AB 1103 Goes Into Effect on January 1, 2014: Are You Prepared?

November 13, 2013

It is important for owners and operators of commercial real estate to stay current with applicable laws and ordinances, including the Nonresidential Building Energy Use Disclosure Program (the "Disclosure Program"). The Disclosure Program - better known as Assembly Bill 1103 or AB 1103 - requires owners, brokers, and property managers of commercial real estate, i.e., "nonresidential buildings in California," to disclose energy use or "benchmarking data" to potential buyers, lessees, and financiers prior to the sale, lease, or financing of a whole building. The purpose of the Bill is to promote energy efficiency in California.

AB 1103 requires nonresidential building owners and operators to input energy consumption and other building data into the Environmental Protection Agency's ENERGY STAR Portfolio Manager System, which generates an energy efficiency rating for the subject building. Ratings are from 1 to 100, with 100 being the most energy efficient. A building achieving a score of 75 or higher can apply for ENERGY STAR certification. ENERGY STAR Portfolio Manager is an online tool created by the EPA and used to measure and track energy and water consumption, as well as greenhouse gas emissions. It can be used to benchmark the performance of one building or a whole portfolio of buildings.

AB 1103, passed in 2007, was scheduled to go into effect on September 1, 2013, for buildings of 50,000 square feet or more, however, this summer, the California Energy Commission announced that it was delaying implementation of the program until January 1, 2014, because of ongoing technical issues with the Portfolio Manager tool. Beginning on January 1, 2014, the owners and operators of commercial buildings are required to disclose to potential buyers, lessees, and financiers, the building's energy data and rating of the previous year. The Implementation Schedule is as follows:

1. On or after January 1, 2014, for a building whose gross size is 50,000 square feet or more.
2. On or after March 1, 2014, for a building whose gross size is 10,000 to 50,000 square feet.
3. On or after July 1, 2014, for a building whose gross size is equal to or greater than 5,000 square feet.

Owners and operators of nonresidential buildings less than 5,000 square feet are not required to comply with the regulations.

The energy consumption disclosure provided to potential buyers, lessees, and financiers must include a Disclosure Summary Sheet, a Statement of Energy Performance, a Data Checklist, and the Facility Summary for the building, and it must be provided no later than 24 hours before the financial transaction (sales contract, lease, or loan application). The disclosure documents expire 30 days after they are generated.

Failure to comply with the requirements of AB 1103 may result in unwanted legal claims and/or difficulties selling, leasing, or financing your commercial building because of comparisons with other buildings that may be more energy efficient and, therefore, more attractive to potential buyers/lessees. It is important for those owners and operators involved in commercial real estate transactions to be aware of the disclosure requirements and ensure compliance with them. Complying with AB 1103 can be complicated and having an attorney on your side can make the process easier to navigate. If you have a real estate issue and are in the Sacramento area, our experienced Sacramento commercial real estate attorney can help.