San Francisco’s Acting Permit Services Manager and former Chief Building Inspection Officer, Laurence Kornfield, recently announced creation of a “sustainability plan” as one of every building owner and manager’s “must do’s” in 2009. Kornfield is right: whatever the market may bring in 2009, it is surely just the beginning of increased environmental regulation for buildings. While the exact requirements of coming regulations are not clear now, the types of regulations that will follow are increasingly foreseeable, and can be planned for in advance.
Energy use and related activities by buildings are the second largest contributor to California’s greenhouse gas emissions. Almost one-quarter of California’s greenhouse gas emissions can be attributed to buildings. In response, the building sector is increasingly subject to state and local mandates to operate more efficiently, reduce its carbon footprint, and disclose energy use. For instance, on and after January 1, 2010, California’s newly passed AB 1103 will require that a nonresidential building owner or operator disclose Energy Star Portfolio Manager benchmarking data and ratings, for the most recent 12-month period, to a prospective buyer, lessee, or lender. Building owners should begin preparing for this now.
Similarly, twenty-seven cities and counties in California, including San Francisco, have now enacted green building standards, typically by incorporating the LEED and Build It Green rating systems. In addition, the California Air Resources Board passed its Scoping Plan in December, 2008, which lays out the state’s long-term policies for reducing greenhouse gas emissions. A few of the policy recommendations affecting buildings in the Scoping Plan that will guide future lawmaking include: making the state’s voluntary Green Building Standard Code mandatory in 2011; requiring 25 percent of all new buildings to reduce energy and water consumption by at least 25 percent beyond code by 2011; and establishing a state environmental performance rating system for homes and commercial buildings to replace third-party rating systems, as well as creating retrofit regulations. Such policies will set the trend for future rulemaking in the building sector.
The existing green building mandates, as well as the anticipated future regulations, can be economically friendly, if planned for effectively. Statistics show that a 30 percent reduction in energy consumption can lower operating costs by $25,000/yr for every 50,000 square feet of office space. For every $1 invested in energy efficiency, asset value increases by an estimated $3. And though costs can vary widely, the United States General Services Administration recently noted it has been able to consistently build LEED Silver buildings within a budgeted 2.5 percent cost premium, and often cost-neutrally. Sustainability planning is about easing this burden and taking advantage of these efficiencies.
What is a sustainability plan?
A sustainability plan is a long-term road map of actions items and policies for how the buildings you own, manage, or are building will keep pace with increasing climate-change regulation, as well as market pressures for “green buildings.” This may include:
• Familiarize staff with the LEED, Build It Green, and other rating systems.
• Determine how green building is changing your market, both in terms of market expectations and how you will structure rental rates.
• Determine how to respond to a tenant’s claim that its build out adds LEED points to the building, and the rent should be reduced to reflect this.
• Establish procedures to track regulations and incentives.
Legal aspects of a sustainability plan may include:
• Revise standard leases to be consistent with your sustainability plan: This could include (i) modifying the operating expense provisions to allow for recovery of specified green building costs; (ii) confirm tenant’s obligation to construct improvements and alterations in compliance with your green building standards; (iii) provide for specified maintenance procedures; (iv) require tenants to comply with other green building policies and regulations; and (v) impose penalties for violation of these provisions.
• Update contracts, RFPs, and RFQs to reflect that green building experience is required.
• Strategize for addressing experimental or innovative systems, such as extended warranties or performance guarantees.
• Satisfy any lender requirements for existing loans or refinances.
Now is the time to start planning for what will surely become a more complex regulatory environment. Contact Reuben & Junius LLP to discuss sustainability planning for your operation or development, and how to make the transition to the new green building world as smooth as possible.
There are a number of excellent resources on sustainability planning and incentives available for free. Here are some of the best:
Best Practices Guide: Commercial Office Buildings
Green California: Resources Library
Flex Your Power Rebates & Incentives Finder
California Air Resources Board Scoping Plan (http://www.arb.ca.gov/cc/scopingplan/document/psp.pdf)
San Francisco Green Building Initiatives (http://www.sfenvironment.org/our_programs/topics.html?ssi=8&ti=19#LegislationInitiatives)
San Francisco Solar Power Initiatives (http://sfwater.org/detail.cfm/MC_ID/12/MSC_ID/139/MTO_ID/361/C_ID/3910)