Commercial real estate owners and operators of California property, including potential sellers, should be aware that the State of California will require certain energy usage related disclosures beginning on January 1, 2013. Owners and operators should make plans now to be in compliance for early 2013 transactions.
Starting on January 1, 2013, most1 owners of commercial buildings in California will be required to formally disclose, in writing, information related to the historic energy use and efficiency of their buildings to potential purchasers, lenders and tenants entering into a lease of an entire building (the mandate).2 According to the California legislature (the Legislature), this mandate was adopted in 2007 (and amended in 2009) to “motivate building operators to take actions to improve the building’s energy profile and help to justify financial investments” in energy efficiency by property owners. The mandate furthers the mission of the California Energy Commission of the Natural Resources Agency of the State of California (the Commission) to promote energy efficiency.
The Commission was charged by the Legislature to issue regulations implementing the mandate. Under the regulations adopted by the Commission on July 11, 2012 (the Regulations), the schedule for initial compliance with the disclosure requirements under Section 25402.10 is based on the size of the building, as follows:
- On and after January 1, 2013, for buildings with over 50,000 square feet of total floor area;
- On and after July 1, 2013, for buildings with over 10,000 square feet of total floor area; and
- On and after January 1, 2014, for buildings with at least 5,000 square feet of total floor area.
The mandate does not require disclosure with respect to buildings with total floor area measuring less than 5,000 square feet.
Be Aware of DisclosureTiming
Owners or operators covered by the mandate must disclose certain prior energy use data to prospective buyers, prospective single-tenant building lessees, and prospective lenders providing financing secured by the entire building. The disclosure must be made “as soon as practicable” before the execution of the applicable sales contract or lease, or submittal of the loan application. Following the initial disclosure by the owner or operator, there is no continuing obligation to update or supplement the disclosure.
US Environmental Protection Agency Role
Affected owners or operators are required to disclose energy use data for the preceding 12-month period. The required disclosures are made using the US Environmental Protection Agency’s Energy Star® “Portfolio Manager” (the EPA’s Portfolio Manager),3 an online tool for managing building energy use data. The disclosure must include the following reports generated by the EPA’s Portfolio Manager:
- The Disclosure Summary Sheet, a document from the Commission that generally details the disclosures related to California buildings available through the EPA’s Portfolio Manager,
- The Statement of Energy Performance, which supplies data about a building’s energy performance, and if available, the buildings “Performance Rating,”
- The Data Checklist, which summarizes the property’s physical and operating characteristics, and
- The Facility Summary, which summarizes the space and energy usage of a building and compares a building’s energy use to national medians.
Utility Providers Data Required
To make the disclosures required by the California mandate, the Regulations expressly require the owner to open an account at the EPA’s Portfolio Manager4at least 30 days before any disclosure is required. Following the opening of such account, the applicable utility or energy provider(s) is required to input the relevant energy use data for the entire building from at least the most recent 12 months, including data related to tenants of buildings that may have direct meters or accounts with the applicable providers. Once the providers have inputted all relevant information, an owner or operator is able to access and download the required reports via the EPA’s Portfolio Manager, and deliver such reports to the applicable purchaser, tenant or lender.
Failure to Comply; Penalties
Neither the text of the California mandate nor the Regulations set forth any penalties or remedies available to purchasers, tenants and lenders, against an owner or operator that fails to comply with the energy use and efficiency disclosure requirements. However, the lack of a stated penalty should not be construed to imply that compliance is voluntary.