LOS ANGELES-A new state law that takes effect soon may potentially provide headaches for building managers or owners who want to sell, lease or refinance.
Starting July 1, owners or managers of non-residential buildings over 50,000 square feet will need to disclose their site's energy usage in advance of any sale, lease or refinancing. While the new regulations don't carry civil or criminal penalties, they could potentially delay closings or impact contractual disputes.
The regulations of California Assembly Bills 1103 and 531, which passed in 2009 but required industry input and time to set up the new program, will require building owners and managers to register each property owned with the U.S. Environmental Protection Agency's Energy Star online Portfolio Manager program at least 30 days in advance of a transaction.
Once enrolled, the program allows owners to request results of the building's energy usage. The utility company servicing them then has 30 days to collect the data and provide results. Owners must then provide those results to potential tenants, buyers and financiers at least 24 hours prior to a transaction.
Emily Murray, an attorney with Allen Matkins, tells GlobeSt.com that the biggest potential pitfall of not complying with the new regulation is in a dispute over a transaction. “If you go to sell and enter a purchase contract and the deal goes south, if you failed to make the energy disclosure, it could be a point of contention,” she says.
The intent of the legislation was to make energy efficiency a deal component, Murray says. “It's a market incentive program and if it works the way it's designed, you would see that market pressure to do energy retrofits on buildings. A building owner might have a bank saying, 'You'd get a better rate if you do some retrofits.' ”
Another potential pitfall to the new regulations is in buildings where some tenants may not want their energy use disclosed, Murray says. However, the energy usage information is not made public and is only seen by a bank or attorney handling the transaction, she notes.
Allen Matkins has been getting “a lot” of phone calls about the new law, which is just starting to garner attention now that its deadline for compliance approaches, Murray says. She advises that anyone contemplating a sale, financing or lease realize that they now need to register with Energy Star at least 30 days before the closing.
“Not the day before closing, because then they will have to delay the closing and that is extremely expensive,” she says. “They need to build this into the pro forma. Compliance itself is not that difficult. The real killer is it takes 30 days. If they wait too long, they will have a problem completing it in time.”
Aside from enrolling in the program, the firm advises that owners/managers should consider updating purchase agreements, lease forms, and financing documents to include an express acknowledgement by the buyer, tenant, or borrower of receipt of the disclosure data.
Allen Matkins attorneys Murray, Matt Fogt and Heather Riley have outlined the new requirements in a recent video.
As previously reported by GlobeSt.com, Allen Matkins also advised on another law that starts on July 1 that is designed to protect against predatory lawsuits based on alleged violations of construction-related disability access laws.
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