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Collection and Reporting of Energy Data in the Sale of Commercial Buildings – its coming 1/1/13

Real Estate Law

On October 12, 2007 AB 1103 became law. The law requires that commercial building owners collect and disclose energy consumption data prior to a building’s sale, lease, or finance.  January 1, 2013 is the current trigger date for implementation.  Since the passage of AB 531 in 2009, utilities have stored the individual building energy usage data that is the subject of AB 1103. The energy usage data is then reported through Portfolio Manager® software which is available for free, online, through the EPA Energy Star® program.

The Portfolio Manager® software provides a benchmark rating of a commercial building compared to similar buildings.  Currently, there are over 30 different categories of buildings. A score of 50 means a building provides the average energy efficiency for a similar building. A score of 75 or higher means the building is in the top 25% of energy efficiency and earns an Energy Star rating.

Having a higher score is expected to increase the sales price of a building, as it is an indicator that the building is more cost effective to operate.  However, in most commercial buildings the cost of operations are passed along to tenants and so owners are often less directly able to manage energy efficiency and tenants may be incentivized to select less energy efficient products because they are sharing the cost rather than bearing it wholly themselves.

Thus, one of the most important areas for owners of commercial buildings to address in their leases are the utilities and energy consumption.  New leases should address such issues as:

1. that energy efficiency is a primary concern,

2. that tenant must maintain energy saving features as a condition of the lease,

3. that the landlord has a right to monitor the tenant’s energy use, and

4. that the landlord may restrict the use of certain energy inefficient equipment

Issues will also arise during sales. Owners will need to be cautious about energy efficiency representations outside of the production of the documents required under the new law. Things like LEED designations should be made with caution and disclaimers so that there is no assertion later by the buyer that a misrepresentation was made.

At the very least, AB 1103 is going to impose new obligations on the owners of commercial buildings and having counsel that is aware of these obligations and how to meet them and protect the owner is essential.

If you have questions regarding such matters, or if you have any other questions about real estate legal issues, contact Brewer Offord & Pedersen LLP at (650) 327-2900, or visit us on the web at www.BrewerFirm.com.

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