New State Laws to Affect Industrial Real Estate

A number of new laws and regulations go into effect this summer in various states across the U.S., and a number of them affect industrial real estate. Owners of industrial real estate portfolios, property managers, and their advisors should be aware of the changes and consult with their legal advisers and local counsel to ensure they are in full compliance.

California. On July 1, California will impose additional reporting and disclosure obligations on owners of most types of commercial and industrial real estate. California’s Construction-Related Accessibility Standards Compliance Act (California SB 1608), adopted in 2008, nominally protects landlords from opportunistic plaintiffs. Under the new law, landlords who procure “CASp-inspected” or “CASp-pending” certificates can ask a court to stay any action brought against an owner for non-compliance under the state’s broad accessibility laws for 90 days. Further, the new legislation allows the owner to set an early evaluation conference that may allow for expeditious settlement of claims.

However, late last year, the California legislature enacted further legislation (SB 1186), requiring that – after July 1, 2013 – every “commercial property owner or lessor” in California disclose in their leases whether or not the subject property has been inspected by a CASp specialist and, if it has been inspected, whether or not the specialist determined that the property met applicable accessibility standards. The requirement appears to apply to all forms of commercial real estate, and does not exempt industrial projects.

Although the disclosure requirement has no apparent associated penalty, the legislature’s intent was to encourage accessibility discussions as part of lease negotiations. Owners of commercial property should be prepared to address tenants’ requests for CASp certification, especially in new construction or build-to-suit projects. Similarly, owners may consider requiring tenants to obtain certification for tenant-constructed improvements. Possibly, owners may be asked by prospective purchasers to make certain warranties or representation regarding the disclosures, the CASp certifications, if any, and any follow-on remediation in a contract for sale. Owners will need to carefully weigh the possible risk that CASp inspections will expose the need for costly mitigation of non-conforming improvements.

In addition to the new CASp disclosures, owners of non-residential California real estate will need to make disclosures regarding energy usage both to prospective tenants and buyers. The California Energy Commission adopted regulations in December 2012 which begin to go into effect on July 1, 2013. The obligations are scheduled to go into effect over the following twelve months, applying first to buildings greater than 50,000 square feet and, ultimately, applying to all buildings greater than 5,000.

The Commission’s action was part of a disclosure effort begun with the passage of AB 1103 by the California legislature in 2007 (amended by AB 531 in 2009), which required that energy utilities maintain energy consumption data of all non-residential buildings and upload all the data to the EPA’s ENERGY STAR Portfolio Manager, if authorized by the building’s owner or manager. The Commission was required by the legislature to formulate rules implementing the disclosure requirements.

In order to meet the requirements, California property owners will need to create an EPA Energy Star account prior to lease or sale of a property. The rules then require the owner to disclose the energy use history of the property to potential buyers and lessees no later than 24 hours before executing a contract to buy or a lease for the property. Disclosures are not required to lessees of less than the entire building.

Florida. Unlike the additional regulatory burdens imposed in California, the State of Florida has enacted legislation advancing the state’s manufacturing incentives. Owners of industrial real estate should be aware of the impact on prospective tenants and purchasers. The Florida Legislature passed CS/HB 357 on April 30, 2013. Under the legislation, the Department of Economic Opportunity (DEO) will create a model ordinance for local governments to use as a guide to establish local manufacturing development programs which grant master development approval for manufacturers. Manufacturers that participate in a local manufacturing development program will benefit from an expedited state development and permit approval process. The bill has an effective date of July 1, 2013, unless vetoed by the Florida governor.

Washington. The Washington State Building Code Counsel recently adopted and amended a series of Building Energy Codes applicable to commercial buildings, including the 2012 International Energy Conservation Code (IECC) with certain state amendments. The new code will be effective July 1. The new code is a total revamp of Washington’s existing energy code, and it implements a number of significant changes, some substantially different than the uniform code. Most significant for industrial real estate owners is that energy usage on all individual systems in non-residential buildings over 50,000 square feet will be subject to additional monitoring and sub-metering requirements.

Originally published in the Colorado Real Estate Journal.


Moye White