Local Law 97: Changing the Landlord-Tenant Relationship
Updated: Feb 2
In April 2019, New York City passed the Climate Mobilization Act as part of the Mayor’s New York City Green New Deal with the aim of reducing greenhouse gas emissions to combat the effects of climate change. Included in the Act is Local Law 97 – one of the most ambitious plans for reducing emissions in the nation. Under this law, most buildings over 25,000 square feet will be required to meet new energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits coming into effect in 2030. The goal of Local Law 97 is to reduce the emissions produced by the city’s largest buildings 40 percent by 2030 and 80 percent by 2050. To reach these goals, Local Law 97 sets annual limits on greenhouse gas emissions that each covered building may emit and if those permitted emission levels are exceeded in any given year, the building’s owner will incur a fine for such year.
With compliance beginning in 2024, building owners and landlords are in the home stretch of ensuring their buildings will meet the strict standards imposed by Local Law 97. While there is obvious concern for owners as to the expenses they may be required to incur to modify or retrofit their buildings to reduce emissions to avoid any fines resulting from non-compliance, Local Law 97 also has the potential to materially alter the landlord-tenant relationship in New York City commercial real estate moving forward.
Tenants are largely responsible for the greenhouse gas emissions a building may emit. The
responsibility of compliance with Local Law 97, however, falls solely on the building owners. Because of this, it is critical to landlords’ interests that they get new and existing tenants on board with reducing their own emissions where possible.
While the long term aspirations of Local Law 97 are undoubtedly positive and necessary, there is an argument to be had that the timing of such a law could not be worse. Enter the Covid-19 Pandemic. Between the enactment of Local Law 97 in 2019 and the start of compliance in 2024, the commercial real estate landscape in New York City has dramatically changed. Occupancy rates for office buildings are the highest they have ever been, as is the subleasing market. The pandemic completely changed how the world views work.
More and more, we are seeing tenants searching out newly built, LEED certified efficient buildings, often outside of the five boroughs. The technological evolution of work has meant that more and more employees can work remotely or only come into the office a few times a week. This has potential tenants looking for smaller spaces, and those spaces must now meet the demands of their workforce, who have grown accustomed to certain comforts of home over the past two years. An outdated, likely inefficient office space simply won’t cut it.
With the upcoming enforcement of Local Law 97 and the shift in tenant preferences, it is essential that owners and landlords work for and together with existing and new tenants to achieve compliance with Local Law 97.