If you own a commercial or industrial building in California, you likely will be affected by the implementation of the Non-Residential Building Energy Use Disclosure Program.
Passed by the California legislature as AB 1103 in 2007, this program requires non-residential property owners to fulfill the following requirements prior to selling, leasing, financing, or re-financing an entire building: (1) owners must open an account on the U.S. Environmental Protection Agency's Energy Star Portfolio Manager website and ensure that benchmarking data and ratings from the prior twelve months are uploaded to the account; and (2) owners must disclose energy use reports to prospective buyers, lessees, and lenders prior to entering into a transaction.
Since AB 1103's passage, the California Energy Commission has been receiving public input in drafting the law's implementing regulations. Compliance has been postponed several times, but what are presumed to be the final compliance deadlines are approaching. The Commission will consider adopting final regulations on Nov. 14. The revised schedule requires compliance on a rolling basis depending upon a building's floor area.
Accordingly, the only property owners not affected will be owners of residential properties and small commercial spaces. Failure to comply with the regulations may subject an owner to civil penalties of up to $2,000 per day. Owners should also bear in mind that a violation could allow buyers or lessees to back out of a deal without repercussions because failure to make the legally required disclosures beforehand may constitute a material breach. To ensure a deal does not go south, owners should arrange for compliance well in advance of the above deadlines.
Steps to Compliance
1. Open an Energy Star Portfolio Manager account and input the appropriate space usage information. This must be completed at least 30 days before a disclosure is required.
2. The owner then requests that its utility company uploads the entire building's energy use data to the newly-created account.
3. The utility company uploads the data.
4. The building owner accesses the Commission's website and downloads the Disclosure Summary Sheet and generates a Compliance Verification Report. As an aside, the Commission treats individual Compliance Reports as confidential, but may aggregate data from these reports for use in public documents. Aggregation will mask individual building energy use to maintain confidentiality.
5. The owner generates the following disclosure reports to present to a buyer prior to entering into the transaction: (a) Disclosure Summary Sheet, (b) Statement of Energy Performance, (c) Data Checklist, and (d) Facility Summary.
6. These reports must then be delivered to a prospective buyer, lessee, or lender "as soon as practicable," but the disclosures absolutely must be made before entering into the transaction.
Implications for Single-Tenant Lease Agreements
These mandatory disclosures apply only to the sale, lease, or financing of an entire building; therefore, owners will not have to comply with AB 1103 when selling or leasing individual spaces in a multi-tenant commercial or industrial building. However, if owners decide to sell or lease their entire building at some point in the future, disclosure will become mandatory. Because energy use is confidential, owners of single-tenant buildings should ensure that their rental agreements include a provision by which the tenant consents to disclosure of its energy use for purposes of compliance with Public Resources Code Section 25402.10. For buildings with multiple tenants, the reports that will be disclosed will aggregate energy use of all tenants in the building, so confidentiality of individual tenants' energy use should be preserved even absent such a special lease provision.
What this Means for Owners of Non-Residential Buildings
Regardless of whether owners intend to sell, lease, or finance their entire building in the near future, it is prudent to open an Energy Star Portfolio Manager account now to ensure compliance when such a transaction is imminent. If owners are not proactive, a sale, lease, or financing transaction could be delayed or even fall through if an owner is not in full compliance with AB 1103. In light of the approaching deadlines for compliance it is advisable for owners to take action now by consulting with counsel to ensure that the above steps are properly followed and applicable deadlines are met.
Heidelberg can be reached at [email protected]
Passed by the California legislature as AB 1103 in 2007, this program requires non-residential property owners to fulfill the following requirements prior to selling, leasing, financing, or re-financing an entire building: (1) owners must open an account on the U.S. Environmental Protection Agency's Energy Star Portfolio Manager website and ensure that benchmarking data and ratings from the prior twelve months are uploaded to the account; and (2) owners must disclose energy use reports to prospective buyers, lessees, and lenders prior to entering into a transaction.
Since AB 1103's passage, the California Energy Commission has been receiving public input in drafting the law's implementing regulations. Compliance has been postponed several times, but what are presumed to be the final compliance deadlines are approaching. The Commission will consider adopting final regulations on Nov. 14. The revised schedule requires compliance on a rolling basis depending upon a building's floor area.
Accordingly, the only property owners not affected will be owners of residential properties and small commercial spaces. Failure to comply with the regulations may subject an owner to civil penalties of up to $2,000 per day. Owners should also bear in mind that a violation could allow buyers or lessees to back out of a deal without repercussions because failure to make the legally required disclosures beforehand may constitute a material breach. To ensure a deal does not go south, owners should arrange for compliance well in advance of the above deadlines.
Steps to Compliance
1. Open an Energy Star Portfolio Manager account and input the appropriate space usage information. This must be completed at least 30 days before a disclosure is required.
2. The owner then requests that its utility company uploads the entire building's energy use data to the newly-created account.
3. The utility company uploads the data.
4. The building owner accesses the Commission's website and downloads the Disclosure Summary Sheet and generates a Compliance Verification Report. As an aside, the Commission treats individual Compliance Reports as confidential, but may aggregate data from these reports for use in public documents. Aggregation will mask individual building energy use to maintain confidentiality.
5. The owner generates the following disclosure reports to present to a buyer prior to entering into the transaction: (a) Disclosure Summary Sheet, (b) Statement of Energy Performance, (c) Data Checklist, and (d) Facility Summary.
6. These reports must then be delivered to a prospective buyer, lessee, or lender "as soon as practicable," but the disclosures absolutely must be made before entering into the transaction.
Implications for Single-Tenant Lease Agreements
These mandatory disclosures apply only to the sale, lease, or financing of an entire building; therefore, owners will not have to comply with AB 1103 when selling or leasing individual spaces in a multi-tenant commercial or industrial building. However, if owners decide to sell or lease their entire building at some point in the future, disclosure will become mandatory. Because energy use is confidential, owners of single-tenant buildings should ensure that their rental agreements include a provision by which the tenant consents to disclosure of its energy use for purposes of compliance with Public Resources Code Section 25402.10. For buildings with multiple tenants, the reports that will be disclosed will aggregate energy use of all tenants in the building, so confidentiality of individual tenants' energy use should be preserved even absent such a special lease provision.
What this Means for Owners of Non-Residential Buildings
Regardless of whether owners intend to sell, lease, or finance their entire building in the near future, it is prudent to open an Energy Star Portfolio Manager account now to ensure compliance when such a transaction is imminent. If owners are not proactive, a sale, lease, or financing transaction could be delayed or even fall through if an owner is not in full compliance with AB 1103. In light of the approaching deadlines for compliance it is advisable for owners to take action now by consulting with counsel to ensure that the above steps are properly followed and applicable deadlines are met.
Heidelberg can be reached at [email protected]