New York City Local Law 97: A Groundbreaking Climate Change Regulation for the Real Estate Industry

Buildings account for more than 70% of the greenhouse gas emissions in New York City (NYC). To address this problem, NYC has enacted a first-of-its-kind regulation, Local Law 97 (LL97), which establishes increasingly stringent emissions caps on approximately 40,000 buildings in NYC starting in 2024 until 2050, requiring property owners to either retrofit their buildings in order to comply with the law or face a financial penalty. LL97 was a key piece of legislation passed under the Climate Mobilization Act of 2019 (CMA), a set of local laws designed to enable NYC to achieve its goal of carbon neutrality. As a result of LL97, carbon emissions produced by covered buildings under the law are expected to decrease by 40% by 2030 and by 80% by 2050.

LL97 will apply to most NYC buildings that are larger than 25,000 square feet. The list of buildings covered is available here. The legislation sets increasingly stringent greenhouse gas emissions limits over five-year intervals for different buildings based on their occupancy group. To determine the annual building emissions intensity limits, the legislation uses a formula that multiplies the gross floor area of a building by the emissions intensity limit for the building’s particular occupancy group (e.g., office, retail, industrial, hotel). For multiple-use buildings (i.e., buildings that include more than one occupancy group), the maximum annual emissions intensity limit is derived by multiplying the square footage for each occupancy group by its respective emissions limit per square foot and summing across all use categories. Starting on May 1, 2025, building owners will be required to submit annual building reports documenting emissions and compliance with emissions limits. Failure to file an annual report will result in a fine of $0.50 per square foot per month. Furthermore, falsifying reports or statements on compliance with LL97 carries a $500,000 fine and up to 30 days’ imprisonment.

Although LL97 applies to most large commercial and residential buildings in NYC, there are a few exceptions, including buildings in which more than 35% of units are rent regulated (regardless of whether they contain units with income restriction); Housing Development Fund Corp. cooperatives; buildings that include federal project-based assistance; city-owned buildings and classified religious places of worship. Notwithstanding a few limited exceptions, LL97 is expected to be strictly enforced, and building owners need to start thinking now about methods of compliance for emissions limits in 2024 and 2030. Although some buildings subject to LL97 already employ energy-efficient systems and equipment, others will need to significantly upgrade and retrofit their systems in order to comply with the law.

According to a recent study based on 2019 benchmarking energy data, commissioned by the Real Estate Board of New York and conducted by engineering consulting firm Level Infrastructure, 3,700 properties are expected to be out of compliance in 2024 and 13,500 by 2030. The NYC Department of Buildings estimates that approximately 20% – 25% of buildings will be out of compliance in 2024 and 75% – 80% of buildings in 2030 if building owners do not take steps to bring buildings into compliance with the law. While a large number of buildings will experience some financial penalty without taking action due to the aggressive emissions limits set under the law, owners of aged buildings in need of large capital expenditures may find that it is actually less expensive to pay the hefty annual fine of $268 per ton of carbon than to invest in energy-efficient technologies.

NYC has several programs and financial incentives available to assist with compliance with LL97. Most notably, Commercial Property Assessed Clean Energy (C-PACE) loans provide support for property owners to finance improvements in order to comply with LL97. Unlike an ordinary loan, similar to property taxes, a C-PACE loan is paid back through assessments against the property. Furthermore, building owners may use renewable energy credits (RECs) to offset emissions, provided the renewable energy resource that is the source of the REC is in NYC, or its energy output otherwise travels into NYC, and the emissions being offset are derived from the consumption of utility-generated electricity.

In addition to the various assistance programs that NYC offers to building owners, at both the state and local levels New York has taken measures to “green” the grid, thus reducing greenhouse gas emissions for building owners across NYC. In 2019, New York State signed the Climate Leadership and Community Protection Act, which mandates that 70% of New York’s electricity be obtained from renewable energy sources, like wind and solar power, by 2030. New York has also entered into contracts for hydropower, which will play a big role in bringing renewable resources to the grid. Furthermore, two laws passed under the CMA mandate that all new buildings in NYC implement solar panels or green roofs. The greening of the NYC grid will assist building owners with meeting the stringent emissions caps set under LL97, especially in those buildings that are able to convert to electricity and not use oil or gas.

As combating climate change continues to be at the forefront of the agendas of policymakers, strategies for compliance with forthcoming regulations, including LL97, will become ever-more imperative for building owners, landlords, tenants and other key members of the real estate industry. Please reach out to the Kramer Levin environmental, land use and real estate teams for advice on how to navigate the complex legal landscape of climate change regulations impacting the building sector and anticipate the developments that may help in meeting the new standards.