September 22, 2023
Client Alert
By: Raymond "Rusty" Pomeroy II
Conditions Attached to LL97 Relief Provisions Will Likely Negate Positive Impacts for Most Building Owners
On September 12, 2023, the New York City Department of Buildings (“DOB”) released three new rules proposals geared towards DOB’s ongoing efforts to implement Local Law 97 of 2019 (“LL97”) and Local Law 88 of 2009 (“LL88”). In conjunction with the release of the proposed rules, Mayor Adams launched the City’s “Getting 97 Done” plan, billed as “a comprehensive plan to cut harmful carbon emissions from the city’s large buildings . . . .” The proposed rules and the Getting 97 Done plan can be found here and here.
A public hearing will be held on the two proposed LL97 rules at 11:00 a.m. on October 24, 2023. A public hearing on the proposed LL88 rule will be held at 11:00 a.m. on October 26, 2023. Information regarding attending the public hearings and/or submitting comments on the proposed rules can be found here.
LL97 requires owners of covered buildings to meet strict greenhouse gas (GHG) emissions limits starting in 2024. The City estimates that 12-15 billion dollars in energy efficiency investments will need to be made in order to comply with the GHG emissions requirements by 2030, and that only 5-6 billion dollars of that investment would pay for itself with energy efficiency savings. Owners must annually submit to DOB energy use reports calculating the GHG emissions from their building. If actual emissions from the building are higher than the GHG emissions established under LL97, the building owner can face steep penalties.
Department of Buildings’ Proposed Rules
Local Law 97 of 2019 Rulemaking
Following on rulemaking from November 2022,[1] DOB’s two new proposed rules for LL97 primarily address (i) LL97’s penalty provisions, (ii) the requirements that an owner must meet for penalty mitigation, and (iii) the requirements for “exempt” properties not subject to LL97’s mandatory GHG emissions limits.
LL97’s penalty mitigation provision has been a source of contention between the Mayor’s Office and the City Council for some time now.[2] LL97 expressly provides DOB with the authority to reduce statutory penalties where owners have made “good faith efforts” to comply with the law but were unable to do so. Though the penalty mitigation language was crafted by the City Council, many councilmembers have been outspoken in their desire to see DOB issue the maximum penalties available under LL97 in all circumstances. The Adams administration, on the other hand, has tried to balance the heavy burdens on building owners resulting from LL97 with the benefits of GHG emissions, and has taken the position that levying fines on building owners who have made good faith efforts to comply with LL97 would be counterproductive. The proposed rule from DOB will likely leave neither the City Council, the environmental community, nor building owners entirely happy.
The first proposed rule defines what constitutes “good faith efforts” for purposes of penalty forgiveness, and outlines the steps a building owner will need to take to apply for penalty mitigation. The proposed rule does not, however, suggest what the penalty mitigation might be, apparently leaving this issue entirely to the discretion of DOB. Further, the proposed rule only applies to LL97’s initial compliance period (2024-2029), a period in which the City projects that roughly 90% of covered buildings will already be in compliance. The penalty mitigation provisions do not extend to the 2030-2034 compliance period, when GHG emissions limits become much more stringent, and when an expected 75% of covered buildings might be out of compliance.
In order to apply for penalty mitigation, a building owner will need to meet three threshold requirements, then demonstrate one of six circumstances that constitute good faith efforts. The threshold requirements are (1) submission of the annual building energy performance report in compliance with LL97; (2) submission of a certification that the building is in compliance with the lighting upgrades and submetering requirements pursuant to LL88; and (3) submission of energy benchmarking data in compliance with Local Law 84 of 2009. Once these threshold requirements are met, the building owner must then establish one of the six pathways for good faith efforts. These include:
The proposed rule provides DOB with the discretion to enter into mediated resolutions with building owners who demonstrate good faith efforts. The mediated resolution would allow DOB to enter into agreements with building owners whereby DOB would agree not to bring an enforcement proceeding for LL97 penalties in exchange for the building owner’s agreement to bring the building into compliance. Any such agreement must be based on a plan to bring the building into compliance, and will likely include required benchmarks to be met by the building owner. The owner’s failure to abide by the plan would result in the commencement of an enforcement action by DOB.
Our sense is that the proposal is not likely to provide significant relief to the regulated community. The penalty mitigation provisions will apply to only a small percentage of building owners (~10%). Those owners will need to jump through significant hoops to establish that they made good faith efforts, including foregoing the ability to use RECs as a means of compliance. And the amount of penalty mitigation available is unknown and completely within the discretion of DOB. In order for the penalty mitigation to be meaningful to building owners, DOB would need to extend the provisions to cover the 2030-2034 compliance period, when emissions limits become much more stringent, and allow building owners to use RECs as a means of compliance as is expressly provided for in LL97. On the other hand, any effort by DOB to mitigate LL97 penalties, for current or future compliance periods, will likely be viewed by many on the City Council and in the environmental community as an effort to weaken LL97.
Many in the regulated community have viewed LL97’s main goal as a push to electrify all NYC buildings. This is, at least in part, due to the fact that LL97, while purporting to be aimed at reducing GHG emissions, provides no credit for GHG emissions reduction technologies, such as carbon capture systems, or the use of renewable fuels. The proposed rule reinforces this notion by providing a credit to building owners who take steps to electrify their buildings. Building owners that undertake “beneficial electrification” measures (defined to include “the installation and use of energy efficient electric-based heating, cooling and domestic hot water systems to displace the use of fossil fuel sources”) may separately meter those systems and apply a negative GHG emissions factor to the energy used by those systems. The credit generated by this negative GHG emissions factor can be used by a building owner in the compliance year in which it was generated, or, if the building is compliant in the year the credit was generated, the credit can be banked by the building owner for use in a future compliance year (through 2036) when the building is not in compliance.
The second proposed rule addresses the compliance requirements for buildings that are “exempt” from LL97. Certain building types, such as garden-style apartments, rent-regulated apartment buildings and houses of worship, are exempt from the GHG emissions limits established by LL97. These buildings, however, are nonetheless required to implement and demonstrate compliance with prescriptive energy efficiency measures. These measures include items such as temperature set points for building heat and hot water systems, dwelling unit temperature controls, heating system leak repairs, and insulation for piping and steam and hot water tanks. The proposed DOB rules clarify what these measures entail, and require building owners to certify that all such measures have been implemented by December 31, 2024. The proposed rules also establish a penalty of $10,000 per building for non-compliance.
Local Law 88 of 2009 Rulemaking
Finally, DOB also proposed a rule aimed at implementation of LL88. LL88 requires building owners to upgrade lighting systems and to install electric submeters for certain tenant spaces by January 1, 2025. The proposed rules clarify the reporting requirements for LL88 and provide penalties for non-compliance.
The above analysis is not an exhaustive review of the proposed rules, but highlights what we believe to be the most significant provisions in the proposed rules. Our team of LL97 attorneys at Stroock has developed a multi-disciplinary approach to assist clients with all aspects of the LL97 -- assessment, compliance, adjustments, PACE financing, leasing, and diligence issues. Please contact any of our CMA attorneys for additional information.
[1] Previous rulemaking primarily addressed building emissions calculation issues and restricted the use of renewable energy certificates (RECs). See our previous Stroock Client Alert here.
[2] See, Tensions Evident as Adams’ Administration Prepares to Implement the Climate Mobilization Act.
September 22, 2023
Client Alert
By: Raymond "Rusty" Pomeroy II
Conditions Attached to LL97 Relief Provisions Will Likely Negate Positive Impacts for Most Building Owners
On September 12, 2023, the New York City Department of Buildings (“DOB”) released three new rules proposals geared towards DOB’s ongoing efforts to implement Local Law 97 of 2019 (“LL97”) and Local Law 88 of 2009 (“LL88”). In conjunction with the release of the proposed rules, Mayor Adams launched the City’s “Getting 97 Done” plan, billed as “a comprehensive plan to cut harmful carbon emissions from the city’s large buildings . . . .” The proposed rules and the Getting 97 Done plan can be found here and here.
A public hearing will be held on the two proposed LL97 rules at 11:00 a.m. on October 24, 2023. A public hearing on the proposed LL88 rule will be held at 11:00 a.m. on October 26, 2023. Information regarding attending the public hearings and/or submitting comments on the proposed rules can be found here.
LL97 requires owners of covered buildings to meet strict greenhouse gas (GHG) emissions limits starting in 2024. The City estimates that 12-15 billion dollars in energy efficiency investments will need to be made in order to comply with the GHG emissions requirements by 2030, and that only 5-6 billion dollars of that investment would pay for itself with energy efficiency savings. Owners must annually submit to DOB energy use reports calculating the GHG emissions from their building. If actual emissions from the building are higher than the GHG emissions established under LL97, the building owner can face steep penalties.
Department of Buildings’ Proposed Rules
Local Law 97 of 2019 Rulemaking
Following on rulemaking from November 2022,[1] DOB’s two new proposed rules for LL97 primarily address (i) LL97’s penalty provisions, (ii) the requirements that an owner must meet for penalty mitigation, and (iii) the requirements for “exempt” properties not subject to LL97’s mandatory GHG emissions limits.
LL97’s penalty mitigation provision has been a source of contention between the Mayor’s Office and the City Council for some time now.[2] LL97 expressly provides DOB with the authority to reduce statutory penalties where owners have made “good faith efforts” to comply with the law but were unable to do so. Though the penalty mitigation language was crafted by the City Council, many councilmembers have been outspoken in their desire to see DOB issue the maximum penalties available under LL97 in all circumstances. The Adams administration, on the other hand, has tried to balance the heavy burdens on building owners resulting from LL97 with the benefits of GHG emissions, and has taken the position that levying fines on building owners who have made good faith efforts to comply with LL97 would be counterproductive. The proposed rule from DOB will likely leave neither the City Council, the environmental community, nor building owners entirely happy.
The first proposed rule defines what constitutes “good faith efforts” for purposes of penalty forgiveness, and outlines the steps a building owner will need to take to apply for penalty mitigation. The proposed rule does not, however, suggest what the penalty mitigation might be, apparently leaving this issue entirely to the discretion of DOB. Further, the proposed rule only applies to LL97’s initial compliance period (2024-2029), a period in which the City projects that roughly 90% of covered buildings will already be in compliance. The penalty mitigation provisions do not extend to the 2030-2034 compliance period, when GHG emissions limits become much more stringent, and when an expected 75% of covered buildings might be out of compliance.
In order to apply for penalty mitigation, a building owner will need to meet three threshold requirements, then demonstrate one of six circumstances that constitute good faith efforts. The threshold requirements are (1) submission of the annual building energy performance report in compliance with LL97; (2) submission of a certification that the building is in compliance with the lighting upgrades and submetering requirements pursuant to LL88; and (3) submission of energy benchmarking data in compliance with Local Law 84 of 2009. Once these threshold requirements are met, the building owner must then establish one of the six pathways for good faith efforts. These include:
The proposed rule provides DOB with the discretion to enter into mediated resolutions with building owners who demonstrate good faith efforts. The mediated resolution would allow DOB to enter into agreements with building owners whereby DOB would agree not to bring an enforcement proceeding for LL97 penalties in exchange for the building owner’s agreement to bring the building into compliance. Any such agreement must be based on a plan to bring the building into compliance, and will likely include required benchmarks to be met by the building owner. The owner’s failure to abide by the plan would result in the commencement of an enforcement action by DOB.
Our sense is that the proposal is not likely to provide significant relief to the regulated community. The penalty mitigation provisions will apply to only a small percentage of building owners (~10%). Those owners will need to jump through significant hoops to establish that they made good faith efforts, including foregoing the ability to use RECs as a means of compliance. And the amount of penalty mitigation available is unknown and completely within the discretion of DOB. In order for the penalty mitigation to be meaningful to building owners, DOB would need to extend the provisions to cover the 2030-2034 compliance period, when emissions limits become much more stringent, and allow building owners to use RECs as a means of compliance as is expressly provided for in LL97. On the other hand, any effort by DOB to mitigate LL97 penalties, for current or future compliance periods, will likely be viewed by many on the City Council and in the environmental community as an effort to weaken LL97.
Many in the regulated community have viewed LL97’s main goal as a push to electrify all NYC buildings. This is, at least in part, due to the fact that LL97, while purporting to be aimed at reducing GHG emissions, provides no credit for GHG emissions reduction technologies, such as carbon capture systems, or the use of renewable fuels. The proposed rule reinforces this notion by providing a credit to building owners who take steps to electrify their buildings. Building owners that undertake “beneficial electrification” measures (defined to include “the installation and use of energy efficient electric-based heating, cooling and domestic hot water systems to displace the use of fossil fuel sources”) may separately meter those systems and apply a negative GHG emissions factor to the energy used by those systems. The credit generated by this negative GHG emissions factor can be used by a building owner in the compliance year in which it was generated, or, if the building is compliant in the year the credit was generated, the credit can be banked by the building owner for use in a future compliance year (through 2036) when the building is not in compliance.
The second proposed rule addresses the compliance requirements for buildings that are “exempt” from LL97. Certain building types, such as garden-style apartments, rent-regulated apartment buildings and houses of worship, are exempt from the GHG emissions limits established by LL97. These buildings, however, are nonetheless required to implement and demonstrate compliance with prescriptive energy efficiency measures. These measures include items such as temperature set points for building heat and hot water systems, dwelling unit temperature controls, heating system leak repairs, and insulation for piping and steam and hot water tanks. The proposed DOB rules clarify what these measures entail, and require building owners to certify that all such measures have been implemented by December 31, 2024. The proposed rules also establish a penalty of $10,000 per building for non-compliance.
Local Law 88 of 2009 Rulemaking
Finally, DOB also proposed a rule aimed at implementation of LL88. LL88 requires building owners to upgrade lighting systems and to install electric submeters for certain tenant spaces by January 1, 2025. The proposed rules clarify the reporting requirements for LL88 and provide penalties for non-compliance.
The above analysis is not an exhaustive review of the proposed rules, but highlights what we believe to be the most significant provisions in the proposed rules. Our team of LL97 attorneys at Stroock has developed a multi-disciplinary approach to assist clients with all aspects of the LL97 -- assessment, compliance, adjustments, PACE financing, leasing, and diligence issues. Please contact any of our CMA attorneys for additional information.
[1] Previous rulemaking primarily addressed building emissions calculation issues and restricted the use of renewable energy certificates (RECs). See our previous Stroock Client Alert here.
[2] See, Tensions Evident as Adams’ Administration Prepares to Implement the Climate Mobilization Act.
