Now that the commercial leasing market is springing back to life, owners and tenants alike are starting to grapple with the upcoming effects of Local Law 97.
Passed in April of 2019, Local Law 97 sets carbon emission limits for existing buildings in New York City generally larger than 25,000 gross square feet (with some exceptions) with the aim to reduce greenhouse gas emissions. The law provides formulas to calculate annual emission limits for buildings initially for the years 2024-2029 and with lower limits for 2030-2034. Building owners must annually submit a certified report indicating that their building emissions are in compliance with, or by how much they exceed, the preset limits. Penalties are assessed for emissions exceeding the established limits, for failure to submit annual reports and for submitting falsified reports. (For a copy of Local Law 97, click here).
Prudent owners, managers and tenants alike are starting to review their existing leases to evaluate the extent to which investments in energy efficient building systems (and, in some cases, penalties for non-compliance) can be allocated to operating expenses and, therefore, paid for in part by building tenants. In addition, newly drafted provisions are being inserted into lease forms and amendments to address perceived shortcomings in existing operating expenses clauses. These provisions vary in approach and the extent to which costs of compliance (and non-compliance) with Local Law 97 are shared between owner and tenant. Unfortunately, for all parties involved, the market has not yet reached consensus on how best to deal with Local Law 97 and the costs and penalties that will inevitably flow from it, rendering the negotiation of lease provisions affected by Local Law 97 far more challenging.
The key to effectively dealing with Local Law 97, whether as an owner or tenant, is knowledge – knowledge of the law (its requirements, creating a plan for compliance and understanding the penalties for non-compliance), knowledge of your building and space and its particular vulnerabilities, and, most importantly, knowledge of your lease and its nuances. While it may be too early to tell what the full impact Local Law 97 will have on the commercial leasing market throughout New York City, it is not too early to prepare for Local Law 97 and take prudent actions to minimize exposure to it.
Seward & Kissel LLP counsels all market participants in commercial lease transactions in New York and throughout the United States. Please do not hesitate to reach out to a member of the Seward & Kissel team with any questions regarding Local Law 97.