Buildings in the District account for more than 70% of the city’s total greenhouse gas (GHG) emissions, its largest source of emissions. Of that total, the majority of the emissions (51%) come from commercial buildings. Recognizing this, the District is pursing aggressive emissions reductions goals that will require addressing building-related emissions. With leased spaces representing up to 80% of all commercial building energy use, it’s important that tenants understand their role in contributing to meaningful emissions reductions. While the District has passed legislation to promote energy efficiency, as will be discussed below, tenant demand will help push the market to decarbonize faster and farther than any regulation. This is particularly true in the wake of the COVID-19 pandemic. There is currently a tenant-driven market for office space, meaning that landlords will be responsive to tenant requests for information about energy efficiency and concerns about how it will affect their tenancy.
In 2019, the District passed—and in 2021, finalized—legislation that included the establishment of the Building Energy Performance Standards (BEPS), which require all existing buildings in the District over 50,000 sq. ft. to meet minimum levels of energy performance, mostly defined in terms of energy efficiency, in the first cycle. This size thresholds drops to incorporate buildings larger than 25,000 sq. ft., and eventually 10,000 sq. ft., in future cycles. BEPS is part of the District’s larger sustainability plan as outlined in Clean Energy DC, the strategic energy and climate action plan to make the District’s energy system more sustainable, resilient, and equitable. This plan outlines actions that need to be taken, for both private industry and the District government in buildings, energy infrastructure, and transportation systems between now and 2032 to meet the District’s ambitious GHG reduction targets.
A Building Energy Performance Standard sets minimum building energy performance standards for existing buildings. These standards are based on and measured against a building’s demonstrated energy performance, as shown in their benchmarking data. District buildings that do not meet the standard for their property type will be required to improve their performance.
Why this matters
Helping a landlord meet energy reduction targets might not seem relevant to a tenant, but better performing buildings have lower operating expenses and more comfortable temperatures than their peers—which improve worker productivity. Lower operating expenses could potentially mean money for other investments in building air quality or security. It could also make it easier for a tenant to push for solar panels or even electric vehicle charging, if those are priorities. Overall, BEPS legislation makes it easier for a tenant to connect with their landlord about the building’s operations and to incentivize collaboration to find solutions that work for all parties.
What can be done
The energy consumption of most large, multi-tenant buildings can be categorized into three groupings:
- Energy attributable to common areas (such as atriums, lobbies, and garages)
- Shared mechanical systems (such as central heating, fans, and cooling towers)
- Tenant spaces
In a typical arrangement, certain groupings are clearly controlled by the owner, such as the garage lighting. Other groupings are clearly controlled by the tenant, such as energy use (plug loads) from computers and appliances in tenant spaces. However, ultimate responsibility for managing the energy consumed in a multi-tenant space is often balanced between tenants and owners. While building owners generally have control over building systems and operations, tenants play a critical role in achieving lasting reductions in energy use and in associated emissions reductions.
Understanding this, tenants should engage landlords and brokers in conversation about how to create positive outcomes that benefit all parties. This is particularly relevant for tenants in the middle of a lease renewal, or embarking on finding a new space, but is also relevant at mid-lease as the legislation comes into effect. Below are specific tips for each stage of the leasing process.
Current tenants should confirm their building’s performance. Additionally, they should speak with their landlord and/or property manager about their energy plans for either maintaining or achieving compliance with BEPS. This will help tenants understand how their building is performing and what action is required next.
If a tenant is in a building that does not meet the BEPS, they should talk with the landlord about implementing energy efficiency measures within the tenant space or how they can assist in reducing their energy consumption. The landlord may be open to shared savings on an energy bill if reductions can be made. Additionally, the landlord may be willing to provide financial incentives for implementing energy efficiency measures, such as installing more efficient lighting fixtures and plug load control devices. Often these types of mutual benefits can be formalized through the lease.
Additionally, if a landlord requests information about a tenant’s energy and water consumption and use of the leased space, tenants are required to respond within 30 calendar days of the request.
Tenants renewing or starting a new lease should work with the landlord to develop a shared energy plan. The plan should include items like space sub-metering to track individual tenant energy usage, maximum energy use allowances, and solar energy packages. The plan should also include information on how the owner will maintain or become compliant with the BEPS requirements.
Commercial office space is currently a tenant-driven market, meaning that prospective tenants will be more successful in getting the type of space in the type of building they want. Tenants should work with their broker and vet potential options for new space based on how the building is performing. Higher-performing buildings have lower operating expenses and are typically more comfortable to occupy than lower-performing buildings, which leads to more productive and happier employees. Tenants should feel empowered to demand information about building performance and ask questions about how it will affect their tenancy.
Signing a new lease is an opportunity to talk with the landlord about shared expectations and how communication can be facilitated throughout the lease terms. Green leases are one tool tenants can use to facilitate these conversation.
To understand how to better have a conversation with your landlord and what to ask your broker, see our Commercial Tenant Playbook for specific actions and steps to take.
Are there penalties if my landlord doesn’t meet the BEPS?
Buildings that do not meet the building improvement requirements by the end of the compliance cycle will face a financial penalty from the District’s Department of Energy & Environment (DOEE). The financial penalty is designed to be greater than the cost of not making the energy reductions. The specific penalty will be based on the property square footage, and how close the property came to meeting the program requirements.
Depending on the lease, financial penalties may be passed through to tenants. It benefits both landlords and tenants to work towards compliance as a better performing building lowers operating costs and buffers against unexpected energy expenditures, thereby stabilizing rent. Tenants should review their lease to determine if BEPS fines can be passed through from the landlord.