A New Era of Energy Efficiency: The Impact of Boston’s BERDO and New York City’s Local Law 97 on Commercial Lease Transactions

As the effects of climate change become more urgent, municipalities across the United States are enacting laws designed to reduce carbon and greenhouse gas emissions, and improve energy performance. These initiatives present both landlords and tenants with new challenges as they work to adapt to laws that enhance sustainability efforts and penalize noncompliance. Two key pieces of legislation are reshaping the commercial real estate landscape: Boston’s Building Emissions Reduction and Disclosure Ordinance (“BERDO”) and New York City’s Local Law 97 (“Local Law 97”). These laws aim to make buildings more energy-efficient and sustainable, and they carry important implications for parties to commercial leases.

BERDO and Local Law 97

BERDO is a Boston ordinance that requires buildings subject to the ordinance to report energy and water consumption to the city annually, and sets greenhouse gas emissions standards necessary to comply with the BERDO requirements. The ultimate goal of the law is to reach net-zero emissions (i.e., the amount of greenhouse gases emitted is equal to the amount removed from the atmosphere) by 2050. Buildings that fail to comply with the emissions standards established by BERDO face fines ranging from $300 to $1,000 per day, depending on the building’s size and the extent of noncompliance. Building owners who fail to report their energy and water consumption data may be fined between $150 and $300 per day for each day of non-reporting. Some of the structures BERDO applies to include:

• Residential buildings that have 15 or more units;
• Non-residential buildings that are 20,000 square feet or larger (excluding parking); and
• Any parcel of land with multiple buildings that sum to at least 20,000 square feet (excluding parking) or 15 residential units or more.

Local Law 97 is a New York City law, enacted in 2019 as part of the Climate Mobilization Act, that requires buildings subject to the law to report their annual greenhouse gas emissions to the New York City Department of Buildings, and establishes carbon emissions limits necessary to comply with the Local Law 97 requirements. The law aims to achieve a 40% reduction in greenhouse gas emissions by the year 2030, and to reach net-zero emissions by 2050. Buildings that do not comply with the emissions limits face penalties of $268 per metric ton of CO₂ equivalent emitted over the individual building’s cap in any given year, and $0.50 per building square foot per month for failure to file a report. Some of the structures Local Law 97 applies to include:

• Buildings over 25,000 gross square feet;
• Two or more buildings on the same tax lot that together exceed 50,000 gross square feet; and
• Two or more condominium buildings governed by the same board of managers that together exceed 50,000 gross square feet.

Commercial Lease Considerations

Laws such as BERDO and Local Law 97 create new challenges and considerations for both landlords and tenants in commercial lease transactions. To comply with carbon emissions reduction requirements, landlords may need to complete certain upgrades or improvements (e.g., upgrades to HVAC systems, replacement of inefficient windows, installation of solar panels or other renewable energy sources, etc.) and may seek to pass the cost of building retrofitting through to tenants in the form of higher base rent or operating expenses. It is essential to negotiate how these costs will be handled. As landlords and tenants negotiate responsibilities regarding these specific improvements, here are a few key considerations:

• Tenants should negotiate guardrails against rent increases or pass-through expenses associated with retrofitting, and should complete due diligence prior to executing a lease to determine whether there are plans to complete retrofitting projects to comply with these laws.
• Tenants may request the right to audit energy performance data to ensure compliance with BERDO or Local Law 97 and understand how their use of the building affects overall energy consumption.
• Landlords should explore local, state, and federal incentives for energy efficiency upgrades and determine whether these savings can be shared with tenants.

Since both BERDO and Local Law 97 carry the risk of penalties for noncompliance, landlords may face significant fines if they fail to meet emissions targets or report energy data accurately. Commercial leases should contain clear provisions about how noncompliance fines are handled.

Landlords may want to include indemnification provisions that protect them from tenant-related penalties or damages caused by the tenant’s operations (e.g., excessive energy consumption), or consider incorporating provisions that make tenants responsible for any fines arising from their own energy inefficiency or excessive carbon emissions.

Tenants should negotiate to ensure they are not held responsible for landlord-imposed fines that arise from building-wide issues such as energy inefficiency, failure to meet emissions reduction targets, or excessive energy consumption by other tenants or occupants. Tenants with sustainability goals may also want to include clauses that incentivize or require landlords to meet specific energy efficiency or carbon reduction targets within a defined timeframe.

As climate change regulations like BERDO and Local Law 97 reshape the commercial real estate market, landlords and tenants must carefully consider how these laws affect their financial obligations and operational strategies. In lease negotiations, clarity around responsibility for compliance costs, fines, and retrofits is critical to minimizing risks and fostering a cooperative relationship. By proactively addressing these issues, both landlords and tenants can ensure they are well-positioned to meet sustainability goals, comply with evolving regulations, and manage costs effectively in an increasingly green-conscious market.