New Commercial Property Disclosure Requirements


A recent statute and set of regulations will shortly begin to impose new disclosure requirements on commercial landlords, property sellers, and borrowers in California for leases, purchases, and financings entered into on or after July 1, 2013. One disclosure concerns whether a property has been inspected for disability access by a Certified Access Specialist (CASp), and the other pertains to historic energy usage. The latter disclosure will require advance registration, which should be accomplished at latest before the end of May 2013.

Disability Access Disclosure

Beginning July 1, 2013, Civil Code Section 1938 requires commercial property owners and landlords to include in their leases a statement as to whether the leased property has been inspected by a CASp, and if so, whether the CASp determined whether the property met all applicable construction-related accessibility standards. The requirement applies to all leases of commercial properties, regardless of size.

The purpose of the statute appears to be to encourage landlords to obtain CASp reports, which can be useful to them in defending disability access lawsuits. The statute does not actually require landlords to obtain CASp reports, however.

Historic Energy Use Disclosure

Also beginning July 1, 2012, regulations adopted under Section 25402.10 of the Public Resources Code will require the owners or operators of certain commercial properties to disclose information concerning the property’s energy use for the previous 12-month period, as well as the property’s operating characteristics and its Energy Star Portfolio Manager ratings. This disclosure applies to the sale, lease, or financing of an entire commercial building, but will not apply to leases of space in a building.

The requirement will be phased in for different sized buildings, as follows: (i) July 1, 2013, for buildings with floor areas over 50,000 square feet; (ii) January 1, 2014, for buildings with floor areas over 10,000 square feet; and (iii) July 1, 2014, for buildings with floor areas of at least 5,000 square feet. The disclosure must be made no later than 24 hours prior to execution of the lease, sale, or financing documents.

Owners and operators of commercial buildings should proceed before the end of May 2013 to establish an account at the Energy Star Portfolio Manager website, run by the U.S. EPA. This will require a variety of information, including the owner’s name and address, the building address and year of construction, a list of all sources of energy, and a description of the space usage in the building. The account must be set up at least 30 days before disclosure is required. The utility companies serving the building will provide energy use data for the account, and the owners and operators will authorize those companies to release the data to third parties.

Enforcement and Penalties Unclear

Neither the statute nor the regulations specify penalties for non-compliance or remedies that apply in the case of a failure to make these disclosures. Nevertheless, owners to whom these requirements apply should plan to comply with them, and bear in mind that failure to make the disclosures might be used by tenants or purchasers to justify terminating or rescinding their agreements.

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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