Investing in Energy Efficiency Projects…when someone else is paying the bill

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There are quite a few energy efficiency projects that pay themselves back in energy savings in a matter of years, sometimes months.  According to my freshman college environmental studies professor, these projects are better than a free lunch;  they’re “a lunch that you’re paid to eat.”

Yet, if a property owner is not responsible for the energy bills, as is the case with many landlord-tenant relationships, there is little financial motivation to undertake such projects.  Someone else is eating your lunch.

The City of New York worked with the real estate and energy efficiency industries to develop model lease language that allows for owners and tenants to share in the costs and benefits of energy efficiency improvements.  The language allows the owner to pass along the capital costs of energy efficiency measures to the tenant based on the predicted savings and projected payback period of the measure (as certified by an energy specialist and agreed upon by both tenant and landlord).  Each year, the tenant pays 80% of the project savings to the owner to cover the capital costs, and keeps any additional savings; once all costs are paid off, the tenant keeps all the savings. The model language can be found at: http://www.nyc.gov/html/planyc2030/downloads/pdf/model_energy_aligned.pdf

The City will incorporate this energy–aligned lease language in new leases in which the City is the tenant.  The City will work with the private sector to make this standard practice in New York City.  In fact, the model lease language was just recently incorporated into a 220,000 square foot lease between two major private parties at the World Trade Center.

Shared food tastes better.

Mary Tiger was formerly on staff with the UNC Environmental Finance Center.

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