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Another Disclosure Requirement for Commercial Real Estate

As part of California legislation to help reduce greenhouse gas emissions and the state’s energy usage, Assembly Bill 1103 goes into effect September 1, 2013 and applies to all commercial real estate over 5,000 square feet.

All commercial building owners in California will be required to disclosure the energy and water usage prior to the sale, leasing or financing of the entire building. Originally to become law July 1, AB 1103 will be implemented September 1, 2013. The regulation requires the registration of a commercial

building in the EPAs Energy Star Portfolio Manager Benchmarking Tool and the past 12 months utility and water usage entered into the system.

“While AB1103 does not regulate the energy consumption of commercial buildings, it creates awareness of energy consumed by commercial buildings by requiring energy-use performance of a building be disclosed. It will result in a “commercial valuation of energy use” during a financial transaction, just as location, size and other factors affect the financial value of a building,” according to Charles Orr of Pegasus Energy Solutions.

This new bill is part of the California Global Warming Solutions Act of 1996, AB 32. It was determined that commercial buildings account for more than 35% of the electrical consumption in California and is a major contributor to the state’s greenhouse emissions according to Chuck Colgan of the California Center for Sustainable Energy.

There are specific criteria to determine if your commercial building complies with the disclosure requirement. Compliance must be adhered to if the entire building is sold, leased or financed and the building is 50,000 square feet or more. However, beginning January 1, 2014 the square foot requirement drops to 10,000 and on July 1, 2014 to 5,000. Commercial buildings less than 5,000 square feet are not required to comply.

“AB 1103 is a significant game changer across California because it demands a true comparison of building performance with other, similar facilities within the same industry sector, not simply a disclosure of monthly utility costs and energy consumption,” says Beth Brummitt, president of Brummitt Energy Associates. “Even though building owners may think this is going to harm them, it will actually provide motivation to improve building energy performance, resulting in increased net operating income and enhanced property values.”

To use the free service, go to the Energystar.gov website and follow the link “buildings & plants” to sign up. From there you can add a property and enter the data requested. For large properties or complicated utility systems it may be best for building owners to hire a professional service provider. A list of providers can be found on the website.

Several reports can be created, but four are required as part of the disclosure and can be printed directly from the website. The standardized reports include a disclosure summary sheet, a statement of energy performance, a data checklist and a facility summary.

These reports must be provided to the other party involved within 24 hours of the execution of a purchase agreement, lease or loan application.

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