Navigating Local Law 97: BBG Assembles Team to Assist Clients with Compliance and Financing Solutions
As the deadline looms for buildings to comply with the city’s Climate Mobilization Act (the “Act”), Belkin Burden Goldman, LLP has assembled a team to assist property owners’ efforts to comply with the emissions reduction law, reduce the risk of penalties and navigate financing options/solutions for eligible green retrofits.
The BBG Local Law 97 team includes the following Partners:
- Daniel T. Altman – Leasing and Financing;
- Jeffrey L. Goldman and Adam M. Bernstein – Litigation Risks;
- Martin J. Heistein – Administrative Agency Filings and Residential Leases;
- Ron Mandel – Development and Zoning;
- Michael Bobick – Loft Law; and
- Lloyd F. Reisman – Cooperative and Condominium Representation as well as Vendor Contract Reviews.
The Act, which includes Local Law 97, calls on owners of buildings in New York City to substantially reduce their properties’ carbon emissions. It is anticipated that it will impact more than 55,000 buildings across the boroughs, the owners of which will face steep fines if they are not in compliance with the required reduced emissions thresholds.
Currently, buildings in New York City are responsible for more than two-thirds of the City’s greenhouse gas emissions. The goal of the Act is to achieve a 40% reduction in the City’s building emissions levels by 2030, and an 80% reduction by 2050, relative to 2005 levels. Building owners will also be obligated to meet new energy efficiency and greenhouse gas emissions limits in future years.
Beginning in 2024, the law places increasingly stringent limits on carbon emissions per square foot for approximately 60% of the City’s buildings, including large multifamily, large commercial, and medium-sized properties.
Who is required to comply with the law?
Generally buildings, with some exceptions, that fall under NYC Admin Code § 320 are referred to as “Covered Buildings” and include:
- a building that exceeds 25,000 gross square feet;
- two or more buildings on the same tax lot that together exceed 50,000 gross square feet; and
- two or more buildings held in the condominium form of ownership that are governed by the same board of managers and that together exceed 50,000 gross square feet.
Note, a “rent regulated accommodation” (i.e., more than 35% of apartments are regulated (e.g., rent stabilized, etc.)) is also a Covered Building, but will have a delayed compliance date and provides more than one method of compliance.
*Co-ops and condominiums that satisfy these size parameters will be subject to the Law.
Who is not required to follow the emissions regulations?
- An industrial facility primarily used for the generation of electric power or steam;
- Real property, not more than three stories, consisting of a series of attached, detached or semi-detached dwellings, for which ownership and the responsibility for maintenance of the HVAC systems and hot water heating systems is held by each individual dwelling unit owner, and with no HVAC system or hot water heating system in the series serving more than 25,000 gross square feet;
- A housing development or building on land owned by the New York City Housing Authority;
- A building whose main use or dominant occupancy is classified as occupancy group A-3 or a religious house of worship;
- Real property owned by a housing development fund company; and
- A building that participates in a project-based federal housing program.
What are the deadlines?
Beginning January 1, 2024, Covered Buildings under NYC Admin Code § 320 must be in compliance with the emissions standards outlined in Local Law 97. Other buildings subject to NYC Admin Code § 321, including buildings in which 35% or more of the apartments are rent regulated, have until December 1, 2024 to be in compliance.
Beginning May 1, 2025 (and May 1 of every year thereafter), all Covered Buildings must file their own annual report with the Department of Buildings.
Beginning January 1, 2026 (and January 1 of every year thereafter), The New York City Office of Building and Emissions Performance must submit a report to the Mayor and the Speaker of the Council relating to compliance with NYC Admin Code § 320.
On January 1, 2030 new emissions limits will be set through 2034.
On January 1, 2035 new emissions limits will be set through 2039.
On January 1, 2040 new emissions limits will be set through 2049.
How will the failure to comply impact building owners?
Building owners who are not in compliance will face steep fines and penalties. According to a study done by the Urban Green Council, the first compliance period will require an estimated investment of $1.75 billion to $2.7 billion by affected property owners. The second compliance period, when emissions limits are reduced further, will require investments totaling between $14.8 billion and $21.6 billion.
According to the Real Estate Board of New York, over 3,000 buildings across the city could be out of compliance by January 1, 2024, placing the owners of those buildings at risk of more than $200 million per year in fines.
If a covered building exceeds its annual building emissions limit, the owner can face a penalty calculated by multiplying the amount that the building emissions for the year exceed the emissions limit by $268.00.
There are also fines for not filing the annual report, calculated by multiplying $0.50 by the gross floor area of the building for each month the report isn’t filed; and, if a building owner knowingly makes false statements on the report they can incur a fine of up to $500,000 or up to 30 days in prison.
Will the changes be expensive? What are financing options?
Yes, while these changes are projected to cost owners billions of dollars, there are options available to owners to mitigate costs.
In November of last year, a bill was introduced in the New York State Senate, which, if passed and signed into law, would provide generous tax abatements for up to 20 years to eligible property owners who actively conduct capital improvements and reduce their emissions by more than 30%.
Certain property owners have the opportunity to obtain financing through the PACE program,
which allows owners to borrow money in order to make eligible improvements to their buildings and in turn reduce their utility costs, energy consumption, and emissions. Note, PACE was authorized by Local Law 96 of the Act to encourage property owners to make green retrofits to comply with the Act. The loans for these projects can cover 100% of the costs of such improvements, and are paid back in installments through a charge on the building’s tax bill. Please note, however, that there are many complexities with this type of financing arrangement, so please contact us to discuss if PACE financing is a good option for you.
**Critical Time Sensitive Considerations for Compliance**
With the impending compliance deadline rapidly approaching, it is crucial for property owners, developers, and cooperative/condominium boards to consider the following action items (among other considerations) in an expedited manner if they have not already done so:
- Identify necessary methods to reduce carbon emissions, and prepare an estimated budget before the new law takes effect.
- For instance, this could involve implementing window replacements, enhancing roof efficiency, upgrading HVAC systems, installing boilers, chillers, and furnace systems with smart building controls, adopting LED lighting, incorporating green roofs, installing solar panels, and implementing energy storage.
- Identify and engage necessary vendors (such as architects, engineers, project managers, contractors, etc.).
- Explore Financing Options, including potential incentive programs like PACE and proposed tax abatements.
- Negotiate recommended lease provisions for new leases that will be covered, as well as possible amendments for existing leases.
- Developers should assess the scope of the new law and determine the best approach to designing the new project, as well as considering additional costs resulting from the new regulations.
- Cooperative and condominium boards need to evaluate the adequacy of reserves for new improvements and whether there are any recommended or required changes to their governing documents.
Given the significant exposure to penalties and the rapidly approaching deadlines, we encourage you to reach out to us for assistance or with any questions. You should contact your BBG attorney of record or contact us.