The Clock Is Ticking on Energy Retrofits

Co-op and condo boards have just been hit with a new obligation that will make Local Law 11 facade repairs seem like a day at the beach. The New York City Council has passed a package of bills known as the Climate Mobilization Act that will require large buildings, including many co-ops and condos, to sharply reduce their greenhouse gas emissions in the next decade – or face stiff fines. 

Buildings larger than 25,000 square feet must reduce their emissions 40 percent by 2030 and 80 percent by 2050 (based on 2005 levels). While these requirements do not begin kicking in until 2024, boards need to start working now if they want to avoid fines, inflated costs, claims of financial mismanagement, and angry residents. 

The first step is to hire an engineer who can lay out necessary compliance measures and their costs. Then boards need to start planning and budgeting for this inevitable expense. Once the requirements go into effect, boards will have to file an annual report, certified by a registered design professional, identifying the building’s emissions for the year prior and declaring whether or not the building is compliant. 

If non-compliant, the penalty will be equal to the difference between the building emissions limit and the reported building emissions for the year, multiplied by $268. The penalty can be mitigated by several factors, including the property owner’s good-faith effort to comply. Co-op and condo boards may also request modifications to their emission limit for several reasons. These include the impossibility of making the modifications due to the physical condition of the building, access constraints, or financial hardship due to the cost of necessary capital improvements. To qualify for any of these modifications, the board must establish that it has made efforts to comply. Buildings with one or more rent-regulated dwelling units will be exempt from the law.

Boards that are now planning capital improvements should take the new law into account by asking a question: will the improvement affect the building’s carbon output? For example, if a board is planning a window replacement and it selects a less energy-efficient product to save money, it might cost the co-op or condo much more in the long run if they must retrofit the windows or find other capital improvement projects to counterbalance the less efficient windows. 

Boards should also make sure their current spending plans meet the energy-retrofit demands outlined by their engineer. For example, boards may want to reconsider that expensive hallway and lobby remodellng project if the boiler and hot-water system will have to be replaced in the next several years. Once boards understand  how much their energy retrofit program will cost, they can budget appropriately. Boards can spread modest increases to common charges over time rather than imposing hefty, short-term assessments, which could lead to large default rates, rendering it impossible for the building to comply. 

Addressing the widespread fear that co-ops and condos won’t be able to afford to comply with the new law, its proponents insist that buildings that operate in good faith will be able to get low- to no-cost loans, adjustments, or other assistance if they have trouble meeting the requirements. One source of financing will be city council-approved Property-Assessed Clean Energy (PACE) loans, which will allow building owners to get inexpensive, long-term financing for projects that reduce their building’s carbon output. The nonprofit New York City Energy Efficiency Corp. will administer the city’s PACE financing program.

As the first deadline for compliance nears, the demand for contractors to perform the retrofits will likely increase, driving prices up. For this and many other reasons, it’s best for boards to begin this process now. The clock is ticking. 

Leni Morrison Cummins, a member of the law firm Cozen O’Connor, specializes in condominium and cooperative law.