New Accessibility and Energy Use Disclosure Requirements for California Commercial Landlords Effective July 1, 2013

• Accessibility Disclosure: Each lease or rental agreement for commercial property executed on or after July 1, 2013 must state whether the property being leased or rented has undergone inspection by a Certified Access Specialist (CASp), and, if so, whether the property has or has not been determined to meet all applicable construction-related accessibility standards.
• Energy Use Disclosure: Commencing July 1, 2013 for buildings with total gross floor area of more than 50,000 square feet, owners of nonresidential buildings must obtain and disclose, prior to any sale, lease, or financing of the entire building, the 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. The compliance deadline is delayed for smaller buildings, and the statute and regulations do not apply to buildings smaller than 5,000 square feet.

Accessibility Disclosure

Pursuant to California Civil Code Section 1938, each lease or rental agreement for commercial property executed on or after July 1, 2013 must state whether the property being leased or rented has undergone inspection by a CASp, and, if so, whether the property has or has not been determined to meet all applicable construction-related accessibility standards. The statute applies to all leased commercial premises, regardless of size. CASps are certified by the California Division of the State Architect, and a list of approved CASps can be found here.

Landlords must thus decide to either (i) not have their rental properties inspected by a CASp, and disclose the lack of inspection in the applicable leases, or (ii) engage a CASp to inspect their rental properties and include the results of those inspections in the applicable leases. For landlords that elect to have the CASp inspections performed and to disclose the results, it is recommended to engage a CASp and have the inspections performed as soon as possible, at least with respect to leased premises that may be put up for lease shortly following the July 1, 2013 effective date of the statute. In the event that the CASp report indicates that the property fails to meet certain accessibility standards, landlords will need time to decide whether to remedy such failure (and if so, to implement the remedy), or to leave the failure uncorrected and be prepared to respond to questions from prospective tenants as to why the property fails to meet the relevant standards. Landlords that do not elect to have the CASp inspections performed also may face questions from prospective tenants as to why the premises the tenant is considering leasing have not been inspected.

Civil Code Section 1938 does not prescribe any specific penalties or consequences for failing to provide the disclosure, but it is not difficult to imagine scenarios in which tenants would raise a landlord’s failure to comply with the statute in accessibility-related litigation.

Separate from the lease disclosure requirements, obtaining a CASp inspection may provide some benefits to a landlord facing accessibility lawsuits that might have an impact on a landlord’s decision as to whether or not to obtain the inspection. California Senate Bill 1608, enacted in 2008 (SB 1608), and California Senate Bill 1186, enacted in 2012 (SB 1186), were enacted by the legislature in part as an attempt to remedy what some perceive as abuses of accessibility laws in California by “professional” accessibility plaintiffs. Under SB 1608, landlords of premises that have been inspected by a CASp are entitled to request a 90-day stay of any accessibility lawsuit related to those premises. Additionally, under SB 1186, landlords of CASp-inspected premises are entitled in certain circumstances to reduce their liability for statutory damages to $1,000 for “each offense.”

Energy Use Disclosure

Commencing July 1, 2013 for buildings with total gross floor area of more than 50,000 square feet, owners of nonresidential buildings must obtain and disclose, prior to any sale, lease, or financing of the entire building, the 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. The disclosure is required beginning January 1, 2014 for buildings with a total gross floor area between 10,000 square feet and 50,000 square feet, and beginning July 1, 2014 for buildings with a total gross floor area between 5,000 square feet and 10,000 square feet. Disclosure is mandated pursuant to California Public Resources Code Section 25402.10 and California Code of Regulations Title 20, Sections 1680-1684. The statute and regulations do not apply to buildings smaller than 5,000 square feet. Unlike the accessibility disclosure requirements discussed above, the energy use disclosure requirements do not apply to leases of less than an entire building. Disclosure is required to be made to a prospective tenant or purchaser no later than 24 hours prior to execution of a lease or purchase agreement, and to a prospective lender no later than the submittal of the loan application.

To comply with the statute and regulations, building owners must, no later than 30 days prior to the date disclosure is required, open an account for the building at the ENERGY STAR® Portfolio Manager Web site, operated by the U.S. Environmental Protection Agency. Certain information regarding the building must be entered in order to open an account, including owner contact information; building name, address, and year of construction; all sources of energy use data for the building; and space use characteristics. Through the account, the building owner then requests all utilities providing energy to the building to provide the owner with the energy use data for the building for at least the most recent 12 months. Under the law, the utilities are required to provide this data through the account within 30 days of the date the request is made.

Once the utilities provide the required data, the owner must log back into the account, complete a compliance report, and download the following materials (Energy Use Materials):

• A “Disclosure Summary Sheet,” which is a one-page document prepared by the California Energy Commission describing the contents of and relevance to California buildings of the disclosures generated by the Portfolio Manager
• The building’s “Statement of Energy Performance,” which is a report generated by the Portfolio Manager that supplies data about a building’s energy performance and the building’s ENERGY STAR® Energy Performance Score
• The building’s “Data Checklist,” which is a report generated by the Portfolio Manager that summarizes the building’s physical and operating characteristics
• The building’s “Facility Summary,” which is a report generated by the Portfolio Manager that summarizes the space and energy usage of the building and compares the building’s energy use to national medians

The Energy Use Materials must then be provided to prospective tenants, purchasers, or lenders by the deadlines described above. While not required by law, it would be advisable for owners to obtain written confirmation of receipt of the Energy Use Materials by the recipient.

Given the minimum 30-day length of the process for creating the account and downloading the materials, owners should consider establishing the Portfolio Manager account as soon as possible, so as to avoid potential transaction delays.

As is the case with the accessibility disclosure requirements, the energy use disclosure statute and regulations do not prescribe any specific penalties or consequences for failing to provide the disclosures. Effects of non-compliance are expected to become clearer over time as court cases involving the issue are decided.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Jason N. Barglow
Partner
Los Angeles, California
213.972.4576
[email protected]

Richard L. Moskitis
Partner
San Diego, California
619.685.6439
[email protected]