Now in Effect! New Energy Use Disclosures for Nonresidential Buildings (California Public Resources Code Section 25402.10)

by Manatt, Phelps & Phillips, LLP

Effective July 1 of this year, owners of nonresidential buildings that contain a total gross floor area of more than 50,000 square feet are required to contend with new energy use disclosure requirements in accordance with California Public Resources Code Section 25402.10. The requirements provide that any owner who is selling, leasing, or financing a subject building must obtain and disclose, prior to the sale, lease or financing of the building, the energy use data for the most recent 12 months (information regarding the building's operating characteristics and the ENERGY STAR® Energy Performance Score for the building).

Disclosure is required to be made (1) to a prospective purchaser no later than 24 hours prior to execution of the purchase agreement, (2) to a prospective tenant no later than 24 hours prior to execution of the lease, and (3) to a prospective lender no later than the submittal of the loan application. Disclosure is not required to be made to a tenant leasing less than the entire building or to a prospective lender providing financing on less than the entire building.

Similar disclosure will be required: (1) on and after January 1, 2014, for buildings containing a total gross floor area in excess of 10,000 square feet and up to and including 50,000 square feet, and (2) on and after July 1, 2014, for buildings containing a total gross floor area equal to 5,000 square feet and up to and including 10,000 square feet. Disclosure will not be required for buildings smaller than 5,000 square feet.

To comply with the statute, no later than 30 days prior to the date disclosure is required, owners must open an account for the building at the U.S. Environmental Protection Agency's ENERGY STAR® Portfolio Manager website. Opening an account requires that the owner provide certain specified information, including: building address, year of construction, owner contact information, and all sources of energy use data for the building. Once an account has been opened, the owner can request, through the account, that all utilities that provide energy to the building provide the energy use data for the building for the most recent 12 months. Utilities have 30 days from the date of the request to provide this data. Once they have done so, the owner must then complete a compliance report, download the energy use disclosure materials (which consist of a Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist and Facility Summary) and submit them to the proper parties in accordance with the timeline listed above.

Given the process-intensive nature of complying with this new energy use disclosure requirement and the appreciable lead time required to satisfy the requirement itself, we encourage owners that could be affected to establish an account for the subject building(s) at the U.S. Environmental Protection Agency's ENERGY STAR® Portfolio Manager website as soon as possible. Please note that the website currently indicates that Portfolio Manager will not be available until July 10, 2013.

The energy use disclosure statute and corresponding regulations do not prescribe any specific penalties or consequences for failing to provide the disclosures; however, it is conceivable that noncompliance could allow purchasers, tenants and lenders to terminate or perhaps even rescind transactions. Accordingly, owners should initiate compliance in advance of the above deadlines. Additional information concerning the energy use disclosures required pursuant to California Public Resources Code Section 25402.10 can be found at the following website:

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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