Model Performance-Based Lease Template

Under a traditional lease arrangement, energy efficiency may not be addressed, and one party—often, the landlord—may carry the burden of investing in efficiency while the other party benefits from the savings. In those situations, the landlord often has little incentive to provide the capital for such improvements, and the tenant often has little incentive to reduce its energy consumption. In addition, lease provisions act as a barrier for either party to prioritize energy efficiency as current terms require landlords to provide heating and cooling even when leased spaces are unoccupied, permit inefficient tenant buildouts, hardwire lights to stay on 24/7, and mandate excessive plug loads.

Green or energy-aligned leases present a tool to address this market failure. Performance-based leases build upon the foundation of green leases to introduce provisions intended to promote deep energy retrofits and other energy efficiency measures by balancing costs and benefits between landlords and tenants. This model performance-based lease is designed to help buildings in New York City meet the performance targets set forth in Local Law 97. While this template was created in conjunction with New York-based entities with a focus on their requirements under NYC’s Local Law 97, it is designed to be applicable nationwide.

This Model High Performance Lease and accompanying memorandum were prepared by the Institute for Market Transformation, the New York City Climate Action Alliance, Stuart Kaplan of Blank Rome and Jeff Gracer and Margaret Holden at Sive Paget.