Green Leases: How To Green Your Rental Payment

While many aspects and principles presented in a Green Home Makeover are portable (i.e. can be carried with you from place to place), some of the biggest energy and water conservation measures are fixed to the place you are living. If you rent rather than own your home, you may feel limited by what you can do to improve the energy efficiency of your home.

A blog post by Roger Valdez from The Daily Score, a blog by the Sightline Institute in Seattle, WA, offers a suggestion for renters who are comfortable negotiating with their landlords.

The following is an excerpt from the article that explains what a green lease is. Green Irene eco-consultants can also promote this idea to potential landlord clients who are landlords. They may already have experience with this idea if they have commercial property as well where the Green Lease idea is already being used.

Excerpt:

Investing in energy efficiency can reduce greenhouse gas emissions even while saving money on energy bills. It seems like a no-brainer. Yet the one-third of northwesterners who live in rental housing actively avoid investing in energy efficiency. And their landlords also resist efficiency investments. What’s going on?

When it comes to rental housing, there’s a big market failure in energy efficiency. It’s a problem of “split incentives,” owners don’t make efficiency investments because it’s the renters who pay the energy bills. And renters don’t make investments in property they don’t own. The result is housing that wastes energy and costs more than it should.

One solution takes advantage of the lease or rental agreement: “green leases” enable owners to spend money on efficiency improvements and recoup their costs by raising rent by the same amount as the realized energy savings, minus a smaller agreed on amount which gets passed on to the renter. In other words, if an efficiency investment to the renter’s unit generates $100 of monthly energy savings, the rent might go up $80 per month. Although the rent increases, the tenant’s total housing bill goes down by $20. It’s a win for both parties. The tenant would start saving money right away, and over time the landlord would recoup his initial investment (and even make money), through the higher rents. Plus, the tenant would be using less energy.

A typical example might be a refrigerator replacement. A tenant has little economic incentive to buy a new efficient (and more expensive) refrigerator because he’s unlikely to be around long enough to recoup the extra upfront expense through reduced energy bills. And a landlord might think she’s better off buying the cheapest model she can find because she’s not paying the bills for the fridge’s operations. A green lease might fix this problem by allowing the landlord to increase rent enough to pay for a more expensive and efficient model, but because of the lower energy bills, the tenant would actually save money even after the rent increase.

The challenge with green leases is creating a practical financing arrangement that doesn’t saddle landlords with too many headaches and generates sufficient savings in a short enough time that the owner could pay back the bank, or herself, for the upfront cost of making the investment in the first place. So in order to know if an investment makes sense, both landlords and tenants will need a trustworthy assessment of the potential savings (this is where Green Irene comes in).

Green leases are already used in the US and Canadian commercial real estate rental sectors, but they are not sweeping apartment rentals. The legal complexities can make green leases challenging and uncertain. And both landlords and tenants dislike uncertainty.

The key is to generate a discussion with the landlord and check on how much can be saved on efficiency upgrades so that the viability can be assessed right away.

If you want to learn more, please contact Judi Radloff at judi.eastside@greenirene.com or visit her website at www.greenirene.com/eastsidejudi