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March 2, 2020

Stroock Special Bulletin

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

This Stroock Special Bulletin focuses on the relief provisions, referred to as “adjustments,” which may be available to owners of covered buildings under New York City’s Climate Mobilization Act of 2019 (the “Act”). Here, we build on the overview of the Act provided in our initial bulletin. (See “The NYC Climate Mobilization Act: How to Prepare and What You Need to Know, January 16, 2020.”)

The Act establishes strict greenhouse gas emissions limitations for covered buildings beginning in 2024. These emissions limitations become increasingly stringent over time — in five-year compliance intervals — and there are significant monetary penalties attached to emissions that exceed the limitation. The City’s stated goal is to reduce greenhouse gas emissions from covered buildings by at least 40% by 2030 and 80% by 2050.

Owners of covered buildings will likely comply with the new emissions limitations through some combination of building energy efficiency retrofits and alternative compliance measures (e.g., the purchase of renewable energy credits or carbon offsets, and distributive energy resources such as on-site solar, wind or battery storage). The Act, though, also includes a process for owners of covered buildings to apply for adjustments to a building’s prescribed emissions limitation.

There are significant limitations on the adjustments available to owners, and building owners must be prepared to make certain factual showings for their applications to be considered. Ultimately, whether these adjustments are granted is within the discretion of the Department of Buildings (the “Department”) — although the Board of Standards and Appeals and New York courts will have the jurisdiction to review the agency’s decisions. For this reason, owners should carefully build a record supporting their requests for adjustments at the initial stages of the process. A subsequent alert will detail the limitations of the appeal process for the Department’s decisions, underscoring the need to act early in setting your record.

The Adjustments

The Act authorizes the following categories of adjustments, each of which is described in more detail below:

• Legal or physical barriers to compliance

• Financial hardship

• High energy use buildings

• Not-for-profit hospitals and healthcare facilities

Each of the above adjustments has its own requirements and limitations. Adjustments due to legal or physical barriers, financial hardship, or high energy use buildings are granted in the discretion of the Department, while adjustments for not-for-profit hospitals and healthcare facilities are as of right.

1. Legal or physical barriers to compliance

The Act provides that the Department may grant an adjustment to a building’s annual emissions limit, provided the owner is complying with the Act to the maximum extent practicable, where the Department makes a specific determination that:

(i) capital improvements (i.e., retrofits) are necessary to bring the building into compliance, and such improvements are not reasonably possible due to either a legal (e.g., landmarks designation, or location within a historic district), or physical barrier (e.g., lack of access to energy infrastructure, space constraints, or lack of access to leased spaces);

(ii) the owner made good faith efforts to purchase carbon offset credits to comply, but credits were not available at a reasonable cost; and

(iii) the owner availed itself of all funding sources/incentive programs for which it could reasonably participate.

The adjustment for legal or physical barriers to compliance is effective for only three years, and the Act is silent as to whether an owner may reapply after the initial adjustment period ends.

2. Financial Hardship

Like the adjustment for legal and physical barriers, an applicant for an adjustment due to financial hardship must establish that it is complying with the Act to the maximum extent practicable. Further, the Department must make the following specific determinations:

(i) the costs to implement necessary capital improvements would prevent the owner from earning a reasonable financial return on the use of the building, or the building is subject to “financial hardship”

a. Pursuant to the Act, a building is subject to financial hardship if (1) in the two years prior to the adjustment application the building was on the Department of Finance tax lien sale list due to either delinquent property, water or wastewater taxes, or balances due under the Department of Housing Preservation and Development’s emergency repair program; or (2) the building is tax exempt due to not-for-profit or religious status and the owner had negative revenue in the two years prior to the adjustment application.

(ii) the owner is not eligible for any funding programs to finance energy efficiency measures (such ineligibility must be demonstrated by rejection letters).

The adjustment for financial hardship cannot be effective for more than one year, and the Act is silent as to whether an owner can reapply after the initial adjustment period ends.

3. High Energy Use Buildings

The Act provides potential relief for buildings where 2018 actual emissions are more than 40% higher than its proscribed 2024 emissions limit. Like previous adjustments, this adjustment is discretionary. In order to be considered for a high energy use adjustment, the building owner must demonstrate that:

(i) the excess emissions are caused by a special circumstance related to the use of the building (e.g., 24 hour operations, operations critical to human health and safety, energy intensive communications technologies or operations, and industrial process);

(ii) the building is in compliance with the NYC energy conservation code in effect on January 1, 2015; and

(iii) the owner has submitted a compliance plan including changes to building operations, management and potential alterations that will ensure compliance with the emissions limitations starting in 2030.

The amount of the adjustment for a high energy use building is established by the Act, and must result in an emissions limit that is 70% of the building’s 2018 emissions. The adjustment can last for the entire initial compliance period, and may be renewed for the second compliance period beginning in 2030, provided the adjustment for 2030 must result in an emissions limit that is 50% of the 2018 emissions.

4. Not-for-profit hospitals and healthcare facilities

The adjustment for not-for-profit hospitals and healthcare facilities is the only as-of-right adjustment in the Act. Last-minute lobbying from the healthcare sector is largely responsible for its inclusion. To receive the adjustment, a building must be classified as a not-for-profit hospital, health center or HIP center as of the date of the Act, and it must apply for the adjustment by the statutory deadline.

The Act sets the building’s adjusted emissions limit at 85% of the building’s 2018 actual emissions for the initial (2024-2029) compliance period, and 70% of 2018 emissions for the second (2030-2034) compliance period.

Application Deadline and Fees

All applications must be submitted to the Department by July 21, 2021. While there is currently no fee schedule attached to the application process, the Act provides that the Department may establish application fees by rule, and we suspect such a rule to be forthcoming.

Conclusion

With the exception of the adjustment for not-for-profit hospitals and health centers, each of the potential adjustments requires affirmative showings by applicants and discretionary determinations by the Department. Among the things owners will have to establish are good faith efforts to comply with the Act to the maximum extent practicable. This showing will, we believe, require that owners attempt to purchase renewable energy credits and/or carbon offsets, and apply for potentially available energy efficiency grants or loan programs. In addition, this showing may require some operational changes or energy efficiency retrofits, even if they would not, in the aggregate, be sufficient to bring the building’s emissions into compliance with its emissions limitation. We also believe the Department will require studies of potential mitigation measures to be completed by the adjustment application deadline date, and that each building have an implementation schedule in place prior to the initial compliance period.

The application deadline of July 21, 2021, is fast approaching, leaving owners of covered buildings a tight deadline to establish a basis for adjustments or to develop long-term compliance plans. Owners interested in pursuing adjustments should plan for those applications now, and develop detailed records to support their applications and an appeal of denials by the Department.

______________________________

For More Information:

Raymond "Rusty" N. Pomeroy II

Brian Diamond?

Karen Scanna

Ross F. Moskowitz

Joseph B. Giminaro

Jennifer S. Recine

Trevor T. Adler

This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.

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