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NYC Official: Lower Local Law 97 Fines For Owners That Make 'Good Faith' Efforts

New rules around New York City's polarizing building emission cap legislation are set to be out later this summer, and while the city says owners won’t necessarily be hit with fines for noncompliance, there is going to be significant government pressure to make properties more efficient.

Stroock & Stroock & Lavan's Rusty Pomeroy, Norges Bank's Nina Galbiati, AKF's Charles Marino, Highmark's Richard Gerbe, Empowered Buildings' Craig Tamchin and New York Department of Buildings' Gina Bocra

Local Law 97 was enacted in 2019 and requires owners of buildings 25K SF and larger to keep their properties beneath certain emissions thresholds starting next year or face fines. The restrictions become even tougher through 2030.

Property owners could face fines of $268 for every ton of emissions above their limit. Last year, the city released details on the formulas for calculating both a building’s yearly greenhouse gas emissions and the limit to which it should comply.

New rules will be out this summer, New York City Department Buildings Chief Sustainability Officer Gina Bocra told the audience at Bisnow’s National Sustainability and ESG Conference last week. This next set of rules, she said, will cover how penalties will work — an aspect of the rules that has caused great consternation among building owners in the city.

“If you carefully read that law, it says a penalty of up to $260 per ton, and it also has a very interesting section about how an owner can work with departments to mitigate penalties; meaning you come to the department and you show us you've made a good faith effort to comply with the law,” Bocra said, adding there is clarity around what a “good faith” effort means.

“It doesn't mean that everybody is going to get out of jail," she said. "If you haven't done something, you should anticipate that you will get the fine. But we do see if we fine a building, we are not getting carbon inductions, we are not making progress and we're failing.”

Earlier this year, a report commissioned by the Real Estate Board of New York from the consulting firm Level Infrastructure found some 3,700 New York City buildings would not be able to comply with the caps set out in the laws, and those properties that are noncompliant would face up to $213M a year in penalties starting next year. By 2030, the study projects 13,500 properties won't be compliant, and cumulative fines would come to $900M a year.

Bocra said the clarity of the final rules will be to avoid punishing those who are making changes to their buildings. The rules will include details on a credit for beneficial electrification, as well as details on how rent-regulated buildings and houses of worship will be treated under the law.

“Our intention is to figure out everything that you can do at the city level, to move it over and forward and help [landlords] achieve carbon reduction,” she said.

Norges Bank's Nina Galbiati and AKF's Charles Marino

Landlords have said retrofitting buildings would be more costly than just paying the fines in some cases. The laws have also caused concern in the office leasing market, with some tenants concerned they could be on the hook for future fines. As a result, compliance has become a key part of negotiations in leases.

Norges Bank Senior Manager of Real Estate Investments Nina Galbiati, who is in charge of implementing the company’s ESG strategy for its 35M SF global portfolio, said the laws have been helpful in guiding its approach. Norges owns some 10M SF of office space in New York, and Galbiati said most of the worldwide portfolio had high environmental certifications, but Local Law 97 has forced the company to scrutinize its buildings carefully. 

“We took a hard look at our assets we thought would be in pretty good shape. And all of them are on track to get fines by 2030,” she said. “It's been very, very helpful that you have very specific metrics, and so you have kind of opened up the hood and are caring maybe more about the right things than we did before.”

She said there are “still loopholes,” and the industry needs to be open and transparent about greenwashing.

“In our engagement, we get a little suspicious when people are there already … I don't think this is the problem, you can just buy yourself out.” 

Local Law 97 was written to force owners of New York City's buildings, its largest emitter of greenhouse gases, to help reduce citywide emissions by 40% by 2030 from a 2005 baseline and by 80% by 2050. Panelists said there is particular pressure on the owners of Class-B and C buildings, as they are often older, already facing costly upgrades to become competitive in a slower leasing market, and they often have multiple tenants.

“Even if you're developing an infrastructure that is welcoming to the tenants to have a low-carbon solution, you still need the tenants to be really engaged to embrace that and operate it correctly,” said Charles Marino, a partner at engineering consultancy firm AKF. ”This will be really important for Class-B and C buildings to the right level of engagement for the tenants to really see energy-efficiency pushed through.”

Craig Tamchin, the co-founder and CEO of Empowered Buildings, a technology company specializing in building automation systems and energy management, said the focus on B and C buildings should be addressing the immediate waste issues of buildings, as opposed to long-term infrastructure investments.

“Everybody that lives in New York City has driven around in the wintertime, it could be below freezing outside and people have the windows open. What's causing that reaction?” he said. “You really have to think about what we could be doing today to make that building run as efficiently as possible.”