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New Seattle Building Tune-Ups Program May Trigger CAM Charge Increases in Commercial Properties

Seattle building assessmentThe City of Seattle recently implemented a new progressive energy efficiency policy that requires certain commercial buildings in Seattle to get a tune-up assessment every five years. The program encourages commercial buildings to run more efficiently by reducing energy and water costs, which is good for the environment and good for lowering building operating costs. We expect that most commercial landlords will try to pass through the initial cost of obtaining a building assessment to commercial tenants via common area maintenance (CAM) charges. The upside is that, in the long-term, energy and water costs are expected to decrease as the systems become more efficient.

Before commercial landlords decide to pass through any tune-up program costs to tenants, they should first analyze their leases to confirm whether they are allowed to do so. Conversely, commercial tenants should also review their leases to understand their rights, including potential savings that could be passed through.

Below is a synopsis of the key details of Seattle’s new building tune-up program, outlining what commercial landlords and tenants need to know.

What does the building tune-ups program require of commercial landlords?

The building tune-ups program will require most commercial buildings in Seattle that are over 50,000 square feet (excluding parking areas) to take the following steps every five years:

  1. Hire a certified tune-up specialist
  2. Conduct a building assessment
  3. Identify operational and maintenance improvements
  4. Implement operational and maintenance improvements
  5. Verify improvements are completed
  6. Deliver tune-up summary report to the City of Seattle

When does the building tune-ups program go into effect?

The rolling compliance deadline depends on the size of the commercial building. Starting in 2018, commercial buildings must comply with the new regulations as follows:

Square Footage of Commercial Space:

Compliance Required By:

200,000 square feet or more

October 1, 2018

100,000 to 199,999 square feet

October 1, 2019

70,000 to 99,999 square feet

October 1, 2020

50,000 to 69,999 square feet

October 1, 2021

   

Is the building tune-ups program voluntary or mandatory?

The program is generally mandatory, but it is subject to the rolling compliance deadline noted above. During the early months of 2018, an accelerator program is offered for buildings with 50,000 to 100,000 square feet that may choose to participate earlier than the regulations require. Seattle City Light is offering a financial incentive for qualifying participants that opt in to the accelerator program.

Are any buildings exempt from the building tune-ups program?

Green buildingMost commercial buildings are required to participate in the building tune-ups program. Some buildings may be eligible to show alternative compliance or obtain a waiver. For example, commercial landlords in LEED Operations and Maintenance (O+M) Gold or Platinum, Living Building, and certain certified ENERGY STAR scored buildings can show alternative compliance by submitting evidence of energy performance certifications to the City of Seattle. Additionally, a tune-up may not be required in a building that has very low occupancy, is under severe financial distress or is slated for demolition in the coming years.

What is the takeaway for commercial landlords and tenants?

Commercial landlords should review their leases to confirm whether they can pass through the costs associated with a building tune-up program to their tenants. Pass-through clauses in leases often have complex definitions of “common area maintenance charges,” “operating expenses” or similar terms when describing the types of expenses that can be passed through to the tenant, and often leases expressly prohibit passing through certain types of expenses, so caution is warranted. A commercial tenant should expect that its commercial landlord will likely pass through the tenant’s proportionate share of the costs associated with the building tune-ups program to the extent permitted under the lease, but any savings should also be passed through to the tenant, whether such savings are due to the landlord’s participation in the accelerator program or are the result of future efficiencies in energy and water costs. Whether you are a landlord or a tenant, we recommend reviewing your lease documents to confirm your rights and obligations.

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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