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October 30, 2020

Stroock Client Alert

By: Raymond "Rusty" Pomeroy II, Brian Diamond, Karen Scanna, Ross F. Moskowitz, Joseph B. Giminaro, Trevor T. Adler, Jeffrey R. Keitelman

Yesterday, the City Council passed an amendment to the Climate Mobilization Act of 2019 (the “CMA” or “Act”). The bill, sponsored by Council Member Costa Constantinides, Chair of the City Council’s Committee on Environmental Protection (the "Committee"), dramatically expands the number of multi-family residential buildings subject to the CMA’s strict greenhouse gas (“GHG”) emissions limitations. The Committee held a virtual public hearing on the measure on September 22nd.

The CMA establishes strict GHG emissions limitations for covered buildings. [Read more in our previous Client Alert]Covered buildings are generally buildings that exceed 25,000 gross sq. ft. The Act, though, provides certain exemptions from the definition of covered buildings, including, prior to the enactment of the amendment, an exemption for buildings that contain "one or more units with a legal regulated rent . . . ." The amendment now requires that more than 35% of the building's units be rent regulated in order for the exemption to apply.

We are not aware of any study undertaken by the Council to determine the number of buildings that will no longer be exempt from emissions limitations as a result of the amendment. However, logic dictates that the number will be significant. In its testimony before the Committee, the Council of New York Cooperatives and Condominiums estimated that the amendment would “impact hundreds of residential buildings” and “at least half of the buildings that fall into the category of having less than 35% of their units rent regulated are former rental buildings that been converted to housing cooperatives and condominiums.”[1]

As one would expect, the real estate community and the environmental community have largely lined up on different sides of this issue. For the environmental community, the benefits of the amendment are essentially twofold: expanding the scope of the CMA will lead to greater city-wide GHG emissions reductions; and expanding the CMA’s reach to buildings with rent regulated units will promote environmental justice by bringing the benefits of GHG emissions reductions and building energy efficiency retrofits to the rent regulated community.

For building owners, the impacts of the amendment are more complicated. As an initial matter, the CMA has been law for a year and a half. Many building owners with covered buildings have spent that time assessing the energy performance of their buildings, planning to file adjustment applications, identifying potential energy efficiency retrofits and planning for necessary capital expenditures, and exploring various means of alternate compliance. Applications for the various adjustments to the Act’s emissions limitations are due to be submitted to the Department of Buildings in just over eight months (July 1, 2021), and the first compliance period for emissions limitations commences in 2024. [Read more in our previous Client Alert] Recognizing this inequity, provisions were added to the amendment at the last minute to provide a 2-year extension of time for building owners subject to the new requirements to meet the emissions limitations. Owners of these newly covered buildings now need to comply with the emissions limitations starting in 2026, and must begin filing annual certifications of building energy use in May 2027. The amendment did not extend the deadline for applications for adjustments.

Further complicating matters for owners of residential buildings are limitations enacted by New York State as part of the Housing Stability and Tenant Protection Act of 2019 (the “HSTBA”). While the emissions limitations contained in the CMA will require building owners to invest in expensive capital improvements, the HSTBA limits a landlord’s ability to charge tenants for Major Capital Improvements (“MCIs”) to no more than a 2%  increase in rent. MCI increases are prohibited altogether in buildings where fewer than 35% of the units are stabilized. The owners of these buildings, where fewer than 35% of the units are rent stabilized, may now be facing the double whammy of becoming subject to the CMA’s stringent GHG emissions limitations while being unable to pass through to tenants the costs of MCIs necessary for the building to comply with those measures.

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For More Information:

Raymond "Rusty" N. Pomeroy II

Brian Diamond

Karen Scanna

Ross F. Moskowitz

Joseph B. Giminaro

Trevor T. Adler

Jeff Keitelman

1] New York City Council, Committee on Environmental Protection, Hearing Testimony on Intro 1947, September 22, 2020, p. 8.

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.

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