REALPAC’s newly updated model green lease for Canadian office buildings introduces measures aligned with the broadening demand for ESG (environmental, social, governance) reporting and performance outcomes in commercial real estate, and also responds to some arising pressures landlords are facing in general lease administration. In this fifth formal revision since the inaugural 2008 effort, the document’s defining centrepiece has been renamed the “sustainability management plan” to reflect some new considerations — such as accessibility and health and well-being — that aren’t expressly tied to the environment.
Even so, some of the most notable changes in version 1.05, which was released in December 2021, relate to reduction of greenhouse gas (GHG) emissions and climate change adaptation. The Canada Green Building Council’s (CaGBC) zero-carbon building standard and certification has been added to the list of referenced initiatives landlords can undertake; a new prerequisite requires tenants to purchase power from onsite renewable generation where it is available; and landlords and tenants will have to work together to implement resilience plans, shaping preparations for and response to climate-related calamities and extreme weather events.
That’s all attuned to signals from REALPAC’s membership — which includes many of Canada’s prominent real estate companies, investment managers and institutional investors — as well as expectations that regulators, lenders, insurers and influential corporate tenants will increasingly be making similar demands. Version 1 offered a pioneering leasing template for the North American market a dozen years ago, and since then has become something of an industry standard in Canada and/or the building block for companies that have developed their own green lease programs. Prior to version 1.05, it was most recently revised in 2017.
“With sustainability and leasing in general, we don’t want to come across, as an industry, like we’re calling on tenants to appease us because we’re the service providers. We want it to be an approach of working together to push sustainability,” says Kris Kolenc, manager of research and sustainability with REALPAC.
As with the predecessor versions, the sustainability management plan (previously known as the environmental management plan) sets out a framework for how the building’s energy and water consumption, solid waste output, indoor environmental quality, and impact on the natural environment and occupants’ health and well-being is to be managed, stating the obligations of each party to the lease. This can then be adopted as a lease covenant or as a commitment to use “commercially reasonable efforts” to comply with the provisions of the plan.
Addressing net-zero targets, climate resilience and health and well-being
The updated model green lease both refines and expands the list of general objectives for landlords. Among the new explicitly stated commitments, landlords will now be asked, within reason, to address: transmission of pathogens; management of asbestos, Legionella and radon and other identified hazardous substances; climate hazard mapping; light pollution and bird collisions; and opportunities and infrastructure to encourage public transportation, cycling and electric vehicles.
The sustainability management plan includes a list of building standards and certification programs to which landlords may either currently subscribe or choose to adopt in the future, with a concomitant understanding that tenants will not undermine efforts to maintain or achieve compliance. Additionally, it stipulates that tenants must provide data related to energy/water use, solid waste output or other operational elements they control within their premises, which landlords may require to comply with those programs or to assess whole-building performance.
In addition to the CaGBC’s zero-carbon standard or a credible equivalent, other standards newly referenced in version 1.05 include Rick Hansen Foundation Accessibility Certification (RHFAC), WELL, Fitwell and Passive House. Kolenc stresses this comes with flexibility to sign on to the programs that are most workable and relevant for a particular building, and with the recognition that guidance and standards are steadily evolving.
“The previous version of the lease was more focused on energy management, which is linked to the associated GHGs, but we wanted to accentuate GHGs in this lease and include some language about net zero,” he says. “We’re really referencing what we think is relevant in Canada currently, but it also states ‘or another equivalent framework’ so users of the green lease can choose what’s best for their circumstance.”
“As further guidance or standards are created for the net-zero pathway, we will address it in more detail,” Kolenc adds. “Similarly, there is no definitive standard in Canada of what is a resilient building, but we do expect further guidelines to be produced and we will reference those standards as they are developed.”
Merging sustainability agendas for landlords and tenants
Version 1.05 now requires that landlords and tenants designate staff representatives to discuss issues related to the sustainability management plan. Tenants will also be expected to attend information or training sessions that landlords may organize, and Kolenc foresees the two parties’ sustainability agendas will continue to merge.
“Tenants are going to be increasingly demanding net-zero space because they have their own corporate targets and corporate commitments,” he observes. “Increasingly, all companies are going to have the same targets. If the real estate footprint is a big part of their carbon footprint, potentially, they’ll want to make sure they’re leasing with a leader who understands this and who reflects this in the lease.”
Those complementary objectives are also reflected in a U.S. based recognition program, Green Lease Leaders, which describes its mission as “creating sustainable landlord-tenant relationships”. Canadian real estate companies have been among winners of the awards, which the non-governmental organization, Institute for Market Transformation, and the U.S. Department of Energy jointly launched in 2014 to showcase collaborative lease agreements that support energy efficiency, cost savings, improved air quality and sustainability. Most recently, in 2021, Dream Office REIT, First Capital REIT and RioCan REIT were landlord honourees, while Ivanhoé Cambridge, Alberta Investment Management Corporation (AIMCo) and their tenant, TD bank, were recognized in the team transaction category.
“To qualify as a Green Lease Leader, there are prerequisites that you have to meet and then there are optional credits. The REALPAC green lease aligns with that,” Kolenc explains.
Outside the sustainability management plan, the model green lease is a template contract for all aspects of lease administration. Here, too, updates have been made, including the introduction of new sections to address health emergencies, amenity facilities and density limits. Aligned with the various updates, the lease also now addresses allocation of operating costs for building resilience, health and wellness attributes, electric vehicle charging stations and health emergency situations.
Melissa McBain, a partner with Daoust Vukovich LLP, led the legal update. The lease is a model for office buildings, but many of the components of the sustainability management plan are viewed as easily transferrable to retail or industrial assets.
Barbara Carss is editor-in-chief of Canadian Property Management.
