Green Buildings Act becomes law in NYC.

New York City Local Law 86, also known as the Green City Buildings Act (the "Act"), which Mayor Michael R. Bloomberg signed into law early last fall, will become effective on January 1, 2007. (1)

The Act is significant in the construction industry, (2) because, among other things, it will require many of New York City's new municipal buildings, as well as additions and renovations to existing municipal buildings to achieve exacting standards of sustainability as green buildings.

In the residential sector, green buildings accounted for two percent of new construction in 2005 and are expected to account for between five and ten percent by 2010. (3) Green buildings currently represent approximately five percent of commercial buildings in the marketplace, or more than $3.3 billion in US real estate (435 million square feet of LEED Projects in 2005; doubled from 2004). (4)

Although growth in both residential and commercial sectors is likely to be hindered by the perception that there is substantial additional cost associated with green construction, (5) significant energy cost savings are likely to make these energy efficient buildings more appealing on a life cycle rather than on a first cost basis. (6)

In 1998, the U.S. Green Building Council ("USGBC") established the Leadership in Energy and Environmental Design ("LEED") Green Building Rating System. The LEED rating system evaluates the location, design, construction, and operational aspects of newly constructed and renovated buildings, serving as a "voluntary national standard in which construction and renovation projects earn credits toward certification as sustainable buildings." (7)

There are four potential categories of certification. The LEED Certified level is awarded to buildings that earn between 26 and 32 elective points. LEED Silver is reserved for buildings that earn between 33 and 38 elective points. A LEED Gold rating is awarded to those buildings that earn between 39 and 51 elective points. Finally, a building that earns 52 or more elective points may be awarded the LEED Platinum classification.

The New York City Council indicated that it chose to enact Local Law 86 for several reasons. First, the Council expects the Act will reduce New York City's electricity consumption, air pollution, and water use. (8) Second, it anticipates the Act will improve occupant health and worker productivity. Third, it believes the Act will encourage market transformation. Finally, it expects the Act will reduce the City's dependence on foreign oil as it will reduce overall energy demand for the city.

The Act provides that non-residential capital projects with estimated construction costs of $2,000.000 or more must be designed and constructed to achieve an LEED Silver or higher rating. School (occupancy group G) and hospital (occupancy group H-2) projects, however, need only achieve a LEED Certified rating.

The Act also articulates requirements for energy cost reductions for certain projects. Capital projects, other than schools, with an estimated construction cost of more than $12,000,000 but less than $30,000,000 must be designed and constructed so as to reduce energy cost by a minimum of twenty percent. In addition to this reduction, a design agency must make investments in energy efficiency.

Capital projects, other than schools, more than $30,000,000 must be designed and constructed so as to reduce energy cost by a minimum of twenty-five percent. Again, a design agency must make investments in energy efficiency. Capital projects that involve schools with an estimated construction cost of $12,000,000 or more must be designed and constructed to reduce energy cost by a minimum of twenty percent. Similarly, a design agency must make investments in energy efficiency. Alternatively, a design agency must make investments in energy efficiency that reduce energy cost by an additional ten percent if it determines the payback on this investment through savings in energy cost would not exceed seven years.

Capital projects that include the installation or replacement of a boiler at an estimated cost of $2,000,000 or more must be designed to reduce energy cost by a minimum of ten percent. Similarly, capital projects that include the installation or replacement of lighting systems with an estimated cost of $1,000,000 or more must also be designed to reduce energy cost by a minimum of ten percent.

Projects involving the installation or replacement of an Heating Ventilating and Air Conditioning ("HVAC") system with an estimated cost of $2,000,000 or more must be designed to reduce energy cost by a minimum of five percent. Finally, capital projects involving the installation or replacement of plumbing systems with an estimated cost of $500,000 or more must be designed to reduce energy cost by a minimum of thirty percent.

Given the energy woes experienced by New York City and other major metropolitan areas, these ordinances may be a harbinger of legislation affecting privately-held and funded commercial buildings.

BY KENNETH M. BLOCK, ESQ.

PARTNER, BROWN RAYSMAN MILLSTEIN FELDER &

STEINER, LLP 

(1) The Act is applicable to capital projects for which the final design is approved after the effective date.

(2) The Act has the potential to dramatically affect the New York construction industry because the building materials, as well as the building architectural design, the Act requires are in matt)" cases substantially different than those used in traditional buildings. Inasmuch as the New York City Council anticipates it will have an effect on approximately $12 billion in construction over New York City's ten-year capital plan, the Act's impact could be significant indeed. See New York City Local Law 86 of 2005, preamble, available at http:// www.nyc.gov/html/dob/downloads/pdf/ 11_86of2005.pdf.

(3) See Green Goes Mainstream, available at http://money.cnn.com/2006/04/14/ real_estate/green_in_mainstream/index.htm.

(4) University, of Wisconsin Cooperative Extension. Solid & Hazardous Waste Education Center May 2006, available at http:// www3.uwm.edu/Dept/shwec/publications/ newsletters/May2006.cfm.

(5) Some estimates of the additional cost of constructing a green house run as high as ten percent. See Green Building Goes Big, available at http://money.cnn.com/2006/05/ 31/real_estate/green_goes_large_scale/ index.htm. The Act, however, cites a California study that found a cost premium of less than two percent on green buildings.

(6) On average, green buildings are 28% more energy efficient than conventional buildings. Gregory H. Kats, Green Building Costs and Financial Benefits at 4, available at http://www.cap-e.com/ewebeditpro/items/ 059F3481.pdf. The total financial benefits of a green building is in excess of ten times the average initial investment necessary to design and construct it. Id. at 8.

(7) What is LEED?, available at http:// www.greenerbuildings.com/ leed_definition.cfm.

(8) The Council's financial analysis indicates that the savings associated with decreases in energy and water costs alone will offset debt service payments on any increase in capital expenditures resulting from this legislation.

* Kenneth M. Block is the general counsel of the New York Chapter of the United States Green Building Council.