Solving split incentives in commercial buildings 31 March 2017
National Energy Efficiency Award winner CitySmart and partner Incorp Property Solutions Group have a new venture; a sustainability program for commercial building owners and tenants.
Called the t3 Initiative, the program incentivises eco-friendly upgrades to commercial buildings. It’s a fresh take on the same issue that Environmental Upgrade Agreements (EUAs) are trying to solve; the “split incentive” problem of a typical lease, which frustrates tenants wanting upgrades and gives landlords little incentive to make improvements.
How it works
With t3, the tenant allows the building owner to share in the savings created by building asset upgrades, such as cheaper bills through more efficient lighting. Both parties agree to the upgrade works which include a ‘connection incentive’ for landlords in the form of ongoing tenant contributions to help pay for the completed works. The landlord/tenant split of the savings is 80/20.
The t3 Initiative builds on the groundwork of EUAs and targets simplification of this process. The t3 Initiative agrees everything up front so you don’t have an annual review. Projects can be undertaken anywhere as it is voluntary, and there is no third party council necessary to undertake the works.
CitySmart and Incorp Proper Solutions Group believe that t3’s framework allows both parties to benefit. Tenants are signalling to stakeholders that they care about improving workplace productivity, worker conditions and the company’s environmental credentials. Meanwhile, landlords can secure a cash flow improvement mid-lease, increasing the building’s value.
t3 is launching around Australia this year, initially with a focus on lighting upgrades, before expanding to a range of other eco-friendly improvement opportunities for buildings. t3 clients already on board include Charter Hall and Eagle Property Group.