Beginning July 1, 2013, owners of commercial property in California will need to comply with new disclosure requirements when entering a new lease, amending a lease, or when owners sell or finance a commercial building. The first disclosure requirement relates to disability access and the other requirement relates to a building’s energy use and consumption.
Certified Access Specialist Disclosure
Under California SB 1186, commercial property owners must include a disclosure in all commercial leases or lease amendments stating whether the property has been inspected by a certified access specialist and, if so, whether the property is in compliance with construction-related accessibility standards. A certified access specialist (also known as a “CASp”) is a professional certified by the State of California to assess commercial properties and their compliance with federal and state disability-related laws and regulations. After an inspection, the specialist issues a report which identifies areas of non-compliance with accessibility standards. The report can be used by property owners to create a practical and financially reasonable plan for fixing problems in advance of litigation.
While the CASp disclosure in leases and lease amendments is mandatory, property owners are not required obtain such inspections. The new law provides incentives, however, to having the building inspected. Property owners who timely correct ADA violations identified in a CASp report or have had their property inspected by an approved inspector prior to being served with a complaint by an ADA plaintiff can be eligible for reduced statutory damages or a 90 day stay of proceedings in the event of a lawsuit. The stay is granted to give the owner the opportunity to correct accessibility issues and dismiss the lawsuit.
Energy Use Reporting
Another California law, known as AB 1103, provides that prior to the leasing, sale or financing of an entire commercial building of more than 50,000 square feet (the requirement hits smaller buildings in 2014 – all the way down to 5,000 square feet on July 1, 2014!), the landlord, seller or borrower is required to disclose energy use data for the building for the prior 12 months, together with information regarding the building’s operating characteristics and ENERGY STAR Energy Performance Score. To comply, building owners are required to open an account for the building at the ENERGY STAR Portfolio Manager Website, operated by the US EPA, no later than 30 days prior to the date the disclosure is required. Under the law, once an account is opened, utility companies are required to provide energy data within 30 days of the date of the request. Then, the owner must log back in to the account, complete a compliance report, and download certain Energy Use Materials for disclosure to the prospective tenant, purchaser or lender. The disclosure requirement applies to virtually all commercial building use types.
The ENERGY STAR Portfolio Manager is a free online software tool that allows property owners to track and evaluate energy consumption in light of the occupancy of the building in specified land use categories. A building is given a score on a scale of 1 to 100. A rating of 50 means that the building performs at the midpoint when compared with similar buildings. The Portfolio Manager uses national weather data to compare buildings in similar climates, so that buildings in locations that have snow in the winter and high humidity in the summer are not are scored against buildings in temperate climates. A building that scores 75 or above qualifies for an ENERGY STAR certification. Because the consequences of having a poor score can have consequences in attracting tenants that have green building requirements, it is important for property owners to retain knowledgeable staff or consultants to handle the inputs into the ENERGY STAR database. Even small mistakes can affect an overall score considerably in the wrong direction.
The new law will allow tenants, buyers and lenders to compare a building’s performance with other similar buildings. In addition, the disclosure requirement provides more information than a disclosure of monthly utility bills, as is typical when tenants evaluate utility pass through expenses, buyers estimate future operating costs in their pro formas, or when lenders evaluate which assets have a better ability to maintain profitability and support loan repayment. On the other hand, the cost and expense of complying with the law’s new disclosure requirement is an added cost of doing business as a commercial property owner in California.