AN UPDATE ON LEGISLATION AFFECTING ENERGY USAGE IN AND SAFETY OF BUILDINGS IN LOS ANGELES

In the past two to three months, both the State of California and the City of Los Angeles have enacted measures affecting a large number of buildings locally.  The impact of the legislation will be pronounced, although implementation thereof will be spread out over a number of years.

AB 1103 Is Out

For the last couple of years, we have been faced with potential compliance and disclosure requirements with regard to energy usage in certain commercial buildings in the State.  That legislation, AB 1103, produced a lot of controversy.  It was made applicable at first to sales and leases of certain types of single-occupant structures with large floor-space square footage.  The size of buildings requiring the disclosures was then reduced, making it applicable to a greater number of structures.  As its scope was about to be extended even further, to single-occupant buildings with less than 5,000 square feet of floor space, it became clear that its enforcement would be problematical.  The California Energy Commission (“CEC”), the regulatory agency in charge, decided to re-evaluate what should be the scope, and timing of implementation, of measures for these smaller locations and so the CEC postponed compliance dates.

Finally, rather than try to modify the existing legislation, the CEC drafted and the State Legislature enacted legislation scrapping AB 1103 entirely, effective as of January 1, 2016.  What will replace it is at the moment unclear.  The legislation involved, AB 802, provides for rules to be developed over the next year and to take effect January 1, 2017.

In the meantime, the City of Los Angeles is working on its own energy disclosure regulations.  Those pertaining to city-owned buildings are targeted to be put into place sometime this year, while those for privately owned buildings (at least ones having over 50,000 square feet) are expected to come into effect in 2017.

Ordinance 183893

The City of Los Angeles has ratcheted up its retrofit requirements by passing Ordinance 183893, enacted with earthquake concerns in mind.  There are two programs.  One addresses so-called “soft-story” buildings, multi-story structures with weak and/or open-front wall lines (most notably those with “tuck-under” parking).  The other focuses on “non-ductile concrete structures,” older concrete buildings which were not designed to withstand major lateral force movement in earthquakes.  The types of properties affected by each such program, and the compliance deadlines, are described briefly in the two attached publications from the Los Angeles Department of Building and Safety (“LADBS”).  These were among the items covered by Raymond Chan, currently the head of the LADBS, when he was a guest speaker this past November at Joe Cobert’s Real Estate Finance class at UCLA Extension.

For more information and advice on specific properties, feel free to contact Joe and the Firm.

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ENERGY “BENCHMARKING” REQUIREMENTS FOR CERTAIN COMMERCIAL BUILDINGS WILL BE EXTENDED IN SCOPE ON JULY 1

If you own a commercial building in California which has more than 5,000 square feet of rentable floor area, read this.

In an earlier issue of The Joe Cobert Report (July 2013), we alerted our readers to California’s joining with a number of other states in mandating monitoring and disclosure of energy consumption data.  AB 1103 added provisions to the Public Resources Code phasing in requirements for owners of California commercial buildings of a certain minimum size to the effect that they must (a) “benchmark” energy usage in those structures and then (b) disclose such data for the most recent 12-month period in advance of three types of transactions.  Those three types of transactions and the disclosure timing for same is as follows:

1. The data needs to be communicated to a prospective buyer no later than 24 hours prior to execution of the sale contract;
2. The data needs to be communicated to a prospective lessee of the entire building not later than 24 hours prior to the execution of the lease; and
3. The data needs to be communicated to a lender who is prospectively going to finance the entire building not later than the time the owner submits the loan application to the lender for that possible financing.

In the first phase, which went into effect on January 1 of this year, the above-stated requirements were made applicable to commercial buildings of more than 10,000 square feet.  On July 1, the second phase will become operative and make the same rules applicable as well to buildings having 5,001 to 10,000 square feet of rentable floor space.

This benchmarking concept was the idea of the California Energy Commission (“CEC”) as a means of assisting the state in meeting its energy and climate change goals through increasing awareness of energy use.  If you have yet to become familiar with the specifics of AB 1103, we detail the key aspects below:

Owners will have to retain companies to (a) calculate the energy usage in their buildings and then (b) compare that usage to statistics accumulated by Energy Star for similar buildings nationally.  The statistics will be utilized to rate the energy performance of a given building on a scale of 1 to 100, 100 being the best.

1. The process will be facilitated by using the Energy Star Portfolio Manager, a web-based system which allows building managers to track and access the energy consumption.  This can be accomplished, once the owner so authorizes, by having the electric and/or gas utility servicing the building upload all of the energy consumption information to a confidential account set up with the Energy Star Portfolio Manager.
2. That information is employed to generate a checklist that is required under AB 1103, whereupon the data in the checklist is electronically transmitted to the CEC into an account the owner will have had to open.

AB 1103 does not prescribe any specific governmental penalties for noncompliance or delinquency in compliance.  Regulations are being created to address this.

Note also that some municipalities have added extra requirements.  For example, San Francisco has passed an ordinance requiring owners of commercial buildings in that city to make annual reports about energy usage in those buildings.

Failure to observe these energy rules adequately and in a timely manner could have substantial civil liability consequences, as the other parties involved in a transaction could pursue litigation for breach of contract or rescission if they successfully demonstrate that the owner’s omission or delay in disclosure materially misrepresented a material fact.  With that in mind, the Firm has alerted its clients owning buildings subject to the reach of AB 1103 to document carefully their disclosures and have the other party or parties in sale, lease or financing transactions affected by the legislation acknowledge in writing the receipt of those disclosures.  In some cases, this may entail revision of forms of leases or purchase contracts which clients have been utilizing as their “standard” documents.

The July 1 deadline is coming up soon, so action should be taken in the very near future by anyone who may be in the midst of or considering a transaction affected by the law.  If you have questions on this subject or require drafting of paperwork relative thereto, do not hesitate to contact Joe Cobert and the Firm for advice.