Excellent tutorial from Adler & Stachenfeld (https://adstach.com/) Partner YuhTyng Patka (https://adstach.com/attorneys/yuhtyngpatka) about the additional draft rules issued by the NYC Department of Buildings (DOB) concerning how Local Law 97 will be implemented and enforced.
It is provided below in its entirety, with contact information for YuhTyng Patka at the end.
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Last week the NYC Department of Buildings (“DOB”) released additional draft rules further providing clarification as to how Local Law (“LL97”) will be implemented and enforced. As a reminder, LL97 places a statutory limit on greenhouse gas emissions of NYC buildings 25,000 gross square feet or larger beginning January 1, 2024. The first “building emissions report” confirming either compliance or non-compliance for the 2024 calendar year must be submitted to DOB by May 1, 2025 for most NYC building owners covered under LL97.
Many NYC building owners had hoped that the January 1, 2024 compliance deadline would eventually be delayed altogether. That has unfortunately not been the case. For many, the January 1, 2024 compliance deadline is still applicable and looms in the near future.
The latest draft rules signal that while the City of New York recognizes the challenges faced by owners in planning for LL97 compliance resulting from the pandemic and rising interest rates, the City is not backing down from its efforts to curb the real estate industry’s impact on carbon emissions.
To that end, the new rules formalize an extension of the building emissions report deadline (but not the compliance date) for income-restricted multi-family owners from May 1, 2025 to May 1, 2027 at earliest. (As a reminder, income-restricted multi-family owners and houses of worship can comply with LL97 through prescriptive pathways outlined in the law and have until December 31, 2024 to do so). The City also encourages and incentivizes owners to electrify their buildings’ heating, cooling, and hot water systems by offering a “beneficial electrification ”credit that can be “banked” and used to minimize future penalties if qualifying electric systems are installed before 2030, with a greater credit granted if such systems are installed prior to 2027.
The new rules also provide a framework for how NYC building owners can mitigate civil penalties associated with noncompliance with LL97. Penalties will be calculated as the difference between the building emissions limit established for a particular calendar year and the actual emissions reported for such calendar year, multiplied by $268.
If an owner seeks to mitigate a penalty, they must demonstrate DOB’s criteria for mitigating factors with the filed building emissions report. One mitigating factor DOB will consider is an “unexpected or unforeseeable event” such as a hurricane, flood, or fire. Successful demonstration of an unexpected or unforeseeable event may result in a $0 penalty.
The other mitigating factor considered by DOB is a showing that “good faith efforts” have been made by the building owner to comply. The new rules outline what DOB constitutes as “good faith efforts”.
The owner must demonstrate all of the following:
- Filed a LL97 building emissions report for the previous calendar year
- Uploaded benchmarking information (LL84) for the previous calendar year
- Completed lighting system upgrades and sub-metering requirements (LL88)
Additionally, the owner must demonstrate at least one of the following:
- Submit a decarbonization plan by May 1, 2025 (discussed further below)
- Provide evidence of DOB approval for the work necessary to comply
- Provide evidence that the building is undergoing electrification work
- Submitted a building emissions report during the 2024-2029 compliance period showing the building was under the limit for such calendar year
- An owner of a critical facility (e.g. a hospital, dialysis clinic, vaccine manufacturing facility, or other operation critical to human life or safety) shows how payment of the penalty would negative impact the facility’s operations
- The owner has applied for or been granted an adjustment to the building’s emissions limit
If an owner chooses to mitigate penalties by submission of a decarbonization plan by May 1, 2025, such plan must include:
- An energy audit
- An inventory of all heating, cooling, hot water, and electric equipment
- Description of any work completed since January1, 2013 that resulted in at least 10% emissions reduction as compared to the year prior to work completion
- A list of proposed alterations and changes to operations and maintenance that will result in net zero carbon emissions by2050 (the removal of a tenant is not a permitted strategy). The list must include timeline, capital source(s), and estimated emission reductions resulting from the changes.
The decarbonization plan route requires that the work contemplated in the plan be completed within 2 years of submission. So, if owners are seeking to mitigate penalties for reporting year 2024 which report must be submitted by May 1, 2025, then the decarbonization plan must be implemented and completed by May 1, 2027 and provide compliance for 2024’s emission limit. Additionally, such decarbonization plan must also show compliance with a building’s 2030 emissions limit by May 1, 2028 and an owner cannot purchase any renewable energy credits (RECs) to comply in 2024-2029.
Moral of the story: As we have continuously been advising our audience in the past 4 years, owners need to act swiftly with regards to their LL97 compliance efforts. The “good faith efforts” outlined by DOB in its latest draft rules confirm such need to move quickly, as most of the criteria require the owner to have begun compliance efforts well in advance of the January 1, 2024 compliance deadline.
If you have any questions regarding any of these new laws and proposals, please contact:
YuhTyng (Tyng) Patka (NYC Tax & Incentives Chair) – 212.692.5532 / ypatka@adstach.com
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