Building Emissions Laws Are Here to Stay. Here Is What Tenants Need to Know.

Finding and negotiating a commercial lease is already complicated. Now many tenants are facing a new layer of uncertainty: building emissions laws.

New York City’s Local Law 97 (LL97) was the first major standard in the United States to cap carbon emissions for existing buildings and attach significant penalties for non-compliance. But it will not be the last.

Cities like Boston, Washington DC, Denver, Seattle, St. Louis, and Los Angeles are rolling out their own building performance standards. These rules share a common goal: reduce emissions from older buildings by requiring owners to invest in energy upgrades or face fines.

For tenants, the impact is real. Capital improvements, reporting requirements, and penalties can all spill into lease costs if the document is written broadly. This post breaks down what tenants need to know and how to protect themselves before these laws translate into higher operating expenses.

What Building Emissions Laws Actually Require

While each city’s law has its own structure, most follow the same pattern:

• Buildings over a certain size must hit an annual emissions or energy performance target.
• Owners who exceed the limit pay fines that can scale into the millions.
• Compliance often requires upgrades like HVAC retrofits, lighting replacements, envelope improvements, or significant energy procurement changes.

LL97 set the template. Other cities are simply iterating on the same model. Which means tenants across the country will face similar lease risks and cost pressures.

How These Laws Affect Tenants Even When Owners Are Regulated

Building owners are the ones directly subject to penalties. But tenants often pay indirectly because many leases allow owners to recover costs from tenants in different ways. Three areas matter most.

1. Capital Improvements

Most buildings will need upgrades to meet performance standards. Without protective lease language, owners can pass those costs to tenants through:

• capital improvement pass-throughs
• amortized operating cost increases
• compliance-related project charges

These projects can cost millions, so tenants need clear boundaries.

2. Operating Expenses

Building emissions laws introduce new compliance tasks and monitoring requirements. Some landlords fold these expenses into the operating expense pool. Without exclusions, tenants may see higher reconciliations for sustainability consultants, reporting services, or monitoring systems.

3. Fines and Penalties

This is the biggest risk. Broadly worded operating expense provisions can let landlords classify LL97 or similar penalties as recoverable costs. That means tenants could be charged for a landlord’s non-compliance. Every tenant should negotiate explicit fine exclusions or caps.

New Area of Exposure: Tenant Utility Data Reporting

Almost every building performance law requires accurate emissions reporting. To calculate total building emissions, landlords often need tenant-level utility consumption data. This has created a new lease issue that many tenants overlook.

Some leases now require tenants to provide detailed consumption data with little notice. That can be unrealistic, especially if tenants need to coordinate with submetering providers or utilities.

What tenants should negotiate:

• Trigger: Tenant reporting should begin only after the landlord receives an official compliance or reporting notice from the city and notified the tenant of the request.
• Timeline: Tenants should get at least 90 days to provide utility data after a landlord request.
• Scope: Data should be limited to electricity, fuel, water, or submeter reads that are directly relevant to the emissions calculation.
• Format: Data should be provided in the form the tenant already maintains. No custom reports at tenant cost.
• Cost: Tenants should not pay administrative fees or penalties tied to reporting.

A simple clause can prevent rushed or unreasonable requests that strain operations.

Lease Protections Tenants Should Push For

Across any city with an emissions law, the following protections can prevent surprise expenses or wide-open risk.

Cap or Limit Capital Pass-Throughs

If your lease allows capital recovery, set a clear limit. Options include:

• a dollar-per-square-foot annual cap
• limiting upgrades to those that directly reduce your operating costs
• excluding LL97-style compliance projects entirely

Exclude Fines and Penalties

Add clear language stating that fines, fees, and penalties under any building performance standard are the sole responsibility of the landlord and cannot be passed through as operating expenses.

Tie Upgrade Costs to Actual Savings

Tenants should only contribute to energy projects that create measurable reductions in their own usage or operating expenses.

Increase Transparency

Require the landlord to share:

• annual emissions status
• compliance filings
• any notices received from the city
• any planned or required upgrades

This prevents landlords from hiding compliance problems until year-end reconciliation.

Key Takeaways for Tenants in Any City

• Climate regulations are spreading quickly. LL97 is the blueprint.
• Landlords will look for ways to recover compliance costs through leases.
• Tenants should proactively negotiate protections for capital expenses, operating expenses, fines, and data obligations.
• Utility reporting could become a recurring requirement, so tenants need reasonable timelines and limits.
• A few targeted lease clauses can prevent large, unexpected expenses down the line.

Being prepared now gives your business leverage before these laws trigger costly upgrades across the country.