Delayed AB 1103 Energy Benchmarking and Disclosure Requirements Set To Go Into Effect In January 2014

Following significant delays, the California Nonresidential Building Energy Use Disclosure Program is now slated to go into effect on January 1, 2014 for buildings over 10,000 square feet. An owner of a building subject to the requirements must benchmark the building's energy use data and disclose the energy use data prior to the sale, lease, or financing of the entire building, using the U.S. Environmental Protection Agency's (EPA) ENERGY STAR® Portfolio Manager ("Portfolio Manager") online program. In order to sell, lease, or finance a building in compliance with the regulations on January 1, 2014, a building owner will need to initiate the compliance process on December 1, 2013.

The updated final regulations recently adopted by California Energy Commission ("CEC") are available here.

Assembly Bills 1103 and 531 and the Implementing Regulations

Assembly Bill 1103 ("AB 1103") was signed into law on October 12, 2007, and added Section 25402.10 to the California Public Resources Code ("Section 25402.10"). AB 1103 requires the tracking of the energy use of all nonresidential buildings and the disclosure of such energy use as part of the sale, lease, or financing of an entire nonresidential building. Due to delays and difficulties with the implementation of AB 1103, Assembly Bill 531 ("AB 531") amended Section 25402.10 by requiring disclosure of energy usage data on a schedule of compliance to be established by the State Energy Resources Conservation and Development Commission.

On December 17, 2012, the CEC adopted regulations implementing Assembly Bills 1103 and 531. The regulations require compliance on a staggered schedule based upon a building's size. Compliance was initially required as of July 1, 2013, for buildings with a total gross floor area of more than 50,000 square feet; as of January 1, 2014, for buildings over 10,000 square feet; and as of July 1, 2014, for buildings over 5,000 square feet. Due to technical difficulties with Portfolio Manager and other implementation issues, enforcement for buildings over 50,000 square feet was pushed back to January 1, 2014.

Compliance is now required as of January 1, 2014 for all buildings with a total gross floor area of more than 10,000 square feet.

Compliance Requirements

Compliance with Assembly Bills 1103 and 531 and the implementing regulations requires owners of certain nonresidential buildings to take certain actions at least 30 days before the sale, lease, or financing of the entire building. Thus, because compliance is required as of January 1, 2014, a building owner would have to initiate the compliance process by December 1, 2013, in order to sell, lease, or finance a building over 10,000 square feet on January 1, 2014.

Whether a building is subject to the disclosure requirements is determined by the building's occupancy type, which is based on the occupancy permit as issued by the local building department. The following occupancy types as defined in the California Building Code (Title 24, Part 1) are subject to the disclosure requirements:

• A (Assembly), B (Business), E (Education) I‐1 and I‐2 (Institutional), M (Mercantile), R‐1 (Transient – Residential), S (Storage), and U (Parking Garage)
• All other occupancy types are exempted from the program requirements, including but not limited to, F (Factory and Industrial), I‐3 and I‐4 (Institutional), and R‐2, 2.1, 3, 3.1, 4 (Residential)

If a building is subject to the disclosure requirements, the owner must, at least 30 days before the sale, lease, or financing of the entire building:

• Register for a Portfolio Manager account and create a profile within Portfolio Manager for the building
• Identify all sources of energy use data (electricity, natural gas, propane, etc.) for the building
• Contact the applicable utility or utilities to confirm their procedures for providing the energy use data
• Request all applicable utilities to upload the latest 12 months of energy use data into the building owner's Portfolio Manager account (utilities may also provide a spreadsheet containing energy use data to be manually uploaded by the building owner)
• Generate a Data Verification Checklist report in Portfolio Manager
• Disclose the Data Verification Checklist to a prospective buyer, lessee, or lender at least 24 hours prior to execution of a sale contract or lease, or submittal of a loan application
• Submit the Data Verification Checklist to the California Energy Commission at AB1103report@energy.ca.gov within 30 days of producing the report

Owners should also consider updating purchase agreements, lease forms, and financing documents to include an express acknowledgment by the buyer, tenant, or lender, as applicable, of receipt of the Data Verification Checklist.

Although there is no specific penalty provision for non-compliance, the CEC may take administrative and/or judicial action to enforce the disclosure requirements. In addition, a failure to disclose a building's energy usage could be viewed as a material fact in a transaction. Moreover, a failure to commence the disclosure process well in advance of the transaction could result in closing delays. Therefore, owners of nonresidential buildings should build compliance with the disclosure requirements into their schedule for significant transactions affecting the building, and should update their transaction documents to ensure compliance.

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