Updated Rules Create Incentives for Local Law 97 Compliance

Days before Local Law 97 goes into effect, on Jan. 1, 2024, the final version of the second major rules package gives clarity on how buildings can meet regulations during the first compliance period. “The original Local Law 97 had very few carrots in it. It was mostly sticks,”  says William D. McCracken, attorney at Moritt Hock & Hamroff. “These new rules create real incentives for buildings to pursue decarbonization retrofits.”

Within the rules is important information for buildings struggling to comply with 2024-2029 emission limits and reduce penalties for non-compliance by making good faith efforts to cut emissions. A good faith effort requires a decarbonization plan — which must be submitted by May 1, 2025 — and gives eligible buildings a two-year compliance cushion, until 2026. To avoid scenarios where buildings submit a decarbonization plan with no intention of following through, the rules state how the upgrades must be completed by May 1, 2027. Buildings must also have an approved application from the Department of Buildings by May 1, 2028 for the work needed to meet 2030 limits. “These requirements have real teeth,” McCracken says. If a building doesn’t follow through on their decarbonization plan, owners won’t be eligible for a penalty reduction and will face non-compliance fines going back to 2025. 

Another important update is a new emission credit for early adopters of electrification. “This incentivizes building owners to more aggressively decarbonize rather than wait until the last possible moment,” McCracken says. If a co-op or condo board replaces fossil fuel heating, cooling or hot water with electric heat pumps, they can bank the emission savings and apply them to future compliance periods. 

Marc Zuluaga, co-founder of climate technology firm Cadence OneFive, points out that buildings don't need to convert entirely to heat pumps in order to realize these benefits. “Installation of heat pump equipment that offsets even a portion of domestic hot water energy use could be significantly rewarded under this framework,” he says. Alan Burchell, principal of rooftop specialist firm Urbanstrong, notes partial electrification — such as electrifying either the heat or hot water system — could result in compliance with emissions limits through 2035 without the need for additional credits. “The credits could still be relevant for buildings that require more time to fully electrify or have complex systems that make a complete transition challenging,” he explains.

The new rules also clarify how gross floor area is measured, which is critical to calculating potential fines. Notably, it now includes cellar space. The penalty for not filing a compliance report is set at $0.50 multiplied by the building's gross floor area. Since LL97 applies to buildings of 25,000 square feet or more, the minimum penalty for failing to file a report would be $12,500 per month. This could stretch to a whopping $150,000 if a report is not filed for 12 months. Burchell points out the fine is “significantly higher” than penalties for failing to file reports on lighting upgrades or electrical submeters, which are closer to $1,500 per year. The rules, however, do provide for a few special circumstances where filing extensions may be granted and penalties might be avoided if reports aren’t filed on time.

For affordable housing and buildings where at least 35% of the apartments are rent regulated, the new guidelines provide clarity on how to comply with prescriptive energy measures by May 2025 or pursue alternative pathways to demonstrate compliance by 2030. “A 2030 pathway may prove beneficial to buildings that are seeking to better align upgrades with other planned work over a longer period of time,” Zuluaga says.