In just a few short months Local Law 97 (“LL97”), the centerpiece of New York City’s 2019 Climate Mobilization Act, will officially take effect. In an effort to target the largest source of carbon emissions in the City, LL97 will apply to buildings that exceed 25,000 square feet as well as smaller buildings where there are two or more buildings on the same tax lot which exceed 50,000 square feet. LL97 will also cover certain affiliated condominium buildings. Owners of buildings subject to compliance with LL97 will be required to annually report the greenhouse-gas emission levels of their buildings. If carbon emissions exceed certain levels, based upon their excess emissions, owners will be subject to yearly fines.
The emissions limits established by LL97 are determined based upon a building’s usage, subject to proration for different occupancy types in mixed use buildings. Emissions compliance requirements will begin as of January 1, 2024, with the first written reporting data due May 1, 2025, including certification by a registered design professional. While 80% of properties are already in compliance with the 2024 emissions limits, it is estimated that approximately 70% of properties will fail the 2030 tests. The emissions limits for each occupancy type will become more restrictive in subsequent phases as LL97 aims to achieve a 40% reduction of carbon output from covered buildings by 2030, and an 80% reduction by 2050.
Penalties for Noncompliance
Failure to comply with the applicable emissions limits can result in significant penalties, with excess emissions fined at the rate of $268 for each metric ton of emissions over a building’s permitted limit. According to a study commissioned by the Real Estate Board of New York (REBNY), even with significant attempts to come into compliance, more than 3,700 buildings could fail to meet 2024 cap goals. This number jumps to 13,500 buildings by 2030, at which point fines could collectively reach $900 million annually. The study concluded that “substantial investment in energy efficiency will not be enough for many buildings . . .” The law also imposes considerable fines for failure to timely file annual reports, equal to $0.50 per building square foot per month. Owners that file false statements can be subject to misdemeanor charges, a fine of $500,000, and civil penalties of up to $500,000.
Immediate Actions for Meeting Emissions Limits
As noted above, while most buildings subject to LL97 will already be in compliance for 2024, the opposite will be true with respect to 2030 limits. As a result, most property owners will have to take significant steps over the next 7 years to reduce carbon emissions. Presently, fewer than 13% of commercial buildings are in compliance with 2030 limits, and nearly three-quarters of such commercial buildings have emissions levels more than double the permitted amount for 2030. Since they rely more on electricity rather than fossil fuels, it is anticipated that commercial buildings will benefit the most from statewide grid decarbonization without needing to undertake significant upgrades. For residential buildings subject to the law, representing the majority of those buildings presently over the 2024 limits, compliance will often translate into expensive retrofitting of gas and oil furnaces and mechanical systems with more energy-efficient technology. This will likely present a major engineering challenge in many older buildings. A low cost first step is training building operations staff in energy efficiency best practices, as well as making changes to equipment schedules and temperature set points. Operational changes such as heating plan conversions from oil to natural gas can significantly reduce a building’s heating and cooling expenses. Changing old lighting to energy efficient lighting can provide a quick payback. Buildings with commercial spaces should also give thought to a prospective tenant’s energy usage when negotiating leases and may want to consider passing a portion of any emissions penalties for exceeding emissions limits through to commercial tenants.
Current Exceptions and Pending Modifications
Notably, LL97 currently exempts certain properties, including those buildings with 35% or more rent regulated apartments. However, buildings containing rent regulated accommodations must still demonstrate by December 31, 2024, that they are either (i) in compliance with the applicable emissions limits, or (ii) otherwise have implemented certain energy efficiency measures as specified in LL97. The energy efficiency measures include, but are not limited to, adjusting temperature set points, repairing system leaks, insulating pipes and tanks, installing temperature sensors, upgrading lighting, weatherizing and air sealing. Nevertheless, cooperative and condominium buildings with 35% or more rent regulated apartments would be prudent to plan for compliance with LL97, given that boards cannot control whether apartments will remain subject to regulation. Legislation has been passed since 2019 to further modify and limit this exemption. Buildings with one or more rent regulated apartments that constitute less than 35% of the total number of units are not exempt but have an additional two years until 2026 to comply with emission limits
As the exact requirements of LL97 are still fluctuating, it is important for property owners to stay informed in the coming months and years. Earlier this year, the New York City Department of Buildings released additional rules further elaborating upon LL97 implementation and requirements, with more rules on the horizon for later this year. As part of such future rules, the city will be considering the grounds under which individual buildings may be given reductions in penalties if they can show “good faith efforts” have been made to comply with the law. On the other end of the spectrum, there is also an effort to restrict the amount of Renewable Energy Credits a building will be permitted to purchase to offset any excess emissions. In addition to these evolving rules, there is a recently proposed bill to delay implementation of the LL97 requirements by seven years, and a lawsuit challenging the enforcement of the law outright. However, such efforts appear unlikely to delay or prevent the implementation of the law.
Resources and Recommendations
No property owner should wait to get into compliance, as the demand for qualified contractors to perform work to make buildings more energy efficient is only increasing. As the demand for work outstrips the supply of available labor, contract prices will naturally increase. Additionally, property owners who wait too long may find that they are not able to get the work done in time. Accordingly, a carbon efficiency assessment should be performed as soon as possible, and a program of upgrades should be phased in over a period of years. Low interest financing may be available, including loans to cooperatives and condominiums provided by the New York City Energy Efficiency Corporation, and loans to owners of multifamily properties through the NYCE Accelerator Pace Program where the debt service costs appear on a building’s New York City property tax bill. However, restrictions contained in existing mortgages may prohibit the taking of such loans or, at a minimum, require the consent of the existing lender.
Attorneys at Borah Goldstein stand ready to assist our clients as they navigate the evolving LL97 requirements. We have attorneys who are qualified to help property owners with the preparation of contracts for capital improvements as well as the financing of properties to fund the cost of such projects. Please contact Brandon James if you have any questions.