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On September 6, 2024, the Maryland Department of the Environment (the Department) formally published the Building Energy Performance Standards applicable to buildings of 35,000 square feet or larger. The regulations are subject to public comment until October 9, 2024, and will then become final.

As readers of our earlier bulletins know, the regulations will require all covered buildings to conduct benchmarking and then comply with standards for net greenhouse gas emissions from the use of fossil fuels. The regulations also require benchmarking of energy efficiency in preparation for energy use intensity (EUI) standards to be promulgated in 2027. There are exceptions for restaurants, parking structures, schools, manufacturing and agricultural uses and buildings on historic registries but it is estimated that approximately 9000 buildings will be subject to these new rules.

The Department of the Environment estimates that between 2025 and 2040, “all covered buildings combined will spend more on efficiency measures ($205 million) and electrification measures ($5.53 billion) than the energy cost savings accrued in this period ($1.2 billion).” The Department predicts that by 2050 most owners will achieve a net savings, but the Department concedes that there are significant variations, and a quarter of covered buildings may never recover the costs.

Separate from the net greenhouse gas emission reduction, the Department is putting together EUI standards. Pursuant to budget language passed by the General Assembly, the EUI standards will not be finalized until 2027 but the Department estimates that between 2025 and 2040 “all covered buildings combined will spend more on efficiency measures ($8.8 billion) and electrification measures ($6.4 billion) than the energy cost savings accrued in this period ($8.96 billion).” As with the net greenhouse gas emission standards, the Department predicts that covered buildings as a whole will achieve net energy savings by 2050, however as many as a quarter of the buildings will never recover the costs.

Some professionals reviewing the data believe that the Department has underestimated the costs of the building improvements and also failed to accurately reflect the time required to recoup investments. Nevertheless, the Department’s own estimates are that owners of covered buildings will need to spend approximately $20 billion dollars on building improvements to meet the new standards.

The Department plans to send out notices to owners of covered buildings in early January 2025. The initial notices may include some buildings that are not required to meet the criteria and, in other cases, may accidentally omit covered buildings. This January 2025 notification from the Department should not be the sole determining factor as to whether or not a building is subject to these requirements. It is the building owner’s responsibility to determine if the rules apply to the structure.

The first step will be for a building owner to request relevant data from utilities. During the first year, the utility will be given 90 days from the date of the request to respond. The owner must then submit benchmarking data using the EPA Portfolio Manager application by June 1, 2025.  The data must include all energy use during calendar 2024. Failure to submit the data or the submittal of incorrect data is a violation of the regulations and can be punished by severe penalties at the discretion of the Department. Benchmark reporting for new construction, if it meets the definition of a covered building, would begin the first calendar year after which the new building is occupied.

Many building owners may choose to hire consultants to perform the benchmarking since the same consultants can advise the owners of potential building improvements needed to meet the standards.

While the building owner is responsible for fulfilling the annual reporting requirements, tenants must also cooperate and provide its relevant reporting data to Landlords under the Building Energy Performance Standards proposed regulations. The proposed regulations provide tenants with a 30-day window after a request is made by the Landlord to provide all requested benchmarking information that cannot be acquired by the Landlord from other sources, such as from a utility company.

In the meantime, landlords of covered buildings should review both their existing lease agreements and their lease forms to assure that obtaining the required information from tenants is also a requirement under the lease agreement with remedies in place if tenant fails to timely provide the required information to landlord. Additionally, landlords of covered buildings should also review their lease agreements to confirm that landlord would have the right to make changes and improvements to occupied units in order to meet the standards. A prospective tenant considering a lease agreement for space in a covered building should also pay attention to those same terms by the landlord.

The proposed regulations also would require sellers of covered buildings to disclose to a prospective buyer if the building is a covered building and subject to the Building Energy Performance Standards requirements. At closing, Seller would be required to transfer to the purchaser all documentation on the benchmarking data and other related documentation. In addition, prospective buyers of covered buildings should include the receipt of seller’s benchmarking documentation as part of a seller’s deliverables in a contract of sale. Prospective buyers may also want to consider their own benchmarking as part of buyer’s study period to avoid unpleasant surprises after closings.

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

Nicole Folks
410-576-4236 • nfolks@gfrlaw.com

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