California Commercial Building Owners Must Comply With New Energy Use Disclosure Rules Commencing July 1, 2013

The long-awaited energy use disclosure requirements, first enacted as AB 1103 (Saldana) in 2007 (codified as California Public Resources Code, §25402.10), are finally effective. Commencing July 1, 2013, owners of commercial, non-residential buildings in excess of 50,000 square feet will be required to track and disclose detailed information regarding energy consumption at each building. The reporting requirements will be extended to buildings in excess of 10,000 square feet commencing on January 1, 2014; and to buildings in excess of 5,000 square feet on July 1, 2014.

Initially, official disclosure is required only in connection with the following events: (i) sale of the building, (ii) leasing the entire building, or (iii) financing the entire building. In order to comply, you must disclose the energy usage for the building within 24 hours of execution of a lease or sale agreement or upon submittal of a loan application, as applicable.

The required disclosures include the following documents, forms of which are available on the United States EPA’s Energy Star® website as referenced below:

  • Disclosure Summary Sheet
  • Statement of Energy Performance
  • Data Checklist and Facility Summary

In order to comply with these newly effective requirements, a commercial property owner must be registered with the United States EPA’s Energy Star® Portfolio Management program at least 30 days in advance of a required disclosure.

Background:

AB 1103 was enacted in an effort to promote energy efficiency in California by providing a system to compare the energy usage of similar buildings. The objective of the legislation is to encourage property owners to implement procedures to reduce energy consumption and to give prospective tenants, purchasers and lenders information regarding energy expenses in order to provide an accurate valuation of the subject property.

Documents and information regarding the required disclosures are available on the United States EPA’s Energy Star® Portfolio Management website (https://www.energystar.gov/istar/pmpam/). The website also has some useful tools to familiarize building owners with the Portfolio Manager program, including training webinars, fact sheets and answers to frequently asked questions.

There is no fee for registration through the Portfolio Management program. As part of the registration process, the building owner or property manager will need to request that its utility company provide the building’s utility data for the most recent 12 month period to the building’s Portfolio Manager account. The regulations do allow that an owner may provide an approximation of the data necessary for disclosure but the owner must be able to demonstrate that it has made a reasonable effort to obtain the information and must clearly identify any such data as an approximation.

Action required:

Although at present commercial property owners are not obligated to make disclosures on a regular basis, we recommend that owners commence compliance in order to be prepared in advance for any sale, financing, or, if applicable, full building lease. The Energy Star® website will undergo a major redesign and restructuring in June 2013 in order to provide the necessary platform for building owner compliance. Once the website is available, owners can register into the new reporting requirements and in most cases arrange for automatic reporting by the providing utility. There is no stated penalty for noncompliance with AB 1103, but lenders and buyers will likely require evidence of compliance as a condition to closing a transaction involving affected buildings.

We also recommend that commercial building owners include in their leases specific provisions that (i) allow the expenses of compliance, including installation of meters, retaining of consultants and filing of necessary documents, to be included in operating expenses passed through to tenants; and (ii) confirm the tenant’s recognition of landlord’s compliance with this and similar programs and obtain their obligation to cooperate as necessary.

Additional information for required compliance in California can be found at www.energy.ca.gov. Should you have any questions, please feel free to contact any member of the Sheppard Mullin commercial leasing team:

Los Angeles
James Lonergan
Pamela Westhoff

Lydia Lake

Orange County
Aaron Sobaski

San Francisco
Doug Van Gessel
Joan Story
Katharine Allen

Del Mar
Domenic Drago

San Diego
Michael Leake

Topics:  Building Standards, Commercial Property Owners, Disclosure Requirements, Energy Consumption, Energy Use Disclosure Requirements, EPA

Published In: Energy & Utilities Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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