Building Energy Performance: The New Frontier of Transactional Due Diligence (and Contractual Liability)

The American Society for Testing and Materials (ASTM) recently published its much heralded Standard Practice for Building Energy Performance Assessment for a Building Involved in a Real Estate Transaction E-2797-11 (the “Standard”) in response to the perceived market need for a uniform methodology for evaluating energy efficiency in buildings.  The Standard is available for purchase and download here.  The Standard defines a careful process through which a “qualified Consultant” collects and analyzes “energy use” information, and specifies the format in which various “findings” are reported, the most relevant of which are (i) “pro forma building energy use” (reported in kilo (103) British thermal units (kBtu) per year), (ii) “energy use intensity” (reported in kBtu per square foot), and (iii) “pro forma  building energy cost” (reported in US Dollars ($) per year and $ per square foot per year).  The stated (and laudible) objectives of the Standard are to

(1) define a commercially useful practice for collecting, compiling, and analyzing building energy performance information associated with a building involved in a commercial real estate transaction; (2) facilitate consistency in the collection, compilation, analysis, and reporting of building energy performance information as may be required under building labeling, disclosure, or mandatory auditing regulations; (3) supplement as needed a property condition assessment conducted in accordance with Guide E2018 or an environmental site assessment conducted in accordance with Practice E1527; (4) provide that the process for building energy performance data collection, compilation, analysis, and reporting is consistent, transparent, practical and reasonable; and (5) provide an industry standard for the conduct of a BEPA [building energy performance assessment] on a building involved in a commercial real estate transaction, subject to existing statutes and regulations which may differ in terms of scope and practice.

The Standard references and in some respects parallels the Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (E1527), the ASTM’s effort to standardize the practices and procedures that satisfy the “all appropriate inquiry” element of CERCLA’s innocent landowner defense.  Having witnessed the evolution of environmental due diligence from the mid-1980s through the present, and the concomitant expansion in breadth and depth of contract representations, warranties and indemnities specifically addressed to environmental concerns, I cannot help but wonder when green building and energy efficiency issues will find their way into standard “due diligence” checklists and definitive agreements for corporate mergers and acquisitions transactions. Not long, I suspect. Read the rest of this entry »

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