The first compliance period for building owners under Local Law 97 (LL97), New York City's (NYC) landmark climate change legislation, began this year on Jan. 1. Subject to limited exceptions, property owners are required to submit annual building emissions reports to the NYC Department of Buildings (DOB) starting on May 1, 2025. We will provide quarterly guidance on compliance topics leading up to the first reporting date. This quarter, we will focus on who must comply with LL97 and when.
Enacted in 2019 as part of the city's broader commitment to sustainability and carbon reduction, LL97 targets the city's biggest sources of greenhouse gas (GHG) emissions: buildings. By establishing GHG emissions caps that tighten over time for buildings over a certain size, NYC hopes to achieve the ultimate goal of significantly reducing GHG emissions by 2050. A property owner of a building that exceeds its applicable emissions cap will be required to pay fines for noncompliance — a dynamic that has forced, and will continue to force, property owners across NYC to consider if, and to what extent, they should retrofit buildings with energy-efficient materials to reduce the likelihood of paying hefty fines.
'Covered Buildings' Under Article 320 of LL97
LL97 affects approximately 50,000 properties across NYC. Under Article 320 of LL97, "covered buildings" are defined as single buildings larger than 25,000 square feet, or multiple buildings on the same tax lot or governed by the same condominium board that together exceed 50,000 square feet. These buildings are categorized based on occupancy type (residential, commercial, institutional). Buildings subject to LL97 are listed here by address and tax ID. Emissions limits categorized by occupancy type for the 2024 – 2029 compliance period can be found here. Owners of "covered buildings" must file reports by May 1 of each year. This annual report must be prepared by a registered design professional and either prove that the building complied with the applicable emissions limit or detail the amount by which the building exceeded such limit.
"Covered buildings" do not include: (i) industrial facilities primarily used for the generation of electric power or steam; (ii) real property, not more than three stories, consisting of a series of attached, detached semidetached dwellings, where individual unit owners own and maintain the HVAC and hot water heating systems (with no such system serving more than 25,000 gross square feet) ("garden-style apartments"); (iii) city-owned buildings; (iv) housing developments or buildings on land owned by the NYC Housing Authority; (v) "rent regulated accommodations" (which are buildings where more than 35% of dwelling units are rent regulated under the emergency tenant protection act of 1974, the rent stabilization law of 1969 or the local emergency housing rent control act of 1962); (vi) real property owned by a housing development fund company organized pursuant to the business corporation law and Article 11 of the Private Housing Finance Law; and (vii) buildings that participate in a project-based federal housing program. While these buildings may not be subject to annual reporting, they may be required to meet certain energy conservation measures requirements, as described below.
'Covered Buildings' That May Delay Compliance With the 2024 – 2029 Annual Emissions Limits Until Jan. 1, 2026
"Covered buildings" with at least one rent-regulated dwelling unit under the emergency tenant protection act of 1974, the rent stabilization law of 1969 or the local emergency housing rent control act of 1962 but that are not a "rent regulated accommodation" are required to comply with LL97 during the 2024 – 2029 compliance period but have a grace period until 2026. Pursuant to Section 28-320.3.10.1, these buildings must not exceed emissions limits starting on Jan. 1, 2026. Owners must submit the first annual compliance report by May 1, 2027.
'Covered Buildings' Exempt From Compliance With the 2024 – 2029 and 2030 – 2034 Annual Emissions Limits
The following "covered buildings" are exempted from 2024 – 2029 and 2030 – 2034 annual emissions limits and reporting requirements but are subject to the 2035 – 2050 emissions limits starting on Jan. 1, 2035:
- "Covered buildings" owned by a limited-profit housing company organized under Article 2 of the Private Housing Finance Law (Mitchell-Lama rentals and cooperatives) only if no units participate in a federal project-based housing program
- "Covered buildings" containing more than one unit that are "income restricted" as a condition of a loan, grant, tax exemption or conveyance of property from any state or local governmental agency or instrumentality pursuant to the Private Housing Finance Law, the General Municipal Law or Section 420-c of the Real Property Tax Law, only if no units are rent regulated
Note that units with an income restriction imposed solely through the Zoning Resolution (e.g., Inclusionary Housing programs) are not considered "income restricted" for the purposes of this exemption.
Buildings That Must Demonstrate Compliance With Energy Conservation Measures Requirements
Under Article 321 of LL97, owners of certain buildings that do not meet the definition of a "covered building" under Article 320 may still need to file reports demonstrating compliance with energy conservation measures requirements under Article 321. These include owners of single buildings larger than 25,000 square feet, or multiple buildings on the same tax lot or governed by the same condominium board that together exceed 50,000 square feet that are (i) "rent regulated accommodations," (ii) occupancy group A-3 religious houses of worship, (iii) Housing Development Fund Company cooperatives and (iv) buildings with one or more units participating in a federal project-based housing program. Article 321 does not govern industrial facilities primarily used for the generation of electric power or steam or "garden-style apartments."
Owners of buildings subject to Article 321 must take "required energy conservation measures," which can be achieved by demonstrating that the building's 2024 emissions were below the more stringent 2030 cap or that the building implemented "prescriptive energy conservation measures" by Dec. 31, 2024. By May 1, 2025, owners must submit either an energy-compliant buildings report or a prescriptive energy conservation measures report. DOB's Article 321 Filing Guide can be found here.
Impact on Real Estate Transactions
Compliance with LL97 will have (and in many cases is already having) an impact on the economics of every property in NYC that is subject to it. Accordingly, it is critical for market participants and stakeholders in any NYC commercial real estate transaction to understand how the law works and to perform diligence regarding its impact on a property. In commercial leasing, particularly for office assets, landlords and tenants negotiate how and to what extent penalties, fines and costs for capital improvements designed to reduce carbon emissions will be passed through to tenants. For any transaction involving a new stakeholder (e.g., a fee purchaser, lender or equity partner), such stakeholder will want to analyze when the subject property is expected to be subject to penalties or fines and what capital work will need to be performed to avoid such penalties or fines, and underwrite its investment and exit accordingly. In a joint venture, partners will need to determine cost sharing for LL97 costs and expenses. In a loan, the lender will want certainty that its borrower is in compliance with the law and has adequate reserves to perform work to keep or bring the subject property into compliance with emissions standards. Deal documents will need to reflect the outcome of these analyses. In sum, underwriting LL97 should now be a customary part of diligence, underwriting and contract negotiations.
The Kramer Levin Environmental, Land Use and Real Estate teams are well versed in the complexities of LL97 and equipped to counsel clients through the evolving legal landscape of climate change regulations impacting the building sector. Please reach out to these Kramer Levin practice areas for advice on how to navigate this significant local law and mitigate potential penalties.
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