A Client-Focused Approach to Business and Real Estate Law

What commercial real estate deals must disclose energy use?

Prospective commercial real estate buyers consider many factors when choosing a new location for business operations. From location to public parking to simple functionality and aesthetics, business owners must weigh the options of one building versus another. When choosing between spaces, buyers should know that California is one of few states to require energy use disclosure for buildings that meet certain requirements in a sales contract. As this will greatly affect your monthly operations costs, business owners should note this number and calculate their estimated expenses before moving forward with the purchase.

What are the specific requirements for disclosure?

In California, commercial property owners must disclose energy consumption to potential buyers, their lenders and prospective lessees. Buildings comprised of 5,000 or more square feet must report their energy data from the past 12 months and the building’s ENERGY STAR score.

How do you know if an ENERGY STAR score is good or bad?

An ENERGY STAR rating for a commercial building is a complex score calculated using many factors. For background knowledge, some of these factors include:

  • Operating hours
  • Number of employees per square feet
  • Number of commercial freezers per square feet (most pertinent to grocery stores)
  • Log of heating degree days times percent of building heated
  • Log of cooling degree days times percent of building cooled
  • Is the building a supermarket? (1 if yes, 0 if no)
  • Adjustment for number of workers per square foot

Once the score is issued and disclosed, potential buyers should know that the lower the score, the more energy efficient the building. This is one factor in choosing which building to purchase, but an important one to consider. For some, buying a building is done with a lump sum, or perhaps a plan is established to for a set mortgage payment every month. Energy costs, however, can fluctuate. It’s important, if possible, to be informed and know what to expect.