How Office Tenants Can Avoid Cost Pass-Throughs from Energize Denver’s Compliance Requirements
If you lease office space in Denver, you may have heard about the Energize Denver initiative. This policy requires buildings 25,000 square feet or larger to meet energy performance standards by 2030. The goal is to cut energy waste, lower carbon emissions, and improve efficiency—a good thing for sustainability, but it could mean additional costs for tenants.
Many office tenants are concerned that their landlords will pass through compliance costs, leading to higher rent and operating expenses. The good news? You can take steps to protect yourself while still benefiting from energy-efficient improvements in your building.
In this guide, we’ll break down:
✔️ What Energize Denver means for tenants
✔️ How landlords may pass through costs
✔️ Smart lease strategies to avoid overpaying
✔️ How to negotiate and get the most out of energy-efficient upgrades
Let’s dive in!
What is Energize Denver?
Energize Denver is a policy designed to reduce energy use in commercial buildings by 30% or more by 2030. The city has set specific Energy Use Intensity (EUI) targets, meaning buildings must operate more efficiently over time.
How does this affect office tenants?
Landlords must upgrade building systems, such as:
- Lighting (LEDs, smart controls)
- HVAC systems (high-efficiency heating and cooling)
- Building insulation and windows
- On-site renewable energy (solar panels, battery storage)
While these upgrades improve tenant comfort and lower long-term costs, the upfront expenses may be passed on to tenants in the form of higher rents, CAM (Common Area Maintenance) fees, or operating expenses.
How Office Tenants Can Benefit from Energy Efficiency Upgrades
While avoiding unfair cost pass-throughs is important, energy-efficient buildings offer real advantages for tenants:
✔️ Lower Utility Bills – More efficient buildings can cut electricity and heating costs by 20-30%.
✔️ Better Comfort & Air Quality – Upgraded HVAC systems improve temperature control and ventilation, reducing sick days and boosting productivity.
✔️ Sustainability Goals – Many companies have carbon reduction targets. Leasing in an energy-efficient building supports corporate ESG goals.
✔️ Increased Property Value – Energy-efficient buildings attract high-quality tenants and maintain better long-term value.
The key is ensuring that landlords shoulder the initial investment while tenants enjoy the benefits.
How Landlords May Pass Through Costs to Tenants
Many office leases allow landlords to pass certain expenses to tenants. Here’s how they might try to include Energize Denver compliance costs:
1. Capital Expenditure Pass-Throughs
Some landlords may classify energy upgrades as capital improvements and pass those costs to tenants.
Example: If a landlord installs a new high-efficiency HVAC system, they may try to recoup costs through increased rent or additional charges in the lease.
2. Operating Expense Increases
Landlords may include energy efficiency investments under operating expenses, leading to higher CAM fees.
Example: If the building replaces fluorescent lighting with LEDs, tenants may see a small annual fee increase instead of large upfront costs.
3. Utility Cost Recovery
If the building switches to more efficient energy systems, landlords might increase utility surcharges or restructure energy billing.
Example: Your lease includes a fixed energy charge, but the landlord changes it to a variable rate based on energy use.
How Office Tenants Can Avoid Unfair Cost Pass-Throughs
The key to protecting yourself is understanding your lease and negotiating smartly. Here are the best strategies:
1. Review Your Lease for Cost Pass-Through Clauses
Before signing or renewing your lease, look for these key lease clauses:
✔️ Capital Expenses vs. Operating Expenses – Ensure major upgrades (e.g., HVAC, solar, insulation) are not classified as pass-through costs unless they reduce your energy bills.
✔️ Energy Efficiency Cost Recovery – Ask how Energize Denver-related costs will be allocated. Some leases allow pass-throughs only if the upgrade reduces operating expenses.
✔️ Gross vs. Net Leases – If you’re in a gross lease, your landlord may absorb these costs. In a net lease, you may be responsible for a portion of them.
2. Negotiate Energy Efficiency Cost Sharing
You don’t have to accept all pass-through costs. Here’s how to negotiate fair terms:
- Ask for a Cost-Benefit Analysis – If landlords propose upgrades, request proof that they will reduce energy expenses.
- Propose a Savings-Based Model – If costs are passed through, ensure your energy savings offset the increase.
- Request a Cap on Pass-Throughs – Negotiate a limit on energy efficiency-related expenses that can be included in your rent.
3. Advocate for Alternative Compliance Methods
Some buildings qualify for alternative compliance pathways that don’t require costly upgrades. Encourage your landlord to explore options such as:
- Renewable Energy Credits (RECs) – Instead of expensive retrofits, some buildings can purchase renewable energy offsets to comply.
- Electrification Incentives – Denver offers rebates and incentives for switching from gas to electric heating, reducing costs.
- Prescriptive Pathways – Instead of major renovations, some landlords can take smaller, lower-cost steps like improving insulation or upgrading thermostats.
By pushing for these options, tenants can help landlords comply while reducing financial impact.
Final Thoughts: Protect Your Bottom Line
With Energize Denver compliance deadlines approaching, office tenants must stay informed to protect themselves from excessive cost pass-throughs.
Key Takeaways:
- Review your lease for cost pass-through clauses.
- Negotiate cost-sharing and energy savings protections.
- Advocate for alternative compliance options to reduce costs.
- Leverage energy efficiency benefits for lower bills and better workplace comfort.
By taking a proactive approach, you can stay ahead of the curve, avoid hidden costs, and ensure a fair lease agreement while enjoying a more efficient and sustainable office space.
Have Questions? Let’s Talk!
If you’re negotiating a lease renewal or unsure how Energize Denver impacts your office costs, let’s chat! Drop a comment below or reach out directly for expert insights on navigating compliance and protecting your financial interests.
