How Realistic is New York's Local 97 Law?

In this article, you'll learn:

• The impact of New York's Local Law 97 on building owners.
• The financial burden of meeting carbon neutrality standards.
• Why property owners face challenges with expensive upgrades.
• How tenants can protect themselves from cost pass-throughs with proper lease safeguards.

New York’s Local 97 Law represents a drastic attempt to reduce the city’s carbon footprint through enforcing carbon neutrality in its building sector. While sustainability is all well and great, it offsets the responsibility (and costs) of becoming carbon neutral onto property owners rather than providing an actionable system for easing into carbon neutrality.

Local Law 97 is more of a total war against NYC building owners, forcing them to adapt or die. Well, maybe not die, but failure to jump on board will possibly result in being buried under smothering fines. 

This begs the question, how realistic are the parameters for the new law? Let's discuss. 

New York's Local Law 97

Local Law 97 is a part of the New York Climate Mobilization Act which was passed in April of 2019. It placed greenhouse gas emission limits on commercial buildings larger than 25,000 square feet. Properties that exceed the limits are set to face fines of $268 per metric ton over the limit starting in 2024 with stricter standards plotted to begin in 2030. 

These restrictions are set to disproportionality affect commercial real estate buildings which are responsible for a huge chunk of the total global emissions.

The Financial Weight of Keeping in Code

Rather than wading into new restrictions, extreme fines are set to be levied this year on large scale buildings that don’t meet the strict requirements.

According to the study conducted by Level Infrastructure and commissioned by the Real Estate Board of New York, $200 million in fees may begin in New York next year on the projected 3,700 properties that do not make code.

But this introduces quite a significant question: who’s paying for all this?

Commercial property owners as a whole are not really in a position to take on the cost of multi-million-dollar green retrofits now (or the financial consequences of not doing so).

According to the New York-based legal firm, Pardalis and Nohavicka, “The results could be costly, as the owners could not only be hit with millions of dollars in fines but would still need to shell out millions of dollars in construction costs to remedy their problems. In addition to the potential legal fees to remedy the problem, the owners would have to get an energy auditor to prepare an energy audit report and then hire a commercial attorney to prepare an Energy Consulting Agreement to cover their building owners from future liability.”

In the wake of the WFH revolution, office demand is at record lows. It’s harder than ever for commercial landlords to find long-term tenants. Pressure mounted from high interest rates and inflation has already caused some of the country’s largest landlords to default on their loans. So, it’s safe to say that many CRE owners can’t afford millions of dollars in fines right now. 

But, unfortunately, if they want to keep their buildings, New York landlords really don't have a choice.

The Cost of Environmental Building Upgrades

To meet the requirements of Local Law 97, large-scale building owners must implement green retrofitting measures. And this is a big job, especially for older buildings. Construction is set to be a lengthy and extremely expensive feat.

Attorneys Pardalis and Nohavicka, predict that “This could translate into significant additional construction costs totaling in excess of over a million dollars in costs for multi-million-dollar commercial buildings, including the owners securing indoor air quality sensors, HVAC air cooling systems, installing dual fuel and natural gas and renewable energy conversion systems, low flow water fixtures, high efficiency boilers and heat controls and automated building and energy management systems and software. “

That’s quite a lot but in reality, costs required to transform a building to carbon neutrality will supersede the multi-million-dollar price mark. Because it demands a whole level of technological integration.

Let’s put it into perspective. Even if the only upgrade a property owner needed to make was retrofitting their building with new electric heating and cooling systems, you still may be faced with a total upheaval of your systems because of how rapidly carbon neutral technology has been introduced.

According to Darrell Wheeler, Vice President and Senior Credit Officer at Moody’s. “Even if you got a new HVAC system over the last four years, it is not likely zero carbon…The standard of zero emissions requires you to consider other technologies that are available but expensive. This means your previous equipment is suddenly obsolete."

Beyond HVAC systems though, to meet code building owners may be expected to make novel upgrades. Attorneys Pardalis and Nohavicka continued that, “Additionally, high rise buildings may be required to acquire roof solar panels and incur the cost of landscaping in planting trees and a vegetable garden on rooftops to further reduce the potential for extra carbon emissions. In addition to procuring higher building insurance and incurring higher construction costs, this could prove to be a costly venture.”

How Realistic New York's Plan for Decarbonization? 

Now that we understand the sheer cost of upgrades, the drastic nature of the law can fully set in. Concerns are mounting from property owners and the tenants in buildings who may not make code as repercussions will begin within the year.

One City Council member in Queens even proposed legislation that seeks to delay the law’s implementation for seven years, giving it a more realistic timetable for mass- adoption. Even though the proposal is not likely to be passed, it represents a very real legislative force believes the law to be currently inactionable.

So even though the Local 97 Law is not a reasonable or cheap edict, its affects are set to be very real.

Property owners who do not meet code may be forced to default on loans or hand their keys back to the bank if they can’t uphold the financial responsibility for upgrades. And “gas guzzler” buildings will be further devalued against the backdrop of premium, carbon neutral properties.

As a commercial tenant, you should be keenly aware of your role in this cycle. Because in the midst of a time here landlords are already suffering, they are now faced with multi-million-dollar upgrades and fines.

As a result, they will undoubtedly be looking to offset their cost of green retrofits. If you are not protected in your lease, they may attempt to pass-through some of these costs to you if you are occupying a building that doesn’t meet code. So, if you’re not already aware of your building’s emission data, it is time to become aware. And, know that this is not only happening in New York. Learn what other cities and states have strict environmental laws on buildings in More Pressure on Corporate Tenants to Adopt LEED Standards.

Protect Your Interests With a True Tenant Rep™ 

While not ideal or necessarily realistic, Local Law 97 is happening and now is the time to take safeguards to protect yourself. But, with an almost innumerable number factors to consider, it can feel like an impossible feat. Especially since a lot of these regulations are very new, there’s a lot of uncharted territory as to who is footing the bill or environmental upgrades. So a good Tenant Representative is all the more important. They can take a hard look at your existing or new lease to identify the areas where you are vulnerable to cost hikes.

These restrictions are starting fines this upcoming year. So, there’s no time to waste. Take a look at how your budget may be implicated when these regulations take effect by working with a True Tenant Rep^™ at iOptimize Realty^® today. A True Tenant Rep^™ will help ensure that your budget will be protected from the financial consequences of adopting green restrictions. 

Talk to a True Tenant Rep^™ today.