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Breaking Down the Triple-Net Lease Data Challenge for Real Estate ESG Professionals

By definition, triple-net leases (also known as triple-net or NNN leases) are lease agreements on a property wherein the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities.  

Though logical and advantageous for both parties on their face, triple-net leases have created an interesting dilemma in the era of ESG reporting. If tenants use the building according to their own needs, but the landlord owns the building, who is ultimately responsible for the energy consumption and associated carbon emissions?  

Local laws and ESG frameworks require buildings to disclose portfolio-wide energy data, and by default the disclosure responsibility falls on the building owner. Additionally, newer building performance standards, like New York’s Local Law 97, put additional pressure on the landlord to not just report but actively manage the energy efficiency of their buildings, irrespective of the lease structures in place. This creates significant challenges for landlords with triple-net leased assets, as tenants “own” the access to their utility data. 

With the burden of disclosure and management falling increasingly on building owners, what can savvy organizations do to both collect and report tenant energy usage, and increase the energy efficiency of the buildings they own and operate?

Overcoming the Triple Net Lease: Tenant Engagement & Green Leases

A good starting point for collecting and reporting energy data and managing the performance of buildings is for building owners to directly engage their triple-net tenants. One common vehicle for tenant engagement? The green lease

Green leases are an increasingly popular best practice that can help solve the problems of energy data collection and management. To address energy data access, building owners can include a utility authorization clause in the lease prior to move in and move out. This clause may require tenants to provide historical utility data upon lease signing and give the landlord access to ongoing utility data, either directly from the utility provider through a tenant authorization letter, or by providing utility bills. 

Green leases may also include language around cost-sharing, either through amortization of capital expenses, or via a savings pass-through whereby the landlord recuperates the associated operational savings resulting from energy efficiency improvements (up to the point where the landlord has been repaid for the initial capital expenditures). Furthermore, under a green lease, the landlord can require tenants to meet certain load requirements, agree to submetering, and/or undergo regular equipment commissioning.  

For more information on the types of provisions found in green leases, click here.  For draft language and template green lease language, see BOMA’s Green Lease Guide.

Green Lease Implementation Challenges

While these additional “green” provisions to leases can be effective tools for landlords hoping to capture data and manage overall portfolio energy consumption, the implementation of these provisions are not without challenges. 

Administering green leases at the portfolio level can be a significant undertaking, with data management alone often requiring a substantial increase in resources. For example, if a green lease requires all tenants to provide utility data or bills, and there are 500 tenants across the portfolio, it follows that there could be as many as 6,000 individual utility bills in a given year for someone at the portfolio to manage and analyze. This is an enormous volume of data to collect, interpret, and report on, especially for small ESG teams with already limited resources. 

Furthermore, bill data received from tenants will typically come in monthly increments. While utility bills offer basic information on usage and cost, they do not provide the insights needed to make data-driven decisions that improve energy performance at the building level. By the time a bill is issued 30 days later, it is difficult to take action on the consumption data – because it is backward-looking. Even 15-minute interval data is often subject to a 24 hour reporting lag, which makes it challenging to evaluate day-to-day irregularities, optimize operational scheduling, and find strategies to enhance energy efficiency.

Address These Challenges with Real-Time Meter Data 

The data source that provides the optimal level of detail for a successful portfolio-wide ESG program is real-time meter data. 

Real-time data via pulse outputs or shadow metering (see the below table for more information) enables ESG teams and onsite teams to collaborate in monitoring consumption and identifying savings opportunities that can yield meaningful energy reductions. 

For example, if a building experiences a spike in consumption in the middle of the night,  real-time data makes it possible to surface the issue, observe if the behavior persists, and collaborate with the necessary stakeholders to arrive at a resolution. If you’re relying solely on monthly bill data, you might see the problem reflected in higher consumption and fees for the prior billing period, but it will be nearly impossible to isolate the cause of the issue. And since you’re only able to view consumption data in backward-looking monthly increments, your energy usage and spend will have been running unchecked in the background for the past 30 days. 

Depending on your chosen provider, real-time meter-level data can also be rolled up to the monthly level and used for ESG reporting (as key ESG disclosures like GRESB require monthly, whole-building data). When evaluating an ESG data solution for your portfolio, it is important to ask if you can view and export your data in a variety of time intervals so that you can satisfy both day-to-day operational needs and overall ESG reporting requirements. 

Understanding Data Sources

Data Source Utility Bills Pulse Outputs Shadow Metering
Description Automatic bill sync via utility account credentials Direct connection to an existing utility meter with a cellular data gateway Landlord-owned meter that connects to the main utility feeds servicing the building
Pros No installation required Highly accurate, real-time data accessible when there is a utility meter to connect to (can be landlord- or tenant-controlled) Highly accurate, real-time data universally available when bill data or pulse outputs are not available
Cons Generally not accessible when utility accounts are tenant-controlled without a green lease provision, and then may require manual administration May require tenant letter of authorization (i.e. green lease provision) May require building shutdown, depending on the asset, or a green lease provision

Aquicore supports all of the above data capture methods. Interested in eliminating blindspots in your portfolio and achieving 100% data coverage? Get in touch with us to learn more about our data solutions here

Final Thoughts 

Green leases can be a great starting point for accessing tenant energy data and defraying the costs of more capital-intensive energy efficiency measures. However, without access to real-time energy data, day-to-day energy management – a key pillar of a successful ESG program – will continue to be a challenge. Consider including cost-sharing and data access provisions in your leases, and find energy management solutions that deliver both real-time meter data and the monthly data needed for ESG reporting purposes. With tenants primed and data readily available, collaborative conversations about reducing energy and emissions will become the standard and not the exception – even in triple-net lease structures.