Create a residential “Green Lease” program

Assumptions

• Energy efficiency improvements save the average residential unit 10 percent of normal energy use
• Life cycle of energy efficiency improvements is 10 years
• 3 percent participation, or 5,100 units, over the course of 10 years
• 1 percent budget impact on the Rent Board

Analysis

A green lease program has the potential to extend energy efficiency upgrades in buildings for which the ownership model does not incentivize taking advantage of the rebates and direct install programs currently available. A green lease program would work in conjunction with a rebate or financing program. The City could make this type of program cost virtually nothing by amending the Rent Control Ordinance to allow modest, voluntary rent increases for units covered by green leases. Otherwise, the cost is almost $40 per ton. However, the overall success of this strategy to reduce climate change emissions will be dependent on whether people choose to adopt these leases, and if the City can improve awareness among landlords and tenants about this type of agreement.

What we do now
Sixty-five percent of housing units in San Francisco are rental units. This large segment of the housing stock faces a double barrier to investing in energy efficiency, since the renters who consume energy do not have the authority to make energy efficiency investments in their homes and landlords have little incentive to make such investments on behalf of their tenants. Under many rental agreements in San Francisco, a landlord can increase monthly rent only by small increments each year or lease term. This hinders the landlord’s ability to invest in capital improvements on his property, since he has a limited ability to recoup his costs through increased rents.

A “green lease” is a contract between landlord and tenant that makes investing in energy efficiency mutually beneficial. Under such an agreement, a tenant or group of tenants could agree to allow the landlord to increase the monthly rent to cover the cost of investing in energy efficiency upgrades to the building. If the monthly rent increase is less than the monthly energy savings of each tenant, then the tenants are able to save on overall monthly expenditures, while the landlord is able to realize a return on his investment.

In order for a green lease to be agreeable to all parties, energy savings must be guaranteed. Energy Service Companies (can provide comprehensive energy audits, efficiency measure installations and energy savings projections. Green leases could be an option as part of a broader program to promote energy efficiency investment in residential and commercial properties.

For units covered under the Residential Rent Stabilization and Arbitration Ordinance, green leases could be executed via petition before the San Francisco Residential Rent Stabilization and Arbitration Board. Alternatively, the Rent Board could amend the Rent Control Ordinance to allow modest, voluntary rent increases covered by certified green lease agreements to be executed without petition before the board.

What we could do
Over a period of 10 years, 3 percent of all units covered under rent control could be entered into a green lease that saves 10 percent on household energy use. The average Rent Board petition covers about eight rental units, so we estimate that covering 5,100 units would require 638 additional petitions before the Rent Board, or 64 petitions per year.

Cost
An additional 64 petitions per year would increase the Rent Board case load by 3 percent each year. We estimate the additional cost at 1 percent of the Rent Board’s budget, or $52,352.

Carbon savings potential
At year five, green leases could account for 1,221 tons of greenhouse gas savings annually. At year 10, leases could account for 2,457 tons of carbon dioxide equivalent savings annually. If 5,100 units reduce their energy use by 10 percent over the lifetime of a green lease program, 24,576 tons of emissions could be avoided. The cost per ton of carbon reduced is $39.