Assembly Bills 1103 and 531 passed by the California legislature require owners of nonresidential buildings located in California to disclose energy usage of such buildings in advance of any sale, lease, or financing of an entire building. Recently, the California Energy Commission issued regulations implementing these laws. Property owners must provide a Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist and Facility Summary no later than 24 hours prior to the execution of a purchase and sale agreement, lease, or loan application (not the actual loan documents themselves). The regulations stagger the timetable for compliance based on the square footage of a building as follows:

  • July 1, 2013, for buildings with more than 50,000 square feet;
  • January 1, 2014, for buildings with more than 10,000 square feet; and
  • July 1, 2014, for buildings with at least 5,000 square feet.

The California Energy Commission's regulations implementing Assembly Bills 1103 and 531 are attached here:

http://www.energy.ca.gov/2010publications/CEC-400-2010-004/CEC-400-2010-004-15DAY-REV1.pdf

California commercial property owners that contemplate a sale, finance, refinance, or a lease of an entire building this year should start the process of complying with these disclosure requirements as soon as possible, and need to take the following steps:

Step 1: Establish an account at the Energy Star Portfolio Manager website:

https://www.energystar.gov/istar/pmpam/index.cfm?fuseaction=userreg.showCreateAccountStandard

Within this account set-up:

  • Provide the owner name and owner e-mail address, building name, building street address, city, zip code, and year in which the building was constructed;
  • Identify all sources of energy use data for the most recent 12 months and provide a description of the space usage in the building; and

Request that all utilities and energy providers serving the building release the energy use data for the previous 12 months (or manually enter this information yourself).

Step 2: The applicable utility company or energy provider that services the commercial property has 30 days after this to enter the property's energy use data into the account. The utilities are to keep and maintain the energy use information in a manner that preserves the confidentiality of utility customers.

Since the utility companies have 30 days to upload their information to the Energy Star Portfolio Manager, we recommend that California commercial property owners who contemplate sales, financings, or leases of their entire building consult with their property management companies to begin getting these portfolio management accounts set up now.

Step 3: Download the Necessary Reports and Disclosure Summary:

After the utilities and energy providers have uploaded the relevant use data, log back into the Energy Star Portfolio Manager, complete and submit the compliance report, and then download the Statement of Energy Performance, Data Checklist, and Facility Summary. Also download a copy of the Disclosure Summary Sheet from the California Energy Commission:

http://www.energy.ca.gov/ab1103/rulemaking/documents/documents_relied_upon/Disclosure_Summary_Sheet.pdf

Step 4: Provide the Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist, and Facility Summary to:

  • a potential purchaser of an entire building at least 24 hours prior to the execution of the purchase and sale agreement;
  • a potential tenant of an entire building at least 24 hours prior to the execution of a lease; and
  • a potential lender financing the entire building no later than the submittal of the loan application.

We note that the statute and regulations do not contain any fines or penalties if a commercial property owner fails to comply with these energy disclosure requirements. However, it is easy to envision scenarios where property purchasers, tenants, or lenders later try to back out of a transaction they no longer want to move forward with by saying that the landowner failed to comply with these new energy disclosure requirements. Consequently, we recommend that owners of commercial properties in California factor the timetables for compliance with this law into their deals and update their transaction documents to take this law into account.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.