Implications of Energy Use Disclosure Law on California Real Estate Transactions
The California Energy Commission recently released its proposed regulations under Assembly Bill 802 (AB 802) to replace the now defunct Assembly Bill 1103 (AB 1103), codified as Public Resource Code Section 25402.10. The key implications of AB 802 on California real estate transactions are:
Since AB 1103 was repealed on January 1, 2016, building owners have no obligation to disclose energy use under Public Resource Code Section 25402.10 until 2018.
Under the new law, building owners have no duty to disclose energy usage to prospective buyers, lessees, or lenders.
Building owners have no obligation to gather utility information directly from tenants.
Owners of buildings with no residential units will be required to open an Energy Star account and request energy information from the utility companies serving their buildings by March 1, 2018. They also must enter: (i) general information about their buildings; and (ii) the specific energy information about their buildings provided by the utility companies on the Energy Star website by June 1, 2018. Building owners will be required to continue to request information by March 1st and report such information by June 1st annually thereafter.
Owners of buildings with residential units will be required to open an Energy Star account and request energy information from the utility companies serving their buildings by March 1, 2019. They also must enter: (i) general information about their buildings; and (ii) the specific energy information about their buildings provided by the utility companies on the Energy Star website by June 1, 2019. Building owners will be required to continue to request information by March 1st and report such information by June 1st annually thereafter.
Proposed Regulations Apply Only to 50,000+ Square-Foot Buildings
Building owners must request and disclose energy information for buildings that are 50,000 square feet or larger and have either: (i) no residential use; or (ii) at least 17 active residential utility accounts. Buildings are exempt if: (i) more than half of the building is used for manufacturing, industrial use, or scientific experiments; (ii) the building did not have a certificate of occupancy during the year in which it was supposed to report; (iii) it is scheduled to be demolished within a year of the reporting date; or (iv) it was benchmarked pursuant to a local benchmarking program that qualifies under the statute. Under AB 1103, all commercial buildings over 5,000 square feet would have had to comply. AB 1103 did not apply to residential buildings.
AB 802 Implements New Process for Requesting, Compiling and Disclosing Information
Under AB 802, building owners initiate the benchmarking process by formally requesting a report from the utility companies serving their buildings. Next, the utilities review requests and notify building owners within two weeks of the request if information is missing (including customer permission, when applicable) or if the request is complete. The utilities are required to provide reports for the previous calendar year in monthly intervals using Energy Star or the spreadsheet provided by Energy Star within four weeks of sending notice that a request is complete.
Utilities Are Required to Obtain Permission from Some Utility Customers Prior to Disclosure of Energy Usage
AB 802 requires utility customers to give permission to disclose their utility information in some situations. All account holders (other than the building owner) must give permission to disclose their energy usage (either publicly or just to the building owner) when: (i) there are three or fewer utility accounts for a building and none of them are residential; or (ii) five or fewer accounts and at least one of them is residential. If permission is required from account holders, the utility shall request permission from those account holders. If permission has not been granted within 60 days of the utility’s request for permission, then the utility may not disclose information related to the entire building.
A building owner of a building with fewer than three utility accounts (where the other account holder if applicable has consented to energy disclosure), may request that its energy usage be determined a trade secret and thus not subject to disclosure. The California Energy Commission will then make a decision as to whether such information is a trade secret. Buildings with five or fewer utility accounts, at least one of which is residential, are not required to disclose energy usage.
Building Owners Responsible for Reporting Data
By June 1, 2018, (June 1, 2019, for residential buildings) and every year thereafter, building owners shall log onto the Energy Star website and complete the reporting process. Building owners are responsible for uploading data from the utility companies if utility companies did not upload the data directly onto Energy Star. All owners of buildings required to disclose under AB 802, must log onto the Energy Star website and follow the prompts, even in situations where required permission is lacking or the building’s energy use has been determined a trade secret (in such cases, the building owner only discloses general information about the building and not its energy use). Once building owners have disclosed the required information through the Energy Star website, they have completed their disclosure obligations for the year. In contrast to AB 1103, building owners have no duty to make specific disclosures to prospective buyers, lessees, or lenders. Presumably, such parties will be able to review energy information on the Energy Star website. Energy data collected in 2019 (2020 for residential buildings) (along with other building information) and yearly thereafter shall be published on a public website.