[bouldercouncilhotline] Hotline: Commercial and Industrial Energy Efficiency Ordinance - Addressing split incentives in multi-tenant buildings

[cmosupport at bouldercolorado.gov]

Sender: Cowles, Macon

I have a question for the Study Session: what percentage of C&I buildings are within multi-tenant office buildings.


And I have a comment. I would like staff please to explain at the study session May 12 what consideration was given to addressing the split incentive in multi-tenant office buildings with respect to energy efficiency measures (EEM). Let me explain



In the typical triple net lease, the owner can allocate and amortize common area expenses, insurance and taxes across all the tenants of a property. Essentially, the cost of these things is being passed on to the tenants, based on the amount of space they occupy and the term of the lease. The split incentive as to energy costs results from the fact that the landlord cannot allocate and amortize the cost of energy efficiency measures (EEM) across all the tenants of the property. What this means is that the owner bears the cost of the EEM’s, but the tenants—each of whom pay their own energy utility bills—reap the benefit of the EEM’s.



If this split incentive is addressed, then it would align the incentives of the building owner and the tenants in the matter of installing energy efficiency measures. It enables the tenants who benefit from EEM’s to participate in their cost, since they will reap the benefits in the form of lower energy bills.


A simple way of addressing the split incentive is to require landlords in multi-tenant buildings to use a green lease provision that would align the interest of landlord and tenant with respect to EEM’s.

Macon Cowles
Boulder City Council Member

1726 Mapleton Ave.
Boulder, Colorado 80304
CowlesM at bouldercolorado.gov
(303) 447-3062
(303) 638-6884