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Mandatory Energy Disclosures for Commercial Property (Eff. date Postponed to Jan 1, 2012)

Owners of nonresidential buildings in California will soon be required to disclose Energy Star benchmarking data and rankings for their buildings to prospective buyers, lessees, and lenders.

The New Law

In an effort to promote energy conservation, in 2007, California added section 25402.10 to the California Public Resources Code, which requires utility companies (i) to maintain energy consumption data for all nonresidential buildings to which they provide service, and (ii)upon the request of the building owner, requires the utility to upload the energy consumption data to the United States Environmental Protection Agency's Energy Start Portfolio Manager. In May of 2010, the California Energy Commission issued draft regulations to implement Section 25402.10 (the "Regulations"). California Code of Regulations, Title 20, draft 1680-1685. The proposed Regulations require the owners of nonresidential buildings in California (which measure greater than 50,000 square feet or, if solely occupied by the owner, measure greater than 1,000 square feet) to disclose the energy use data and energy efficiency rating for their buildings to prospective buyers, lessees and lenders. Although the proposed Regulations indicated that the initial compliance would begin on January 1, 2011, according to the The California Energy Commission website (http://www.energy.ca.gov/ab1103/), new proposed draft regulations will postpone the initial compliance date until January 1, 2012.

How does a building owner comply with the New Law?

The Regulations set forth the following steps to be followed by owners of nonresidential property to comply with the new law:

1) At least 30 days before a building owner enters into a binding contract to sell, lease or finance its entire building, the building owner shall open an account at the U.S. EPA's ENERGY STAR Portfolio Manager website (https://www.energystar.gov/istar/pmpam/).

2) The building owner must then request that the utility company upload the entire building's energy use data to the building owner's Portfolio Manager account, which data may be used by the building owner solely for the purpose of complying with California Public Resources Code 25402.10.

3) After the utility company uploads the building's energy use data, the building owner shall use the Portfolio Manager account to generate a "Statement of Energy Performance" for the building, and a "California Energy Performance Report."

4) The Statement of Energy Performance and California Energy Performance Report shall be delivered at or before the time the owner presents (i) a sales contract to a prospective buyer, (ii) a lease to for the entire building to a prospective lessee, or (iii)a loan application to finance the entire building to a prospective lender.

Possible Addition to NNN Leases.

In order to comply with the new disclosure requirements, building owners will be required to provide data regarding energy consumption at their building (either their tenants' consumption or the owner's (if the building is occupied by the owner)), along with various building metrics. Accordingly, owners may want to consider adding a lease provision whereby their tenants consent to the disclosure of such information for purposes of compliance with California Public Resources Code 25402.10.

The above article is provided for informational purposes only. It is not legal advice, nor does it create an attorney-client or any other relationship. You should always contact an attorney for legal advice applicable to your particular situation.