On December 15, 2023, the Maryland Department of the Environment (“MDE”) published draft regulations, known as the Building Energy Performance Standards (“BEPS”), to implement the Climate Solutions Now Act of 2022 which intends to reduce greenhouse gas emissions and ultimately achieve net-zero emissions by 2040 for “covered buildings.” Covered buildings include any commercial, multifamily residential or state-owned building that is 35,000 square feet or large, excluding parking garage areas, some historic properties, public and nonpublic elementary and secondary schools, manufacturing buildings, and agricultural buildings. Based on the BEPS regulations, covered building owners would have to begin collecting net greenhouse gas emissions beginning January 1, 2024, in order to begin reporting such information in 2025.
Unfortunately, the regulations do not address issues regarding landlord versus tenant responsibilities for BEPS compliance and most leases drafted prior to the enactment of the Climate Solutions Now Act do not contain provisions outlining such responsibilities. Accordingly, it is important for all current leases regarding covered buildings to contain provisions regarding BEPS compliance. It is imperative for landlords and tenants to consider lease provisions addressing whose obligation it is to comply with laws and government requirements (i.e., BEPS) related to leased premises or the building.
Specifically for BEPS compliance, it is important that landlords and tenants determine who will be responsible for obtaining all necessary information for greenhouse gas emissions reporting, including energy data from electric and gas companies, number of employees, number of electronics used, etc. Leases may also need to include actual costs of capital expenditures needed to comply with BEPS in the definition of operating expenses. For initial tenant improvements and build-outs, leases may need to include a carveout for any renovations to be BEPS-compliant.
For any potential non-compliance, it is recommended that leases include provisions establishing whether landlord or tenant will be responsible for penalties related to excess emissions charges or the like. For example, a tenant may be responsible for any non-compliance stemming from the leased premises, whereas the landlord may be responsible for any non-compliance resulting from the entire property or building. Additionally, landlords may impose penalties on tenants for not providing the necessary information needed for BEPS reporting, but the landlord could be responsible for failing to meet reporting obligations.
As of January 29, 2024, the Joint Committee on Administrative, Executive, and Legislative Review (AELR) put the proposed BEPS regulations on “hold” until certain clarifications are made as to whether the regulations are within the boundaries of the Climate Solutions Now Act of 2022. We will continue to monitor the status of these regulations.
If you would like to speak to an attorney to get more information on the Greenhouse Gas Disclosure Law or any other commercial lease-related matters, please contact Batoff Associates, P.A. at 410-864-6211.
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