New Rules Define “Good Faith” Efforts to Comply With Local Law 97

The other shoe has finally dropped. After issuing a first round of rules late last year on how co-op and condo boards can comply with Local Law 97, the city has now released a second round of proposed rules. The new rules will be welcome news to boards that are worried about the high cost of reducing their buildings’ carbon emissions under the law’s prescribed caps — and the stiff fines they will face for failing to comply, beginning next year.

Most notably, the new rules clarify what constitutes a “good faith” effort by building owners — and how the Department of Buildings (DOB) will use it to mitigate fines for non-compliant buildings. The rules, available here, cover the first compliance period, which runs from 2024 to 2029. The city council is expected to approve final rules by the end of the year.

“The new rules are good news on a number of levels,” says William McCracken, a partner at the law firm Moritt Hock & Hamroff. “First, now we know what we have to do. And second, the criteria for getting fines mitigated are achievable. You don’t have to spend seven figures; you don’t have to replace your boiler right now. But you’re going to have to hire consultants to put together a solid plan showing that you’re making a good faith effort to reduce your carbon emissions.”

The definition of a “good faith” is complex. First, boards must prove that they have complied with laws that require energy and water usage benchmarking (Local Law 85), energy audits and retro-commissioning work (Local Law 87), and lighting upgrades and submetering (Local Law 88). If those criteria are met, the board must also meet at least one of an additional six criteria. They include: securing permits from the DOB for retrofit work that is sufficient to meet 2024 carbon caps, but is not yet complete; signing contracts with Con Edison for electric service and panel upgrades that are sufficient to support building-wide electrification; submitting a plan for zero carbon emissions by 2050.

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This last option relieves boards of penalties until 2026, but in exchange prohibits the use of renewable energy credits (RECs) during the first compliance period. Those credits allow building owners to purchase energy from renewable sources and send it into the grid. Critics feared that unlimited use of RECs would allow building owners to buy their way into compliance with Local Law 97 without actually reducing their building’s carbon emissions. This compromise attempts to address those concerns. 

There’s also good news on the funding front. The city estimates that the federal Inflation Reduction Act makes available $625 million in tax credits and subsidies that buildings will be able to use to comply with Local Law 97. The New York State Public Service Commission recently directed utilities and the New York State Energy Research and Development Authority (NYSERDA) to propose a total of $5 billion in programs across the state in 2025-2030; the city will seek to collaborate with NYSERDA, Con Edison, and National Grid to align those programs to support buildings that have to do significant work to comply with Local Law 97, especially in disadvantaged communities where compliance is lagging. Additionally, the city will seek to develop a federal grant proposal targeting the $40 billion allocated for financing support or credit enhancement for eligible clean-energy projects. That funding will be available for Local Law 97 compliance projects, particularly for buildings that struggle to access market-rate loans.

Finally, while the new rules don’t change the fines for noncompliance, they do offer the possibility of a “mediated resolution” between a board and the DOB when good faith compliance efforts fall short.

The new rules are open for public comment leading up to a public hearing at 11 a.m. on Oct. 24.