Enacted as part of the Climate Mobilization Act, New York City’s Local Law 97 (LL97) mandates strict emissions limits for most commercial and mixed-use buildings exceeding 25,000 square feet. If a building exceeds its limit, the owner faces annual civil penalties based on the volume of excess emissions.
While the property owner bears legal responsibility for meeting those limits, your lease determines who absorbs the cost. The three provisions below define where that liability lands, and what you should look for before you sign or close.
Carbon penalties and operating expense clauses
Most standard NYC commercial leases are drafted to exclude fines, penalties and interest from operating expenses. Without a specific, negotiated LL97 Rider — a written addendum that assigns responsibility for LL97 costs and overrides the standard fine exclusion — a landlord’s ability to pass a carbon penalty to a tenant is far from guaranteed. Whether you are a tenant, buyer or new owner, check whether this rider exists and review its terms carefully with your attorney.
Capital improvements and green lease clauses
A building may require major upgrades, such as a new HVAC system, to meet its carbon limits. Standard lease definitions and accounting rules typically classify those costs as capital improvements, which fall on the landlord.
A green lease clause, however, allows the landlord to bill the tenant for a share of those costs over time, rather than all at once. The parties agree on a method for projecting energy cost savings, and the lease typically caps payments at a portion of those projections. Whether you are signing a lease or evaluating a property, pay close attention to how long those payments run and how the parties measure the savings.
Tenant load and carbon budget clauses
Some leases include carbon budget clauses that assign a portion of a building-wide penalty to any tenant whose energy consumption exceeds a set limit. High-energy tenants, such as data centers or medical facilities, should review their leases carefully to understand their exposure.
Property buyers and sellers should also check whether existing leases contain these clauses. A high-energy tenant could be contributing to a penalty that affects the property’s overall financial picture.
Protect your position before you sign or close
A building that exceeds its carbon limits carries real financial costs that can lower its value and complicate a sale. Standard property insurance typically does not cover these fines, so your contract needs to address them directly. Have a qualified real estate attorney review your contracts before you sign or close. The right review now can prevent a costly dispute later.