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Commercial Buildings to Go Green...Who's Paying?


New York City’s Local Law 97, also known as The Green Building Law, was enacted in April 2019 as the centerpiece of the Climate Mobilization Act under former Mayor DeBlasio’s Green New Deal.

Generally, buildings over 25,000 square feet are required to meet energy efficiency and greenhouse gas emissions limits set by Local Law 97 by 2024. More stringent limits will become effective in stages through the next quarter century with the City’s stated goal being a 40% reduction in greenhouse gas emissions from buildings by 2030 and an 80% reduction by 2050.

While the goals are clear, means of compliance and measurement are less so and are still being developed. In a report issued in December 2022, the Local law 97 Advisory Board offered broad recommendations to the City for implementation of the law. The report took several steps towards recommended clarification of the requirements but also shows Local Law 97 as a work in progress. Commercial landlords and tenants alike and their professionals will need to follow closely the evolution of Local Law 97 and related regulations in the coming months.

It remains clear at this time, however, that Local Law 97’s requirements as to covered buildings will begin for calendar year 2024. Each May 1, beginning on May 1, 2025, owners of covered buildings will need to file annual reports with the Department of Buildings certified by registered design professionals as to their annual greenhouse gas emissions for the prior year. Civil penalties can accrue under Local Law 97 against the owners of buildings if the prior year’s annual filings show that a building exceeded its annual building emissions limit. The Department of Buildings will also have the ability to issue violations for the failure to submit the annual reports and for other failure to comply with the law.

Material new regulation with looming penalties, none of which are terribly concrete, with less than a year left before implementation, is a major concern for commercial owners and, understandably, has resulted in new language and protections in many commercial leases.

Such lease language generally protects commercial owners by obligating their tenants to 1) generally comply with Local Law 97, 2) cooperate with the owner’s reporting and compliance efforts, 3) pay related violations and fines, and 4) pay the costs of landlord’s compliance with Local Law 97.

Aside from the larger, more complex lease transactions, this concept is not often addressed in initial lease negotiations. Rather, the smaller the lease, the more likely the concept first appears as dense protective language in the back end of a new lease or amendment. Careful reading and negotiation are often required or tenants risk taking on unanticipated costs particularly with significant retrofitting or capital improvements expected, especially on older buildings, in the next few years.

Even if the full requirements are not yet clear under the law, commercial tenants do not typically take issue with language generally prohibiting them from overusing energy where they actually have the ability to limit use. Tenants may look for assurance that they will be afforded their proportionate share of allocated energy usage under Local Law 97 once ultimately determined. Language calling for compliance with future energy efficient compliance programs and guidelines enacted by a building owner are also commonplace and not generally objectionable if drafted reasonably.

Tenants will, however, often seek to avoid lease language that amounts to an inequitable shifting of the burden. Tenants will not want exposure to expenses resulting from other tenants failing to comply with Local Law 97 or from a building owner’s own failure to make appropriate changes towards energy efficiency.

Tenants will often maintain that the overall building compliance costs are the responsibility of the building owner, not to be passed through at all or, at least, they will resist language which makes them disproportionately responsible for the cost of retrofitting or other building-wide capital improvements. Even if costs are beneficial in the long-term, language front loading compliance costs to be paid by current tenants is likely to be rejected.

Commercial tenants should be expected to push back on one-sided lease language and building owners should be willing to address the concerns and revise overbroad language to meet their prospective tenants’ legitimate concerns.

Commercial building owners and tenants both have a vested interest in energy efficiency and sustainability standards under Local Law 97 and to achieve broader sustainability goals. Commercial building owners are already seeking to attract tenants by advertising their commitment to sustainability and will, no doubt, champion compliance with Local Law 97 where it sets them apart from their competitors. Tenants may also seek to negotiate lease terms that reflect their own commitment to sustainability, such as by including provisions related to the use of renewable energy sources or the reduction of waste.

More uniform standards of allocating costs and risks of Local Law 97 compliance in commercial leases will continue to develop as the law itself is ironed out. The anticipated cost to “Go Green” will need to be carefully considered by each party to a commercial lease if it is to be fairly allocated.

Stay tuned to Ingram’s Real Estate Report for more updates and developments regarding New York City real estate and connect with us on LinkedIn and Twitter.


By: Neal Weinstein