Legal Bulletins

At the request of the Maryland Building Industry Association, NAIOP and others, the Joint Committee on Administrative, Executive, Legislative and Review (AELR) of the Maryland General Assembly has requested a temporary hold on the finalization of the Building Energy Performance Standards (BEPS).  

Maryland law permits AELR to request a delay so the joint committee can review the proposed regulations and request modifications.  By law, the hold expires after 30 days or on the 105th day after initial publication, whichever is sooner. Although not certain, it seems likely that this hold will delay finalization of the BEPS until the AELR review is complete or until the end of the legislative session (April 8th), whichever is sooner.

Although the AELR committee can request changes to the regulations, the Maryland Department of the Environment (MDE) is not required to accept the changes.  AELR can also vote to oppose the regulation.  If AELR votes to oppose, the Governor can override the opposition and proceed with the regulations as proposed or make changes.

In addition to general opposition to the regulations, many comments against the BEPS focused on the Energy Use Intensity (EUI) requirements, the lack of exceptions for specific types of buildings or tenants and the impacts on condominium owners.

EUI is a set of provisions that require covered buildings (those over 35,000 square feet) to meet very ambitious efficiency standards starting in 2030 and ramping up year by year to final standards in 2040.  For example, a typical office would have to achieve a final standard of 55 BTU per square foot.  A typical multifamily condominium or apartment would need to meet a final standard of 30 BTU per square foot.  For a retail store, the standard is 48 BTU per square foot.  The standard is 30 BTU per square foot for a warehouse.

The building industry has questioned whether the EUI program was authorized by the General Assembly and also is concerned that the proposed standards are far too strict.  EUI is not a minor section of the regulations.  Estimates are that the EUI standards expand the square footage subject to the regulations by approximately 62%. 

Concerns have also been raised about the failure of the regulations to deal with varying situations.  For example, the regulations require tenants to provide detailed energy usage information to landlords.  Landlords will also need to exercise some control over tenant energy use in order to meet the efficiency standards.  

Not all leases grant landlords that degree of authority, although the BEPS as currently drafted require tenants to provide landlords with certain energy use information upon request.  In addition, tenants employed in national security may forbid the release of detailed energy data.  Similarly, the draft regulations make no distinctions based on local micro-climate.  Ocean City condominiums, for example, are subject to the same standards as multifamily buildings in Allegheny County. 

The impact on tenants and condominiums owners is also troubling.  The regulations may require very expensive upgrades for older buildings – including affordable housing units and condominiums primarily owned by senior citizens.  MDE estimated that covered buildings, as a class, would recover the capital costs through energy savings by 2050, but that assurance is unlikely to be welcomed by tenants paying higher rents or condo owners on fixed incomes.  In addition, many reviewers have questioned MDE’s cost estimates.  Even MDE’s figures suggest that as many as a quarter of the covered buildings will not recover all costs by 2050.  Cost estimates have varied from 15 to 25 billion dollars.

Although MDE cannot assess penalties under the regulations until 2025 (for failure to monitor and report) or 2030 (for failure to meet standards), the draft regulations are already impacting real estate investments in Maryland.  It is likely that the impacts will include building values (and therefore financing) as well as long term leasing.  Potential capital costs of billions of dollars for upgrades – often before the end of estimated life for existing HVAC systems – will surely impact the market. 

More details on the regulations can be found in our earlier bulletin here (See here) or by contacting:

Michael Powell
410-576-4175 • mpowell@gfrlaw.com

Max Cooke
410-576-4141 • mcooke@gfrlaw.com

Or any other member of the Gordon Feinblatt Energy & Environmental or Real Estate teams.