From Lease to Lumens: How Landlords and Tenants Can Unite for Efficiency Upgrades

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For commercial and industrial facilities, lighting plays a pivotal role in operations — playing a key role in safety, productivity, employee morale, the customer experience, and annual energy consumption. And as the need continues to grow for businesses to reduce GHG emissions and optimize their energy usage, sustainability leaders are increasingly turning to LED as a proven way to substantially reduce their consumption, while improving the overall facility environment.

However, if you are currently leasing your building, how can you justify investing in an upgrade if you have uncertain plans to be there long term? Why should you have to pay for the building upgrade instead of your landlord?

The argument of who should foot the bill for lighting upgrades is a common dilemma that we see. The tenant reaps the immediate benefits in terms of reduced energy bills, but the landlord owns the building. This predicament becomes even more complex when the remaining lease term is shorter than the return on investment (ROI) for the lighting upgrade.

But what if there was a solution that benefited both parties?

The answers is PEC’s new Lease to LumensTM No-Risk Financing Program for Landlords & Tenants.

About the Lease to Lumens No-Risk Financing for Landlords and Tenants

Problem scenario:

Say you are a tenant that’s interested in a lighting upgrade, but your remaining lease term is shorter than the ROI of the lighting upgrade. You will likely not want to commit funds to the project in the event that you move out.

However, the dated and low-performing lighting system has become a obstacle to the success of your business:

  • You are grappling with poor light levels due to outdated lighting technology.
  • High energy costs are a burden.
  • If you are in an NNN lease, your landlord is hesitant to pay for upgrades since you pay the electric bill and will see the immediate benefits.
  • You are reluctant to invest in upgrades for a building they don’t own, especially if they might move out before realizing the full ROI.
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Solution: Lease to Lumens Landlord (or Owner) & Tenant No-Risk Financing

Here’s how it works:

  1. PEC collaborates with the landlord/owner to finance the lighting upgrade project, ensuring all incentives and tax benefits are captured.
  2. The landlord’s monthly finance payment is then passed onto the tenant through a lease addendum.
  3. The tenant covers these finance payments with the monthly energy savings they gain after upgrading to efficient LED technology.
  4. If the tenant decides to move out, the remaining balance of the upgrade is either covered by the landlord or passed onto the new tenant. If the current tenant re-signs, the monthly payments cease once the project is fully paid off during the 2nd lease term.

Who Benefits From this Program?

Buildings with short lease terms.

These buildings often face challenges when it comes to long-term investments. The program’s flexibility ensures that both landlords and tenants can benefit without being tied down to long-term financial commitments.

Tenants without a budget for lighting upgrades.

Tenants not have the immediate funds for large-scale upgrades. This program allows them to enjoy the benefits of modern lighting without the upfront costs.

Tenants unable to finance projects directly.

Some tenants may have credit limitations or other financial constraints. By working through the landlord, they can bypass these hurdles and still achieve an efficient lighting solution.

Facilities still using HID or Fluorescent lighting.

These older lighting technologies are less energy-efficient and often require more maintenance. Switching to LEDs can result in significant energy savings and reduced maintenance costs.

Operations with long hours, such as multiple shifts.

Facilities operating around the clock stand to gain the most from energy-efficient lighting. The more hours lights are on, the greater the potential savings from LEDs.

Landlords yet to upgrade to LEDs in all their buildings.

For landlords with multiple properties, ensuring all buildings are upgraded can be a daunting task. This program offers a streamlined solution to modernize lighting across all assets.

Landlords aiming to minimize or eliminate future capital expenditures (CapEx).

Upfront costs can be a significant barrier to property improvements. By spreading out the costs and leveraging tenant energy savings, landlords can improve their properties without heavy initial investments.

A Real-World Scenario:

Imagine ABC Company, a tenant, wanting to enhance lighting and cut energy costs in a building owned by XYZ Corp. They have 2 years left on their lease but can decide to renew for another 5 years.

Let’s say the cost to upgrade to LED lighting is estimated at $200,000. With available energy incentives of $20,000, the net project cost is $180,000, promising annual energy savings of $60,000.

This results in an ROI of 36 months.

In this setup, PEC steps in to offer 0% interest financing for the project on a 36-month term with XYZ Corp at a monthly payment of $5,000.

XYZ Corp then creates a lease addendum for the same amount with ABC Company. The result? ABC Company sees a monthly reduction in their utility bill by $5,000.

They get the lighting upgrade they desired, leading to decreased energy spending and zero lighting maintenance, all without any upfront capital expenditure!

Key benefits of the program:

Dramatically reduce or eliminate future CapEx.

Capital expenditures can be a significant drain on a property owner’s resources. By participating in this program, landlords can spread out the costs of lighting upgrades, ensuring that large, lump-sum investments are minimized or even eradicated in the future.

Qualify for Tax Bonus Depreciation.

Upgrading to energy-efficient lighting not only saves on energy costs but can also offer tax advantages. The U.S. tax code allows for accelerated depreciation on certain assets, meaning landlords can potentially write off the cost of the lighting upgrade faster, leading to substantial tax savings.

Improve Value and marketability of your property.

Modern, energy-efficient properties are in high demand. By upgrading to state-of-the-art lighting systems, landlords can enhance the appeal of their properties to potential tenants, ensuring quicker lease turnovers and potentially higher rental rates.

Standardize lighting across portfolio, designed to last 25+ years.

Consistency is key when managing multiple properties. By standardizing lighting solutions across a portfolio, landlords can ensure uniformity in appearance and quality. Moreover, with lighting designed to last over a quarter of a century, this translates to fewer replacements and maintenance interventions over the years.

Reduce risk from tenant doing low-quality LED upgrades on their own.

Not all LED solutions are created equal, and tenants who are left to take on upgrades themselves will opt for a cheaper option. Low-quality LED systems may only last 3-5 years before needing to be replaced. These inferior solutions can end up costing landlords in the long run, as they may need to be replaced or repaired much sooner than high-quality alternatives. By taking charge of the upgrade process, landlords can ensure longevity and quality, safeguarding their investment.

Final thoughts

The Lease to Lumens No-Risk Financing Program is a solution that’s tailored for the needs of commercial and industrial tenants and landlords. With this win-win solutions, both parties now have a path forward towards feasibly deploying efficiency upgrades that significantly improve both the sustainability and overall environment of the space.

Deploy an efficiency project with PEC:

PEC is North America’s most innovative energy solutions provider for commercial and industrial facilities. Our solutions include LED retrofits, energy monitoring, EV charging, and HVAC Smart Motor retrofits.

Our mission is to be your “easy-button” to facility upgrades — handling your project from design to install and customizing it around your top business goals.

We are also proud to offer a wide-range of funding vehicles for our clients, including our own in-house PEC Capital program — a 0%, cashflow positive funding program that lets you pay off your facility upgrade with your monthly energy savings!

With over $300M and 3B kWh’s saved for business across North America, it’s no wonder why blue-chip brands like Costco, IKEA, Alaska Airlines, Epiroc, and over 5,000 more companies trust us to maximize impact with their efficiency upgrades.

Get in touch and book a free energy audit of your facility to see how you could benefit from an efficiency project with PEC!

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