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January 2013

Another State Mandate for the New Year:Disclosure of Commercial Building Energy Use

The California Energy Commission (CEC) recently adopted regulations implementing the Nonresidential Building Energy Use Disclosure Program (California Code of Regulations, Title 20, §§1680-1684), which will (i) require the owners of nonresidential buildings to benchmark and disclose the building’s energy use prior to any “major financial transaction” — i.e., prior to a sale or refinancing of the building or a lease of the entire building and (ii) require public utilities and other energy service providers to release energy use data to enable building owners to comply with the disclosure requirements. The regulations are intended to further the stated purposes of AB 531 and AB 1103 (codified in §25402.10 of the California Public Resources Code) to promote energy efficiency in the use and operation of commercial buildings throughout the state. The law is similar to a regulation applicable to commercial buildings in New York City — where 80 percent of total carbon dioxide emissions come from the heating and cooling of buildings — that now requires full public disclosure of building energy use data.

Prior to any sale, refinancing or lease of an entire building in California, the owner (or its agent) will be required to establish and disclose a baseline for the building’s energy use over the preceding 12-month period using the online “ENERGY STAR® Portfolio Manager” program established by the U.S. Environmental Protection Agency (EPA) through the following process:

 1. Not less than 30 days prior to the date on which the applicable disclosure is required, the building owner must establish an ENERGY STAR® account on the EPA website and upload applicable energy consumption and efficiency data — such as operating hours, the number of computers operated within certain premises, occupancy numbers and the percentage of floor areas cooled and/or heated.

 2. The building owner will then need to request that the applicable utilities and service providers upload energy use data for the preceding 12-month period directly to the ENERGY STAR® account.

 3. After the utilities and service providers provide the usage data, the owner will need to access the CEC website to (a) obtain a Disclosure Summary Sheet and (b) use a link from the site to access the compliance section of the EPA website to prepare an electronic Compliance Verification Report (which is retained by the CEC).

 4. The owner will then need to generate a Data Checklist, a Statement of Energy Performance and a Facility Summary (from the ENERGY STAR® account) to be delivered, together with the Disclosure Summary Sheet (from the CEC website), to the prospective purchaser, lender or tenant.

The building owner or its agent must meet the benchmarking and disclosure requirements for transactions occurring:

(a) on and after July 1, 2013, for a building with a total gross floor area in excess of 50,000 square feet;

(b) on and after January 1, 2014, for a building with a total gross floor area in excess of 10,000 square feet and up to and including 50,000 square feet; and

(c) on and after July 1, 2014, for a building with a total gross floor area equal to 5,000 square feet and up to and including 10,000 square feet.

The required disclosure documents must be delivered as follows:

(i) to a prospective buyer no later than 24 hours prior to execution of the purchase agreement;

(ii) to a prospective tenant (leasing the entire building) no later than 24 hours prior to execution of the lease; and

(iii) to a prospective lender (providing financing for the entire building) no later than submittal of the loan application.

The regulations do not provide specific penalties for failure to comply with the data benchmarking and/or disclosure requirements (although civil misdemeanor penalties for violations under the code may run as high as $2,000 per day of noncompliance). Moreover, the regulations do not provide definitive guidance concerning the effect of noncompliance on the applicable purchase, financing or leasing transaction. Such transactions will be subject to applicable statutes concerning the disclosure of material facts. Building owners will also need to confirm that their form lease documents do not contractually prohibit disclosure of energy use within specific tenant spaces.

The code and the new regulations do, however, provide that if any information is missing from a required disclosure and the owner has made a “reasonable effort” to obtain the missing information, the owner may use “an approximation” of the information in its reporting and disclosure requirements, provided that, among other things, the approximation is reasonably based on the best information available to the owner and is not intended to circumvent the purpose of the code provisions.

For a step-by-step summary of the disclosure process prepared by the CEC, click here.


Real Estate

Eric C. Young

Real Estate