The deadline for owners of nonresidential buildings that are between 5,000 and 10,000 square feet to comply with the Nonresidential Building Energy Use Disclosure Program has been extended from July 1, 2014, to July 1, 2016. The California Energy Commission proposed that the deadline be extended as an emergency regulatory action, which was approved by the Office of Administrative Law effective September 2, 2014.
Under California Public Resources Code Section 25402.10 (the “Statute”), owners of the specified nonresidential buildings in California are required to benchmark a building’s energy usage through the Environmental Protection Agency’s ENERGY STAR® Portfolio Manager system (“System”) and to disclose documents detailing the building’s energy usage to prospective purchasers, lessees and lenders. To comply with the Statute, no later than 30 days prior to the date disclosure is required, owners must open an account for the building on the System’s website. Once an account has been opened, the owner can request, through the account, that all utilities that provide energy to the building furnish the energy use data for the building for the most recent 12 months. Utilities have 30 days from the date of the request to provide this data. Once all data has been provided, the owner must complete a compliance report, download the energy use disclosure materials (which consist of a Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist and Facility Summary) and submit them to the required parties.
To comply with the disclosure requirement, a building owner must provide the energy use disclosures:
- To prospective buyer of the building: no later than 24 hours prior to execution of the purchase and sale agreement;
- To prospective lessee of the entire building: no later than 24 hours prior to execution of the lease; and
- To prospective lender financing the entire building: no later than submittal of the loan documentation.
Note that the disclosure compliance deadline for buildings 50,000 square feet or more was July 1, 2013, and for buildings between 10,000 and 50,000 square feet was January 1, 2014. As a result, transactions involving buildings of these sizes are already subject to the Statute.
As the Statute is relatively new, the impact on the negotiation of purchase and sale agreements, leases and loan documents is uncertain. One common approach has been to bypass the requirements of the Statute by expressly waiving them. This approach is reflected in several industry standard sets of transactional documents, including the forms prepared by the AIR Commercial Real Estate Association, which now include an addendum that expressly waives the right to receive energy consumption and benchmarking disclosure documents. California courts have not yet weighed in on whether such waiver provisions are valid.