New Energy Disclosure Requirements Causing Headaches for Commercial Property Owners, But Relief May Be on the Way

Yee Law Group Inc. > New Energy Disclosure Requirements Causing Headaches for Commercial Property Owners, But Relief May Be on the Way

A California law designed to make energy efficiency more of a motivating factor in real estate transactions is creating new burdens for commercial property owners and managers across the state, and the state board charged with enforcing the new law is considering pushing compliance dates back another year as a result.

Assembly Bill 1103 requires owners of most commercial buildings to provide documentation on energy usage every time there is a sale, lease or refinancing of the building. The bill went into effect on January 1, 2014 for non-residential buildings of at least 10,000 square feet, and as of July 1, 2014, applies to all commercial buildings of at least 5,000 square feet. The only exception is for industrial buildings used for manufacturing (as evidenced by an occupancy permit building use classification of Group F).

The disclosures required under the new law involve “Benchmarking” the building with the EPA’s Energy Star Portfolio Manager Software (www.Energystar.gov). Benchmarking compares 12 months of consecutive energy (electric and gas) usage against similar buildings. This is designed, in part, to help prospective purchasers and tenants evaluate a building’s energy efficiency and their anticipated energy costs as part of their due diligence.

Property owners’ disclosure obligations under the law are triggered by the execution of a sales contract, execution of a lease, or submittal of a loan application. At least 30 days before any of those events are anticipated, building owners should open an account in the aforementioned Portfolio Manager. Then, the disclosure needs to be made at least 24 hours before a purchase agreement or lease is executed or, for loan agreements, no later than upon submission of the loan application.

The job of enforcing these disclosure requirement fall upon the California Energy Commission, which can impose fines and penalties on non-compliant owners. However, as of late July, the Commission is considering postponing the compliance date from July 1, 2014 to July 1, 2016 because it said that it had “received extensive information from stakeholders indicating that there are significant barriers to compliance with the Program. The Commission is concerned that significantly expanding the scope of this program while these barriers are still in place could cause market confusion and hardship to the public and the stakeholders affected by these regulations.”

We will advise as to any further developments as to the implementation of the disclosure program.

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This article has been prepared by Yee Law Group Inc., PC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.