What Every California Commercial Building Owner Needs to Know About the Impact of Contract Dates on Reporting Requirements Under AB 1103

by Nossaman LLP

As owners grapple with the new energy usage and disclosure requirements under AB 1103, parties to long term transactions must look to the date of the contract to determine whether they are required to comply.

Background and Applicability of AB 1103
AB 1103 is California's energy benchmarking and disclosure law, which requires owners of non-residential buildings to provide the "Data Verification Checklist" report to buyers, tenants, or lenders when the entire building is sold, financed or leased.  The law became effective on January 1, 2014 for buildings over 10,000 square feet, and will apply to buildings over 5,000 square feet on July 1, 2014.  The reporting requirement is mandatory and may not be waived by the parties.

Under the regulations, the building owner must disclose the "Data Verification Checklist" report for a commercial building to: (1) a prospective buyer of the building, no later than 24 hours prior to execution of the sales contract, (2) a prospective lessee of the entire building, no later than 24 hours prior to the execution of the lease, or (3) a prospective lender financing the entire building, no later than submittal of the loan application.

Assessing the Impact of AB 1103 on Long Term Transactions
Notwithstanding the various articles published on the subject, none have addressed a situation where a contract in question was executed sometime in 2013, but the closing of the underlying transaction is not expected to occur until 2014 or later.  Are parties to such long term transactions required to comply?  The answer lies in the date of the contract.  According to the regulations and discussions with the California Energy Commission's ("Commission") compliance officer, the compliance date utilized to determine if an owner must comply with the statute is the date of the underlying purchase contract, lease, or loan application.  Therefore, if a sale transaction commenced in 2013 (i.e. the sale contract was signed in 2013), but the closing will not take place until 2014, the date used to determine whether the owner must comply with the reporting requirements is 2013, the date of the contract.  In the foregoing example, the owner would not be required to comply.

Key Tips to Comply with the Reporting Requirements under AB 1103
The generation of the "Data Verification Checklist" report involves the collection of certain energy usage data for the building from both the property owner and various utility companies, which take time to collect.  As such, parties to a transaction are advised to start the process of preparing such a report 30 days prior to any qualifying transaction due to the fact that it can take that long for the utility companies to submit the required information to complete the energy use data.  Owners are required to use the "Energy Star Portfolio Manager Tool" to prepare and submit the energy data through the Commission's website.  Once the data is submitted using this tool, a report will be generated, which must then be sent by electronic file to the address provided on the Commission's website.  The report is only valid for 30 days, at which time it will expire and a new report must be generated.  In the event that actual energy data cannot be acquired (due to age of the building or inability of a utility), the owner is permitted to use a reasonable approximation to replace the missing data.

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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