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HKGBC Green Tenancy Driver for Office Buildings
Method 1:
“The Energy Aligned Clause”
As a city with a high amount of skyscrapers, New York City also suffers
from the Split Incentive problem. Attempts have been made to alleviate
the Split Incentives by modifying existing commercial leases to have a
clause which allows owners to recover costs of capital expenses that
result in operational savings.
However, this recovery is typically based
on the useful life of the retrofit; this is too long to encourage owner
investments
(The Energy Aligned Clause, 2012). Thus, the Office of
Long-Term Planning and Sustainability of the City of New York (NYC
OLTPS) has introduced a new solution to the Split Incentive problem
called “The Energy Aligned Clause”.
The Energy Aligned Clause aims to tackle this problem by introducing
an agreement where
the building owner’s cost recovery is based on
a prediction of savings as determined by an energy specialist agreed
upon by both parties, but the owner’s capital expense pass-through is
limited to 80% of such predicted savings in any given year
(The Energy
Aligned Clause, 2012). The prediction of savings is determined by
professional engineering bodies, and
industry experience showed that
actual commercial energy retrofit savings are generally within +/- 20%
of predicted savings
(The Energy Aligned Clause, 2012). This will
incentivise the Tenant as the limit of 80% of pass-through provides the
Tenant a buffer against loss, even through this will increase the payback
period by 25%.
Consequently, this brings to a win-win situation that the Landlord is able
to recover the amount spent on better equipment, and the Tenant will be
able to enjoy savings even after payback.
For instance, an example with total five-year payback is illustrated
below. For further reference, please refer to Figure 6.3.
CH 6
SPLIT INCENTIVE CONSENT
