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February 19, 2013              

Energy Use Disclosure Requirements Go Into Effect for Owners of Nonresidential California Buildings

More than five years following the enactment of the governing legislation, the first phase of the Energy Use Disclosure Requirements will commence September 1, 2013. Assembly Bills 1103 and 531 require owners of nonresidential buildings located in California to disclose energy usage of such buildings in advance of any sale, lease, or financing of the entire building. In December 2012, after years of delays, the California Energy Commission ("CEC") adopted regulations implementing Assembly Bills 1103 and 531, and requiring compliance on the following schedule:

  • On and after September 1, 2013, for buildings with a total gross floor area of more than 50,000 square feet;
  • On and after January 1, 2014, for buildings with a total gross floor area between 10,000 square feet and 50,000 square feet; and
  • On and after July 1, 2014, for buildings with a total gross floor area between 5,000 square feet 10,000 square feet.

The regulations are available here and the CEC order implementing the regulations is available here.

Recommendations

In order to ensure compliance with Assembly Bill 1103 ("AB 1103"), owners of nonresidential buildings should, following the applicable compliance date for the building and at least 30 days before the sale, lease, or financing of the entire building:

  • Register for an account with "Portfolio Manager," the U.S. Environmental Protection Agency's ENERGY STAR program online tool for managing building energy use data;
  • Create a profile within Portfolio Manager for the nonresidential building;
  • Use Portfolio Manager to request that utilities serving the building release the last 12 months of energy use data for the building to Portfolio Manager;
  • After the utility data has been provided, download the Disclosure Data (defined below); and
  • Provide the Disclosure Data as part of the sale, lease, or financing.

Owners should also consider updating purchase agreements, lease forms, and financing documents to include an express acknowledgement by the buyer, tenant, or borrower, as applicable, of receipt of the Disclosure Data.

Assembly Bills 1103 and 531

AB 1103, which was signed into law on October 12, 2007, requires the tracking of the energy use of all nonresidential buildings and the disclosure of such energy use as part of the sale, lease, or financing of an entire nonresidential building. The disclosure requirement is intended to "motivate building operators to take actions to improve their buildings' energy profiles" and "to allow building owners and operators to compare their buildings' performance to that of similar buildings and to manage their buildings' energy costs." AB 1103 added Section 25402.10 to the California Public Resources Code ("Section 25402.10"), and contained a compliance deadline of January 1, 2010.

Due to delays and difficulties with the implementation of AB 1103, Assembly Bill 531 ("AB 531") amended Section 25402.10 by removing the January 1, 2010 deadline, and instead requiring disclosure of energy usage data on a schedule of compliance established by the State Energy Resources Conservation and Development Commission. AB 531 did not otherwise alter the disclosure requirements under AB 1103.

Regulations and Implementation Schedule

On December 17, 2012, the CEC adopted regulations implementing Assembly Bills 1103 and 531. The regulations require compliance on a staggered schedule based upon a building's size. Pursuant to Section 1682 of the regulations, compliance is required as of July 1, 2013, for buildings with a total gross floor area of more than 50,000 square feet; as of January 1, 2014, for buildings with a total gross floor area between 10,000 square feet and 50,000 square feet; and as of July 1, 2014, for buildings with a total gross floor area between 5,000 square feet 10,000 square feet.

Compliance Requirements

Compliance with Assembly Bills 1103 and 531 and the implementing regulations requires owners of nonresidential buildings to take certain actions at least 30 days before the sale, lease, or financing of the entire building.

  • First, the building owner must open an account on Portfolio Manager and create a profile for the building. (Regulations section 1684(a).)
  • Next, within the Portfolio Manager account, the building owner should request that electrical and/or gas utilities serving the building release the last 12 months of energy use data for the building to Portfolio Manager. (Id.)

Upon receipt of the building owner's request through Portfolio Manager, the utilities have 30 days to upload energy usage data for the entire building. (Regulations section 1684(b).) Once that process is complete, the building owner must log back on, complete a compliance report, and download the following documents:

  1. Disclosure Summary Sheet;
  2. Statement of Energy Performance;
  3. Data Checklist; and
  4. Facility Summary (collectively, the "Disclosure Data").

(Regulations section 1684(c).)

The building owner is required to provide the Disclosure Data for the building to:

  1. a prospective buyer of the entire 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 before execution of the lease; or
  3. 3a prospective lender financing the entire building, no later than submittal of the loan application.

(Regulations section 1683(a).)

Although there is no specific penalty for non-compliance, a failure to disclose a building's energy usage could be viewed as a material fact in the transaction. Moreover, a failure to commence the disclosure process well in advance of the transaction could result in closing delays. Therefore, owners of nonresidential buildings should build compliance with the Energy Use Disclosure laws into their schedule for significant transactions affecting the building, and should update their transaction documents to ensure compliance.

Please contact us with any questions.

 

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