The Chicago City Council recently passed the Building Energy Use Benchmarking Ordinance of the City of Chicago1 (the "Ordinance"), and as a result have joined eight major cities and two states2 that require some form of energy benchmarking for buildings. While there are some exceptions, described below, the Ordinance generally obligates the owners of buildings that contain more than 50,000 square feet to submit information to ENERGY STAR Portfolio Manager, a free tool administered by the United States Environmental Protection Agency, to create a benchmark of energy consumption for buildings covered by the Ordinance. The benchmark will then be shared with both the City, and ultimately, the public.
The Ordinance allows for staggered reporting, based on the square footage of the building and the use of the building. A summary of this timeline is set forth below, subject to the exceptions also set forth below.
June 1, 2014: Any building, or group of buildings with the same PIN, containing 50,000 or more square feet (excluding buildings with at least 10% residential occupancy)
June 1, 2015: Any building, or group of buildings with the same PIN, containing between 50,000 and 250,000 square feet (excluding buildings with at least 10% residential occupancy)
Any building, or group of buildings with the same PIN, containing 250,000 or more square feet and containing at least 10% residential occupancy
June 1, 2016: Any building, or group of buildings with the same PIN, containing between 50,000 and 250,000 square feet and containing at least 10% residential occupancy
Exceptions and Exemptions
The Ordinance does not require owners of certain types of buildings to participate in the benchmarking. The Ordinance does not mandate benchmarking where more than 10% of the building is used for industrial facilities, storage units, or hazardous use units. In addition, the commissioner may, for any particular calendar year, exempt the owner of a building from benchmarking if the building is presently facing financial distress,3 the building had average physical occupancy of less than 50% for the benchmarking period, or the building was newly constructed and the certificate of occupancy was issued during that same calendar year.
Failure to comply with the Ordinance will subject the owner to a fine of up to $100 for the first violation and an additional fine of up to $25 per day that the particular violation continues.
While energy consumption information about an individual building will be available to the City of Chicago after reporting, such information will not be available to the public for any particular building in connection with the building's first year of required benchmarking. Information about a building's energy consumption will be available publically with respect to the second and subsequent calendar years of a building's required benchmarking. In no year, however, will the City of Chicago release reported benchmarking information for buildings with more than 10% of floor space dedicated to data centers, TV studios, or trading floors.
In addition to an owner's decision about whether or not to improve energy efficiency in its building as a result of the upcoming transparency associated with the Ordinance, an owner (as well as tenants and property managers) should consider other implications. First, the Ordinance requires that an owner maintain the building's tracked information for a minimum of the three years after the reporting of the information, and that all information transmitted pursuant to the Ordinance be verified in connection with the first year of reporting, and every three years thereafter, by a licensed architect, engineer or other professional recognized by the City.4 Owners should review their existing property management agreements to determine whether the agreements are flexible enough to require the property manager to collect and submit the information required for benchmarking and retain information in an acceptable manner. Second, the Ordinance requires tenants to provide necessary information to the landlord in connection with the building's benchmarking when all necessary energy information cannot otherwise be obtained by the owner. Owners should consider whether this obligation is addressed in their existing and proposed leases. In addition, owners should review their leases to ensure that tenants are required to cooperate generally with actions taken by the owner with respect to energy efficiency. Third, tenants should anticipate that some landlords will endeavor to upgrade certain features of a building to improve energy efficiency and should determine whether the costs of those improvements can be passed through as operating expenses under their leases.
The Ordinance presents new obligations and opportunities for building owners and tenants in Chicago.5 Building owners and operators will need to take appropriate actions so that they can comply with the Ordinance and recoup costs associated with energy efficiency improvements, where appropriate. Similarly, tenants will need to pay particular attention to the Ordinance, and the implications, financial and otherwise, that flow from being a tenant in a building that is subject to the Ordinance.
1 Title 18 of the Municipal Code of Chicago will be amended to add Chapter 18-4.
2 New York City, Philadelphia, Washington, D.C., Minneapolis, Boston, Seattle, Austin, San Francisco, California, and Washington State
3 The Ordinance provides that, in order to show financial distress, the building must either (i) be the subject of a qualified tax lien sale or public auction due to property tax arrearages, (ii) be controlled by a court appointed receiver, or (iii) have been acquired by a deed in lieu of foreclosure.
4 The licensing requirement may be waived if the verification would cause undue financial hardship.
5 The City of Chicago estimates that the Ordinance will apply to approximately 3,500 existing buildings.
*This post was initially published on September 24, 2013, as a Practice Alert by Jenner & Block’s Real Estate group.