New Energy Use Disclosure Laws
New Energy Use Disclosure Laws
by Bryan Mashian, Esq.
As if enough disclosures were not already legally required, new laws will require disclosure of energy benchmarking and energy usage in certain non-residential real property transactions. Generally, effective as of January 1, 2014, building owners will be required to provide EPA energy benchmark reports for the prior year when a commercial property is sold, leased or refinanced.
The law will be phased in over the next 18 months, depending on the size of the property. Buildings that exceed 10,000 square feet of total floor area must begin benchmarking and disclosing their energy usage beginning January 1, 2014. On July 1, 2014, buildings measuring between 5,000 and 10,000 square feet must begin disclosing their energy use.
The building owner is required to make the disclosure to a prospective purchaser no later than 24 hours prior to execution of the purchase agreement, to a prospective tenant no later than 24 hours prior to execution of the lease, and to a prospective lender no later than the submittal of the loan application. Disclosure is not required to be made to a tenant leasing less than the entire building or to a prospective lender providing financing on less than the entire building.
The law requires that no later than 30 days prior to the date disclosure is required, owners open an account for the building at the U.S. Environmental Protection Agency’s ENERGY STAR® Portfolio Manager website. To open an account, the owner must provide certain specified information, including: building address, year of construction, owner contact information, and all sources of energy use data for the building.
Once an account has been opened, the owner can request, through the account, that all utilities that provide energy to the building provide the energy use data for the
building for the most recent 12 months. Utilities have 30 days from the date of the request to provide this data. Once they have done so, the owner must then complete a compliance report, download the energy use disclosure materials (which consist of a Disclosure Summary Sheet, Statement of Energy Performance, Data Checklist and Facility Summary) and submit them to the proper parties in accordance with the timeline listed above.
Once the building data is retrieved, it must be entered into the EPA’s ENERGY STAR® Portfolio Manager System. The system generates an energy efficiency rating for the building from 1 to 100, with 100 being the most energy efficient. Building owners can apply for an Energy Star plaque if their building receives a rating of 75 or above, which indicates that the building is more efficient than 75% percent of similar buildings nationwide. It is possible that a building may qualify for the Energy Star plaque with little or no improvements required.
With the required building data in hand, prospective buyers will be able to uniformly compare buildings that differ in usage, size, climate, etc. The data also simplifies the identification of energy efficient and inefficient buildings, and serves as an important starting point for owners of buildings that need to increase energy efficiency. Similarly, a building’s energy data is a valuable tool that can help to measure the effectiveness of any building improvements.
It is critical for owners to be proactive in the accumulation of building data since the statute mandates that energy benchmarking begin at least 30 days prior to disclosure. The process can take anywhere from 30-60 days, and these disclosure documents are due just 24 hours before a property is sold, leased or financed. The report is only valid for 30 days, but the information can be easily updated assuming there are no major changes. Although some experienced building owners will be able to effectively retrieve the energy data, most should consider getting professional assistance since even small mistakes can skew the results and put building owners and their clients at risk.
While the new law does not regulate the energy usage of non-residential buildings, it does promote awareness of a building’s energy consumption by requiring disclosure of energy efficiency. There are currently no repercussions for a building owner’s failure to comply; however, owners should treat the collection of a building’s energy data as a material fact required for a sale or lease of the property. By doing so, owners can avoid the costs resulting from any administrative hearing, along with preventing any claims of failure to disclose associated with the transaction.