WHAT REAL ESTATE LAWYERS NEED TO KNOW ABOUT ENERGY EFFICIENCY HERB RUBENSTEIN, ESQUIRE Presentation to Real Estate Section, Colorado Bar Association January 8, 2009 – Denver, Colorado

Energy Efficiency and Real Estate Law 25 years of practice – DC, MD, VA Real Estate litigation, lease negotiations, sales and closing/transactions attorney; Handled purchase/sale of buildings using bond money; “defeased fees”; historic bldgs "What Real Estate Lawyers Need to Know About Energy Efficiency“ 0 HITS ON GOOGLE “Defeased Fees” 13,000 HITS ON GOOGLE!

Energy Efficiency and Real Estate Law From 1998 to 2001 Papa John’s had leases or contracts signed for over 4,000 buildings, including corporate headquarters in Louisville, KY – a State of the Art Building at 2002 Papa John’s Blvd Not one of the leases or contracts every mentioned energy or energy efficiency. TODAY: There is money in energy efficiency Energy Savings Performance Contracts for energy- and water-conservation projects at federal buildings and facilities and could altogether total up to $80 billion in projects. The DHA hired technology and manufacturing giant Honeywell International Inc. in August to improve energy efficiency at its housing, via a 12-year, $11.6 million contract. Energy Efficient Commercial Buildings Tax Deduction, which was enacted back in 2005 as Section 179D of the 2005 Energy Policy Act. Business Energy Tax Credit that was previously enacted as Section 48 of the 2005 Energy Policy Act.

Energy Efficiency and Real Estate Law State of Colorado HB : Deeds and Covenants. Courtesy of Mark Meyer, Rothgerber, Johnson and Lyons Effective August 5, 2008, this act broadens an existing prohibition on covenants and deed restrictions that effectively prohibit solar energy devices to apply also to wind-electric generators or that prohibit a common interest community from effectively prohibiting energy efficiency measures, subject to reasonable acceptable restrictions regarding aesthetics, safety, and noise.

Energy Efficiency and Real Estate Law Commercial Leases – New clauses, approaches – Separate Metering – Ideal – Separate out “energy costs” from operating costs – Share energy savings with tenants – 50/50 Set quarterly goals for building wide energy use Monthly reports of energy use to tenants Require sharing of best practices - Landlord Newsletter Quarterly dividend to tenants All written into the lease

Energy Efficiency and Real Estate Law From the tenant’s perspective – Demand sharing of energy efficiency savings – Refuse to pay pro-rata share of operating costs similar to refusal to pay pro-rata share of commissions – Demand landlord to undertake energy efficiency – Demand separate metering – Demand concessions for lack of energy efficiency – Demand protection against increases in energy costs

Energy Efficiency and Real Estate Law New Buildings – Demand architect present three different energy solutions for buildings with 20 year energy usage estimates and cost estimates – LEED Certification – – New and Old Buildings – Seek all available tax credits/deductions – Cost Segregation - May be able to treat energy saving devices as personal property – ug/CostSegregationApplied.htm ug/CostSegregationApplied.htm

Energy Efficiency and Real Estate Law Relationship of Energy Efficiency to Value of Real Estate – Appraisal is per se legally deficient if it does not include information on energy use of building – Argument: Two equal homes or buildings except for energy use due to different types of energy systems, have two very different operating costs, value will be different, significantly different – Demand all appraisals have energy use and energy use comparable information

Energy Efficiency and Real Estate Law Deconstruction vs. Demolition – Reduces Waste – Sustainability focus – Requires planning – Should be leg up on any contract proposal – Promotes recycling – Will be required in future RFP’s – Cost factors will be variable depending on location

Energy Efficiency and Real Estate Law No lull due to lower energy costs No lull due to decline in real estate business – Need competitive advantage, differentiator – Energy efficiency may be this differentiator – Historic Buildings – Denver Landmark Preservation Commission – Makovsky Decision Fontius Bldg Create estimates of future energy costs and you create a warranty if not careful Sale of Real Estate –disclosure of previous two years energy bills will be required

Energy Efficiency and Real Estate Law Energy performance certificates - now for the really hard part 6 April EPCs required on all newly constructed commercial property. Also on the sale or letting of all commercial property over 10,000m2. 1 July EPCs required on the sale or letting of commercial property over 2,500m2. 1 October EPCs required on all remaining commercial property sales and lettings.

Energy Efficiency and Real Estate Law Real Estate Disclosures. Energy Efficiency Mortgages Fannie Mae and Freddie Mac Energy Efficient Mortgage Programs VA Energy Efficient Mortgage Program FHA Energy Efficient Mortgage Program Conventional Lenders Have Shown Some Interest in Energy Efficient Mortgages

Energy Efficiency and Real Estate Law Real Changes in Your Practice by Tomorrow – Open Discussion – Change lease provisions – Change disclosures in sales transactions – Change economics of sales and leases – Give your client leverage in negotiation – Become a leader in green real estate law – Use Energy Efficiency to promote your practice – Write/promote new legislation/forms of practice