New Energy Use Disclosure Rules for California Non-Residential Buildings to Take Effect January 1, 2014

Starting on January 1, 2014 in California, owners of non-residential buildings of more than 10,000 square feet will be required to disclose energy use data in connection with any sale, leasing or financing transaction of the entire building. On July 1, 2014, reporting requirements will extend to buildings equal to or greater than 5,000 square feet.

No disclosures will be required for buildings with less than 5,000 square feet, and no disclosures will be required for the sale, lease, or financing of a portion of a building. Square footage will be determined by measuring "total gross floor area."

These new rules come after several years of debate by stakeholders. Additionally, the implementations have been postponed on several occasions due to issues in the redesign of Energy Star® Portfolio Manager, the online disclosure and reporting site being used for this initiative.

Background

California Public Resources Code § 25402.10, enacted in 2007, passed in an effort to promote energy conservation in California by providing a benchmarking system that allows prospective tenants, purchasers and lenders to compare the energy usage of similar non-residential buildings. The objective of the legislation is to encourage building owners to take action to lower their building's energy consumption, and to allow prospective tenants, purchasers and lenders to compare a building's energy consumption to that of similar structures.

What You Need to Know

California Public Resources Code §25402.10(d) requires the owner of a non-residential building to disclose the benchmarking data and ratings for the prior 12-month period in connection with one of the following events:

• Sale of the entire building. Disclosure must occur no later than 24 hours prior to the execution of the purchase and sale agreement
• Leasing the entire building. Disclosure must occur no later than 24 hours prior to the execution of the lease.
• Financing the entire building. Disclosure must occur upon submission of the loan application.

In order to comply with these new requirements, the owner of a non-residential building must be registered with the United States EPA's Energy Star® Portfolio Manager program at least 30 days in advance of a required disclosure. The required disclosures include the following documents:

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

Documents and information regarding the required disclosures are available on the U.S. EPA's Energy Star® Portfolio Manager website. Registration in the Portfolio Manager program is free. As part of the registration process, the building owner requests its energy company to provide the building's energy data for the most recent 12 month period to the building's Portfolio Manager account. The regulations do provide for manual entry of the data necessary for disclosure, however, many leading energy companies exchange data directly with Portfolio Manager which will allow owners to arrange for automatic reporting by the energy company.

Recommended Action

Although enforcement does not begin until January 1, 2014, owners of the affected non-residential properties are encouraged to create an account and become familiar with the Energy Star Portfolio Manager website as soon as possible. Since energy providers have up to 30 days to upload the requested energy use data to the building owner's Portfolio Manager account, owners contemplating a sale, lease or finance of an entire building in excess of 10,000 square feet should commence compliance immediately to avoid any delays.

There is no stated penalty for noncompliance with AB 1103, but lenders, buyers and lessees will likely require evidence of compliance as a condition to closing a transaction involving buildings impacted by this regulation.

In addition, FaegreBD recommends that non-residential building owners:

• Include provisions on leases to allow the expenses of compliance to be passed down to tenants.
• Indicate on leases or via other communication that the owner of the building is aware of this new requirement and is ready and able to comply with it.
• Include provisions in the lease that require the tenant to cooperate with the disclosure requirements as necessary.

Additional information for required compliance can be found at www.energy.ca.gov . While it appears at this point that these regulations will go into effect on January 1, 2014, additional delays are possible. FaegreBD will continue to monitor this regulation and issue updates as necessary.