As of July 1, 2013, additional disclosures may be required before your next commercial real estate transaction. Recent legislation enacted by the State of California, requires the owners of certain commercial buildings to make disclosures regarding a building’s energy usage prior to major transactions, namely sales, leases and financing transactions affecting an entire commercial building.
On October 12, 2007, Governor Schwarzenegger signed into law Assembly Bill No. 1103 (“AB 1103”). AB 1103 was enacted to promote energy conservation by establishing a standard framework which allows prospective tenants, purchasers and lenders to compare the energy efficiency and consumption of commercial buildings and motivates building operators to take actions to improve their building’s energy profile. This framework also enables building owners and operators to manage their building’s energy profile by comparing their building’s energy performance to that of similar buildings.
WHO IS AFFECTED
Owners of commercial buildings located in California with total floor area of 5,000 square feet or greater must provide the required disclosures prior to a transaction affecting the entire building. Phased implementation of AB 1103 is scheduled to begin July 1, 2013 for commercial buildings with total floor area of over 50,000 square feet. Beginning January 1, 2014 compliance will be required for commercial buildings with a total floor area measuring more than 10,000 square feet. By July 1, 2014, all commercial buildings with a total floor area measuring at least 5,000 square feet will be required to comply.
To comply, property owners must create an Energy Star® Portfolio Manager account and input certain required building information. The property owner must then allow access to the account to the utility providers servicing the affected building and authorize the utility providers to upload data to the account. After the account is created, the utilities serving the building upload energy usage data to Energy Star® Portfolio Manager. The utility provider may verify the request prior to honoring it, but must upload data within thirty days of the original request.
Prior to the closing of a sale, lease or financing of the entire building, the property owner must access the Energy Star® Portfolio Manager account for the affected building, generate a Disclosure Summary Sheet, a Statement of Energy Performance, a Data Checklist and a Facility Summary, and provide such reports to the potential buyer, lessee or lender. Data must be disclosed for at least the twelve month period prior to the date of the disclosure. The reports generated by the building owner are then securely transferred to the buyer, lessee, or lender via email through the Energy Star® Portfolio Manager Program. The building owner must also submit a Compliance Verification Report within Energy Star® Portfolio Manager.
The disclosures required by AB 1103 are non-public and are only required to be made to prospective buyers, lessees and lenders prior to a proposed sale, lease or financing of the entire building. The required disclosures make energy consumption data available in a standardized form that facilitates comparison between buildings. Potential lessees, buyers and lenders will be able to use this data to evaluate their options and make informed decisions before entering into transactions. Accordingly, these disclosures can potentially affect the value and marketability of the building. Additionally, property owners can use the information gathered by participating in the Energy Star® Portfolio Manager Program to more efficiently manage their energy related costs.
WHEN ARE DISCLOSURES REQUIRED
Building owners must make the required disclosures prior to a proposed sale, lease or financing of an entire building, providing the potential purchaser, lessee or lender with the opportunity to assess the energy efficiency of the building prior to the transaction.
Owners of affected buildings are cautioned against waiting until the applicable compliance deadline to begin preparing for the implementation of AB 1103. In order to comply with AB 1103, the owner of an affected building must open an account with the EPA’s Energy Star® Program at least thirty days before a disclosure is required in order to allow sufficient time for the building’s utility service provider data to be uploaded into the Program. Failure to properly enroll in the Energy Star® Program in advance of a proposed transaction could result in unnecessary delay.
FOR MORE INFORMATION
Owners of affected buildings and potential lessees, purchasers and lenders contemplating a transaction involving an affected building should be aware of the disclosure requirements of AB 1103 and the timeline for implementation based on building size.
Please contact us if you would like more information regarding AB 1103 and how to comply with the reporting requirements.