Kevin Kai Wong, President & CEOApril 21, 20267 min read

The commercial real estate industry is undergoing a structural shift in how energy costs are allocated between landlords and tenants, driven by the convergence of building performance standards, corporate sustainability commitments, and investor ESG requirements. The traditional gross lease — where the landlord pays all utilities and recovers costs through rent — is increasingly problematic in an environment where building performance standards impose emissions penalties on building owners while tenant operations drive the consumption that generates those emissions. The green lease and tenant submetering are the practical mechanisms through which landlords and tenants share both the costs and the data needed to manage energy performance jointly.

The 2025 commercial leasing landscape data is telling. Surveys of new commercial lease transactions show that approximately 62 percent of new commercial leases now contain green provisions — clauses requiring tenants to participate in energy efficiency programs, share utility data, or operate their spaces according to specified energy standards. This has grown from roughly 50 percent two years prior. Tenant sustainability expectations are no longer a boutique demand from a small segment of mission-driven organizations; they are becoming standard in commercial leasing across office, industrial, and retail formats.

The Split Incentive Problem

The fundamental challenge in commercial real estate energy management is the split incentive: in a traditional gross lease, the landlord pays for energy but has limited control over tenant operations that drive consumption. The tenant has every incentive to use energy freely — they don't pay for it — but no incentive to invest in efficiency improvements that benefit the landlord. Neither party has complete information or aligned financial incentives.

Green leases and tenant submetering address both sides of this problem. Tenant submetering — providing tenants with consumption data specific to their leased space, typically derived from circuit-level monitoring — aligns financial accountability with operational control. When tenants see their own consumption data and are either charged for it directly (modified gross or net lease structures) or held to standards of efficient operation, the incentive structure changes fundamentally.

Circuit-level monitoring provides the technical foundation for tenant submetering without requiring the installation of utility-grade revenue meters at each tenant demise — meters that are expensive, require electrical shutdowns to install, and require ongoing calibration and certification. Circuit-level sensors applied to the electrical circuits serving each tenant space provide consumption data with accuracy sufficient for cost allocation and performance benchmarking, at a fraction of the cost of traditional submetering infrastructure.

Building Performance Standard Compliance: The Landlord's Dilemma

NYC's Local Law 97, Boston's BERDO 2.0, DC's BEPS, and similar ordinances in other cities impose emissions limits on building owners — not tenants. Yet in multi-tenant buildings, a large share of total energy consumption is driven by tenant operations: data center equipment, server rooms, manufacturing processes, kitchen equipment, extended hours of operation for retail tenants. The landlord faces penalties for emissions driven by tenant behavior over which the landlord has limited operational control.

Green lease provisions — specifically, tenant energy data sharing requirements and energy performance covenants — are the legal mechanism by which landlords can establish the alignment needed to manage building performance standards compliance collaboratively. When tenants are contractually required to share energy consumption data and to meet specified performance standards, landlords have both the information and the legal framework to engage tenants in the compliance program.

Circuit-level monitoring makes green lease compliance management practical. A building with circuit monitoring deployed throughout can provide tenants with their individual consumption profiles in real time, report on building-wide performance against the regulatory emissions cap, and identify which tenant spaces are consuming disproportionate energy relative to their space type. This data transparency creates the foundation for constructive landlord-tenant engagement on energy performance.

Practical Tenant Engagement Through Data

The most effective tenant energy engagement programs are built on data, not exhortation. A landlord who can provide tenants with their energy performance compared to similar spaces in the building, their trend over time, and a quantified estimate of the cost of specific inefficiencies — HVAC running outside business hours, plug loads left on overnight, server rooms overcooled — enables tenants to take specific, actionable steps rather than responding to generic sustainability requests.

Monthly energy performance reports delivered to tenant facility managers or sustainability contacts, derived from circuit monitoring data for the tenant's space, create an ongoing communication that builds awareness and enables continuous improvement. For tenants with their own sustainability targets — corporate carbon commitments, LEED certification aspirations, ESG reporting obligations — these reports provide the Scope 2 data they need for their own reporting programs, creating mutual value that reinforces the landlord-tenant relationship.

Valuation Implications

The commercial real estate valuation community is increasingly incorporating energy performance and ESG data quality into asset valuations. Buildings with demonstrated superior energy performance, comprehensive monitoring infrastructure, and strong ESG data governance command valuation premiums that are beginning to be documented empirically. Conversely, buildings facing regulatory penalties under building performance standards represent a known, quantifiable financial liability that sophisticated buyers will discount.

Deploying circuit-level monitoring across a commercial real estate portfolio is therefore not merely an operational decision — it is a capital allocation decision with direct implications for asset values. The monitoring infrastructure that enables green lease management, building performance standard compliance, GRESB data quality improvement, and tenant sustainability engagement is also the infrastructure that supports the valuation premium that ESG-informed investors and tenants are beginning to pay for buildings that can demonstrate data-verified sustainability performance.

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