Green Lease Case Study: Welshfield Inn

THE WELSHFIELD INN

GREEN LEASE CASE STUDY

CREATING AN APPETITE FOR

ENERGY SAVINGS

THE CHALLENGE During the Council of Smaller Enterprises (COSE) initial discussions with the Welshfield Inn’s general manager, Toby Heintzelman, he stressed that they were mostly focused on keeping labor and food costs manageable, and everything else came secondary. Although the restaurant didn’t ignore energy efficiency and sustainable business practices, the restaurant still operated under the guidance of doing what made the most economic sense for the bottom line.

However, because they manage utilities across all eight of their restaurants which make up 4 percent of the overall operating expenses, better energy efficiency could play a larger role in helping the bottom line than Heintzelman may not have realized at the time.

To see what was feasible, COSE conducted an energy assessment at the building. The results showed the facility could expect to reduce natural gas consumption by 27 percent and electricity consumption by 9 percent if the recommended energy conservation measures (ECMs) were implemented. This would produce an annual operational savings on the order of 447 MCF (one MCF equals the volume of 1,000 cubic feet of natural gas), and 30,476 kilowatt hours (kWh) for a combined $7,235 reduction in utility expenditure. The full implementation cost of these projects was estimated at $25,696, yielding a simple payback of 3.6 years. There were additional building needs that were considered, such as a new roof—which wouldn’t offer much in terms of energy savings—however, the savings generated from other upgrades could be leveraged to help pay for the roof.

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The Welshfield Inn The Welshfield Inn is located in Amish country, amid 19 acres of farmland in Burton, Ohio. Originally built in the 1930’s as a stagecoach inn, today it houses the 7,500 square foot restaurant and event center.

The building is owned by its holding company, the Driftwood Management Group LLC, and the restaurant leases its space from the holding company.

THE DRIFTWOOD MANAGEMENT GROUP OWNS AND MANAGES SEVEN OTHER NORTHEAST OHIO RESTAURANTS.

THEY SOURCE THEIR FOOD FROM LOCAL VENDORS AS MUCH AS THEY CAN AND CREDIT THEIR SUCCESS TO LISTENING TO THEIR CUSTOMERS AND PROVIDING A UNIQUE ATMOSPHERE AND TASTE IN EACH RESTAURANT.

THE SOLUTION As COSE further explored the management relationship and energy needs at the Welshfield Inn, it became apparent there was an opportunity to integrate green language into their existing lease. This modification could serve as a strategic way to reduce its operating expenses while improving overall sustainability.

The recommendations included: CAPITAL EXPENSE SHARING: To overcome the tenant-landlord financial disconnect, also known as the split incentive, pass-through clauses are a smart way to address capital expenses such

as HVAC upgrades. A passthrough clause allows capital expenses to be amortized to the tenant over the energy improvement’s useful life. By doing so, both landlord and tenant can capture the savings from the capital improvement.

UTILITIES & ENERGY CONSUMPTION SHARING: This lease language requires that the tenant and landlord agree to share their energy consumption data in order to increase transparency. Additionally, it encourages both parties toward investing in deeper energysaving strategies.

Integrating green language into an existing lease can serve as a strategic way to reduce operating expenses and improve sustainability.

ONGOING ALTERATIONS: This lease clause ensures that planned alterations are designed, constructed, and operated in an energy-efficient manner.

LANDLORD & TENANT MAINTENANCE—SUSTAINABILITY BEST EFFORT: This clause describes best efforts both parties will take towards greener and more energy efficient operations.

Taking Proactive Steps The Welshfield Inn has already taken proactive steps toward enhancing their lease, and will continue to maximize their efforts by leveraging the expertise of the COSE energy team. The lease is only one component of a long-term vision to continually reduce and better manage operating expenses, and operate as efficiently as possible. Having this structure in place will allow them to get back to their core business, serving great food and providing an exceptional dining experience.

Management Buy-In Getting management to buy into the concept is often a challenge. Some suggestions for having that conversation include being well-versed in the overall energy usage of the building, opportunities for the greatest energy reduction and savings, and long-term investments in the business.

Presenting the business case is often easier when you have facts and science from an audit report to support your rationale.

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WHY A GREEN LEASE? The landlord-tenant relationship between Driftwood Management Group and the Welshfield Inn is not uncommon. Quite simply, a green lease re-aligns financial incentives so that both parties benefit from adopting energy and resource-saving measures in order to overcome split incentives. These leases offer substantial benefits—both quantitative and qualitative—to tenants, building owners, and landlords by As with all businesses, improving environmental performance of the leased space through securing a few a primary goal is critical commitments from each party.

to reduce utility consumption and save money.

As with most businesses, the primary goal is to reduce utility consumption and save money. Although Driftwood and the Welshfield Inn don’t have formal sustainability goals, having a green lease in place will encourage them to operate more efficiently and they can use it to their marketing advantage to let patrons know about their commitments.

The upgrades and enhancements to the building will only enhance their corporate and brand image.

Lastly, the Driftwood Management Group is held in high esteem in the Cleveland restaurant industry, and being a leader in this space demonstrates vision and leadership amongst their peers.

As a result of digging deeper into the energy audit reports, Driftwood is now exploring options for upgrading lighting, controls, and even solar.

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