Dept. of Buildings Adapts Second Set of Regulations for Administration of Local Law 97

The long heralded Local Law 97 finally went into effect on January 1, 2024. This landmark legislation requires affected New York City cooperative and condominium complexes to significantly reduce their carbon emissions starting with calendar year 2024.

The law imposes stringent fines on each affected building whose carbon emission exceeds mandated levels. Local Law 97 establishes two sets of emission limits and two concomitant fine schedules, the first being for compliance cycle 2025-2029 (based upon carbon emission levels for each affected building during calendar year 2024) and the second, a much lower permissible carbon emission threshold and much higher level of fines for excess emissions for compliance cycle 2030-2035, based upon carbon emission levels during calendar year 2029.

Local Law 97 alludes, without providing any details, to the prospect of buildings being able to mitigate their fines through a demonstration of "good faith" compliance with carbon emission reduction requirements.

The legislation also provides, without detail, for an alternate method of compliance with carbon emissions reduction mandates for certain types of buildings, namely certain affordable housing complexes and complexes with a significant component of rent regulated apartments, which many in the construction and management fields believe may be less costly than the conventional methods of compliance required of all other affected buildings.

When this legislation was initially enacted in 2019, the City Council contemplated that its vague mandate would be clarified with a series of regulatory guidelines prescribing administration of the act.

The first such set of guidelines, pertaining to the way affected buildings' carbon emission is calculated for purposes of determining fines for over usage was announced by the Department of Buildings (DOB) in 2022.

A second set of regulations was unveiled in December 2023, and provided significant guidance for coop and condo buildings, especially those facing the prospect of penalties during the 2025-2029 compliance cycle. The direction offered by these protocols fall into three basic categories: they define in concrete terms how buildings facing the prospect of fines for the 2025-2029 compliance cycle can avoid or limit the amount of those penalties; they clarify how affected affordable housing buildings and those with a large component of rent regulated apartments can document their applications to qualify for the potentially less costly compliance alternative; and they offer a new tax credit to incentivize electrification of building systems.

Opportunity to Avoid or Minimize Fines

The Starting Line

Under the Regulations, for any building to qualify for a consideration of any kind of Local Law 97 fine relief, it needs to (a) file its report of calendar year 2024 carbon emission levels; (b) file its Local Law 84 Benchmarking Report; and (c) attest to its compliance with Local Law 88’s required lighting and tenant submetering upgrades.

Mediated Resolution

After a building faced with Local Law 97 fines during the 2025-2029 compliance cycle reaches the starting line by documenting its compliance with the three energy conservation measures described above, it could qualify for a "good faith" exemption (total or partial) from the penalties through "mediated resolution" with DOB by also choosing one of the following four criteria below and documenting compliance:

• Submission of an approved DOB application which will result in the building meeting its 2025-2029 emissions limit, along with a timeline for completion and estimated emissions reductions from the work. To the extent the contemplated retrofit work does not require DOB permits, the building may demonstrate that service provider contracts for completion are in place.
• Submission of signed contracts with Con Edison for electric service and panel upgrades that are capable of supporting building-wide electrification.
• Demonstration that the building has applied for or been granted a financial hardship adjustment pursuant to Section 28-320.7 of the City Administrative Code.
• Commencing January 2025, demonstration that the building was under its emissions limits for the prior calendar year. (A request utilizing this option cannot be made prior to January 1, 2025, because 2024 is the earliest calendar year for which emissions limits exist). [1]

With any of these criteria, DOB retains the option of cancelling a good faith exemption based upon "mediated resolution" and assessing fines retroactively in the event the building fails to meet its documentation obligations.

Submission of a Decarbonization Plan

Boards facing fines in 2025 for excess carbon emissions have an option in addition to seeking mediated resolution: submission of a decarbonization plan which achieves “net zero” carbon emissions from the building by 2050. Decarbonization plans must include an energy audit, inventory of equipment and a demonstration of concrete timelines and financing for the work, and projected emissions reductions through 2050.

Furthermore, buildings must meet their 2024 emissions limit within two years of submission of the decarbonization plan, and DOB approval of applications for work designed to meet the buildings’ 2030 emissions limits. Pursuit of this option allows boards to avoid penalties through 2026, permitting them to allocate the savings into completion of the required work. However, penalties for 2024 and 2025 non-compliance can be imposed retroactively if all deadlines are not met. Moreover, in exchange for availing themselves of this decarbonization plan option, buildings forfeit the right to seek Renewable Energy tax credits during the 2025-2029 compliance cycle.

Clarification of procedures for documenting compliance, penalties for non-compliance and opportunities for mitigation of fines for Article 321(a) buildings

Local Law 97 sets forth different rules for compliance with carbon emission reduction mandates for three separate categories of affected buildings than for the remainder of affected buildings: those buildings which are comprised of 35% or greater rent regulated units; HDFC cooperatives; and NYCHA and Section 8 projects. These three categories of buildings are, for purposes of Local Law 97 compliance, called "Article 321(a) buildings." Local Law 97 gives Article 321(a) buildings a choice of two methods of compliance: they must, by May 1, 2025, file a report documenting either that their carbon emissions for calendar year 2024 was below 2030 emissions requirements, or that they achieve compliance through completion of each of thirteen enumerated “Prescriptive Energy Conservation Measures.” As previously noted, many management and engineering professionals believe that compliance through the Prescriptive Energy Conservation Measures is less costly than meeting the required emission standards.

The Regulations stipulate that there is a $10,000 fine for Article 321(a) buildings which do not file their 2024 emissions reports by May 1, 2025, and a $10,000 fine for those electing to comply by completing the Prescriptive Energy Conservation Measures method and failing to document timely compliance.

The Regulations offer 321(a) buildings three ways to mitigate these fines:

• Demonstrate "an unexpected or unforeseeable event or condition out of the control of the owner which precludes compliance, where a building was damaged as a result of a disaster." The owner must submit photographic documentation in DOB NOW and a demonstration of how damage to the building has prevented timely compliance.
• Demonstrate that on or after November 15, 2019, the building has filed for State or City assistance in a qualified energy conservation rehabilitation project.
• Seek a "Mediated Resolution" with DOB. The criteria for doing so are somewhat different for 321(a) buildings than for other affected buildings. To qualify for a Mediated Resolution a 321(a) building must do three things: (a) submit an affidavit that it is not compliant with Local Law 97; (b) submit proof that it is in compliance with benchmarking requirements; and (c) submit a plan showing compliance with 2030 emissions standards or show completion of all thirteen of the Prescriptive Energy Conservation Measures by December 31, 2025.

Electrification Credit

The rules offer a new beneficial electrification credit for properties which install electric heating, cooling and domestic hot water equipment before 2030, with an even greater credit for pre-2027 installation. These credits can be used to mitigate fines up until 2036.

What’s a board to do now that Local Law 97 is here?

Act quickly. Put Local Law 97 on your agenda immediately as the May 1, 2025, reporting deadline and initial round of penalties is just around the corner, and compliance will require intensive planning. The planning process is so time consuming, specialized boards might want to appoint a committee to address Local Law 97 issues. Additionally, there will be a crunch on labor and materials as thousands of buildings will be simultaneously seeking to comply with Local Law 97, thereby driving up the cost of work. An early start will avoid this crunch and save money.

• Retain a Local Law 97 consultant to audit building systems and prepare a report as to fine status and provide appropriate compliance options.
• Assemble a team of other professionals as needed, including engineers and architects, project managers, expediters, attorneys and accountants.
• Develop a compliance plan. To the extent you are facing fines in 2025, focus on "quick fix" measures to achieve immediate carbon emission reductions, and put consideration of the fine mitigation strategies detailed above on the "front burner" of your agenda.
• If you are an Article 321(a) building decide, with the advice of your consultant, whether you are going to comply with Local Law 97 by meeting 2020 emissions limits or pursue the Prescriptive Energy Conservation Measure path. If the latter, award contracts and commence work on the various required projects immediately.
• Consider seeking a "Mediated Resolution" when necessary.
• Consider financing options, including researching various available grants, governmental assistance programs and tax credits, especially the new electrification credit described above.

[1] There is a fifth criteria, namely that the building is a "critical facility," but that is not applicable to coops or condos.

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For more information on condominium and cooperative law matters, please contact:

Bruce A. Cholst at +1 212 592 1621 or [email protected]

© 2024 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.