workplace Canada, Cushman & Wakefield

Research by Savills Investment Management found that 73 per cent of the world’s institutional investors expect green lease clauses to be incorporated universally between tenants and real estate investment managers by the end of this decade.

“Everyone is aligned in the same direction when it comes to green leases – the tenants, owners and managers,” says Benjamin Shinewald, president and chief executive officer of BOMA Canada, an umbrella group for building owners and managers.

“A more sustainably operated building is a more efficiently operated building. It becomes less expensive to run and maintain, which will only drive up the asset value in the long run for the owners,” he says.

“Much of Canada’s corporate real estate is owned by institutional investors such as pension funds, so they face public pressure to be sustainable and green. The bigger corporate tenants want green leases, too, because they have obligations to their shareholders and directors and, ultimately, the public as well,” Shinewald adds.

BOMA Canada’s green leasing provisions, standards and green leasing certification are part of its BOMA BEST Sustainable Workplaces program. “Programs like this, [for] setting and raising standards, are really important,” Sannella says.

Meeting ESG standards and negotiating green leases can bring about advantages on the financing side for owners and managers, says Tonya Lagastra, head of ESG for Colliers Real Estate Services in Canada.

“Companies can negotiate sustainability-backed loans,” says Lagastra. “They agree to meet KPIs [key performance indicators] on sustainability, social responsibility or governance and they can borrow money at a discount.”

More attention is being paid to the social and governance aspects of ESG in drawing up green leases, Sannella adds. For example, the commercial real estate sector is paying attention to Bill C-211, now making its way through the Senate, which, if passed, could require developers to report whether any materials in their supply chains were made by child labour.

“We need a lot more property experts in Canada who focus on ESG,” Sannella says. “It’s something we need to develop, through schools and training. The need to be green is not something that’s going to go away.”

Shinewald agrees.

“Everyone is caught in the middle of this drive for sustainability, but they’re happy to be caught because they want to do it. It’s good for everyone.”

Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.

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