Keep Your Commercial Tenant From Impeding Your Progress Toward Your Climate Mobilization Goals

William McCracken, Partner, Ganfer Shore Leeds & Zauderer

The crux of the problem. There’s something called a split incentive, or divided incentive, between building owners who bear the cost of compliance and upgrades but don’t really get any of the benefits, and tenants who cause the problem and get all the benefits, but don’t really have the obligation under a standard commercial lease to do anything about it.

How it plays out. In mixed-use buildings, the commercial tenant might generate a lot of your carbon emissions, but that tenant doesn’t necessarily pay for the capital expenditures needed for retrofits. Tenants don’t pay any of the penalties that might be assessed under the Climate Mobilization Act. 

What to do. When negotiating commercial leases or lease renewals, boards really need to be aware of how to allocate retrofit costs. Before the Climate Mobilization Act, there was a whole drive to create green leases or split-incentive provisions to try and divide up responsibility for energy-efficiency retrofits and things like that, but it never really took off. The difficulty is that this sort of provision requires the participation of energy analysts, and it’s a pretty sophisticated thing to do. There are ways you can do it, but the first thing that you have to understand is that it is an issue.