California Nonresidential Energy Use Disclosure Requirement

As we alerted you last year, the California Nonresidential Energy Use Disclosure Program (AB 1103) now applies to transactions (sales, financing, leases) of entire nonresidential buildings which are 10,000 square feet or more. Effective July 1, 2014, the threshold lowers to 5,000 square feet for this disclosure requirement.

What is this Program?

The Program requires building owners or operators to benchmark a nonresidential building’s energy use for a 30-day period and then disclose it to the prospective buyer, lessee or lender.

How do I know if the Program applies to my building?

First, is the entire nonresidential building being offered for sale, lease or financing? If not, then the Program does not apply.

Second, does the entire building meet or exceed the size threshold of 10,000 square feet (5,000 square feet as of July 1, 2014)?

Third, taking a look at the building’s occupancy permit, is the building one of the following types?

• Assembly (A)
• Business (B)
• Education (E)
• Institutional – Assisted Living (I-1, I-2)
• Mercantile – Retail (M)
• Residential – Transient Hotel/Motels (R-1)
• Storage (S) or
• Utility – Parking Garage (U)

(Note that Factory/Industry (F) and Residential (R) occupancy types are excluded from the Program.)

So what are Owners and Property Managers to do?

If all of the above are true, then the Program and disclosure requirement apply. The Owner or Property Manager signs up with the Energy Star portfolio manager website, then benchmarks the energy usage for 30 days. Once benchmarked, the website will then generate the disclosure report to be provided to prospective purchasers, tenants or lenders at least 24 hours prior to a signed agreement.  

Since there is a 30-day period for the benchmarking, we believe that it is prudent for Owners or Property Managers to anticipate the need to provide this disclosure report and to initiate the benchmarking of buildings early in the process, when those buildings are being offered for sale, lease or financing.

For more information, please contact the author of this alert, Jason E. Grinnell, Senior Counsel, at 213-457-1761 or jgrinnell@dykema.com, any of the Real Estate attorneys listed to the left or your Dykema relationship attorney.

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