NYC Local Law 97 Fines: Defend Owners 2026

What is NYC Local Law 97 and which buildings are at risk of emissions fines?

NYC Local Law 97 is a building emissions law that sets carbon caps for most buildings 25,000 square feet and larger, with annual reporting starting in 2025 and significant fines from 2026 onward. The law primarily impacts office, retail, multifamily, hotel, and institutional properties in New York City that exceed their assigned emissions limits.

Core framework of Local Law 97

• Jurisdiction: New York City, under the Climate Mobilization Act.
• Key law: Local Law 97 of 2019, as amended by subsequent local laws and DOB rules.
• Enforcement agency: NYC Department of Buildings (DOB), through the Office of Building Energy and Emissions Performance (OBEEP).

Which buildings are covered?

Local Law 97 generally applies to:

• Most buildings in NYC that are 25,000 square feet or larger.
• Groups of two or more buildings on the same tax lot or under common condo board that total 50,000 square feet or more.
• Certain NYCHA and rent-regulated properties have special treatment or temporary exemptions, but still face future requirements.

Key compliance dates

• 2024: First compliance year for emissions limits.
• May 1, 2025: First annual building emissions report due, covering calendar year 2024.
• 2026: DOB begins collecting penalties for 2024 non-compliance.
• 2030: Second, much stricter set of emissions limits take effect, sharply increasing risk for inefficient assets.

What owners and tenants should care about

• Owners/landlords: Face direct statutory liability for emissions fines, reporting failures, and false statements.
• Commercial tenants: May bear costs through lease pass-throughs, major capital projects, disruption, or rent resets.
• Investors and lenders: Must factor Local Law 97 exposure into valuations, loan covenants, NOI projections, and exit strategies.

How are Local Law 97 emissions fines calculated in New York City?

Local Law 97 emissions fines are calculated at $268 per metric ton of CO₂-equivalent above a building's annual emissions limit, multiplied by the amount of the exceedance. Additional fines apply for failing to file reports or filing false information.

Basic penalty formula

The core emissions fine for a covered building is:

Annual Fine = (Actual Emissions - Allowed Emissions) x $268

• Actual Emissions: In metric tons of CO₂-equivalent, calculated from utility usage and fuel consumption.
• Allowed Emissions: The building's assigned emissions limit, based on:
  • Gross floor area, and
  • Building use type(s) and assigned emissions intensity limits in Local Law 97 and DOB rules.

Sample fine calculations

Other Local Law 97 penalties

In addition to the emissions exceedance fine, Local Law 97 and DOB rules provide for:

• Failure to file an emissions report:
  • Civil penalty of $0.50 per square foot per month for up to 12 months.
  • Example: A 200,000 sq ft building that does not file for 6 months could face roughly $600,000 (200,000 x $0.50 x 6).
• False statements in reports:
  • Potential criminal liability (misdemeanor) and significant civil penalties.
  • High risk for owners who "guess" at data or mischaracterize building uses without proper backup.
• Failure to maintain records: Additional DOB violations if the owner lacks supporting documentation for energy and emissions calculations.

Why fines spike after 2030

• The emissions intensity limits tighten significantly in 2030-2034, so the allowed emissions number drops.
• Buildings that are only slightly above their 2024-2029 limits may find themselves thousands of tons above the 2030 limits.
• Because the $268-per-ton rate applies to the exceedance, even modest changes in building performance can have six or seven figure impacts on annual penalties.

Owners' key financial steps

• Model fines for 2024-2029 and separately for 2030-2034 under:
  • Business-as-usual operations, and
  • Realistic retrofit scenarios.
• Integrate projected fines into:
  • Lease negotiations and expense caps,
  • Debt service coverage modeling, and
  • Hold/sell and recapitalization decisions.

How can building owners prove "Good Faith Efforts" to reduce or avoid Local Law 97 penalties?

Owners prove "Good Faith Efforts" under Local Law 97 by showing DOB concrete, time-stamped evidence that they have planned, financed, and begun implementing emissions-reducing measures, even if the work is not yet complete. Strong documentation can lead to reduced or deferred penalties in the early compliance years.

What DOB looks for in "Good Faith Efforts"

Under Local Law 97 rules and DOB guidance, "Good Faith Efforts" are not about generic intentions; they are about specific, verifiable actions. Key elements typically include:

• On-time reporting: Filing the annual emissions report by May 1 with accurate, supportable data.
• Energy and emissions analysis:
  • ASHRAE-level energy audit or equivalent engineering study, and
  • A documented decarbonization and compliance pathway through at least 2030.
• Committed retrofit plan:
  • Board or ownership approval of a capital plan, including budget and scope, and
  • Clear milestones and expected emissions reductions.
• Financing in place or actively pursued:
  • Signed term sheets, PACE applications, loan amendments, or capital calls documented in writing.
• Permits and contracts:
  • Filed DOB permits for HVAC, electrical, or envelope work, and
  • Executed contracts with design firms, ESCOs, or contractors.

Evidence owners should assemble

To support a "Good Faith Efforts" argument or application, owners should compile:

• Governance documents:
  • Board resolutions approving LL97 compliance plans or retrofit projects.
  • Investment committee memos analyzing LL97 risk and selected strategies.
• Technical documentation:
  • Energy audit reports, benchmarking data, modeling files, and decarbonization roadmaps.
  • Reports showing predicted vs baseline emissions and timelines for improvements.
• Contracts and correspondence:
  • Signed contracts with engineers, architects, and contractors.
  • Email chains or letters showing competitive bidding and scope refinement.
• Permitting and DOB filings:
  • Job filings and permit numbers for relevant work.
  • Evidence of DOB plan reviews and inspections scheduled or completed.
• Financing records:
  • Loan commitments, PACE financing applications, or owner equity approvals.
  • Evidence of seeking incentives (Con Edison programs, NYSERDA, federal IRA credits).

Process to seek penalty relief based on Good Faith Efforts

1. Assess your gap: Work with an engineer to quantify current emissions vs your 2024-2029 and 2030 limits.
2. Design a compliance roadmap: Prioritize measures that are:
   • Feasible for your building type and tenancy, and
   • Capable of closing enough of the gap on a clear timeline.
3. Lock in implementation steps:
   • Approve budgets, sign contracts, and file permits as early as possible.
4. Prepare a Good Faith Efforts package:
   • Summarize planned and completed measures, costs, and projected emissions impacts.
   • Attach supporting documents (contracts, permits, financing, energy modeling).
5. Engage DOB proactively:
   • Submit required forms or adjustment applications within DOB deadlines.
   • Respond quickly to information requests and inspection notices.
6. Use Good Faith as a defense or mitigation argument:
   • If DOB issues a violation or fine, present the package in settlement talks or at OATH hearings to seek penalty reduction, deferral, or an extended compliance schedule.

Common mistakes that sink Good Faith arguments

• Waiting until a violation arrives to start the planning and contracting process.
• Producing high-level PowerPoints with no signed contracts, no permits, and no committed funding.
• Ignoring tenant coordination where tenant spaces control a large share of the building load.
• Failing to document decision-making, which makes efforts look reactive rather than strategic.

Can landlords pass Local Law 97 fines and retrofit costs to commercial tenants?

Landlords can only pass Local Law 97 fines or retrofit costs to commercial tenants if the lease language clearly allows it, which many existing leases do not. Most disputes will turn on how "operating expenses," "capital expenditures," "compliance with laws," and "penalties" are defined in each lease.

Key lease provisions to review

Owners and tenants should start with a clause-by-clause review of:

• Operating expense definitions:
  • Whether "environmental compliance" or "governmental charges" are included.
  • Whether the definition explicitly includes or excludes "fines" and "penalties."
• Compliance with laws clauses:
  • Obligations on landlord vs tenant for current and future laws affecting the building or premises.
  • Any carve-outs for "capital improvements" or "structural changes."
• Capital expenditure pass-throughs:
  • Whether landlord can pass capex through as amortized "operating expenses."
  • Whether only "required by law" or also "voluntary" improvements qualify.
  • Any ROI or energy savings tests (for example, pass-through limited to projects that reduce operating costs).
• Tax and governmental charges clauses:
  • Whether "carbon charges," "environmental surcharges," or similar terms are included.
  • Distinction, if any, between "taxes/assessments" and "penalties/fines."

How courts may view Local Law 97 costs

Local Law 97 creates a blend of regulatory compliance costs and punitive fines, which introduces legal ambiguity. Arguments typically fall into two camps:

• Landlord position:
  • LL97 is a "law" the landlord must comply with to operate the building.
  • Compliance costs and even fines are akin to operating expenses or governmental charges that can be passed through.
• Tenant position:
  • LL97 per-ton charges are "penalties" for owner-controlled decisions, not regular operating expenses.
  • Standard exclusions for "fines" or "penalties" block pass-through, and landlords must manage these like any other regulatory risk.

Because Local Law 97 is new and fact-specific, strongly negotiated leases will likely drive outcomes more than broad legal generalizations.

Negotiating LL97 risk in new or renewal leases

For leases signed today, parties should address Local Law 97 explicitly. Practical approaches include:

• Clear allocation of fines:
  • State whether LL97 emissions fines are:
    • Excluded from pass-throughs,
    • Shared pro rata by tenants (for example, based on rentable square footage), or
    • Attributed based on submetered usage where practical.
• Retrofit cost sharing:
  • Allow pass-through of certain "required by law" LL97 capex, amortized over a defined period.
  • Cap annual increases (for example, not more than $X per rentable square foot per year attributable to LL97).
  • Tie pass-throughs to documented energy savings, with true-ups each year.
• Performance and cooperation clauses:
  • Tenant agrees to cooperate with metering, controls, and operational changes.
  • Landlord agrees to pursue commercially reasonable, cost-effective measures before passing through fines.

Strategies for current tenants facing LL97 pass-through demands

• Request the full lease provision set the landlord is relying on and any legal memo supporting their interpretation.
• Ask for:
  • Building-wide emissions modeling,
  • Your share of load vs other tenants, and
  • What measures the landlord has taken to avoid fines.
• Negotiate trade-offs:
  • Fixed LL97 expense caps in exchange for lease extension or expansion options, or
  • Agreement to share retrofit costs in exchange for rent concessions or improved services.
• Consider whether the lease gives you audit rights on operating expenses and use them strategically.

What retrofit strategies help buildings meet 2030 Local Law 97 limits and avoid higher fines?

The most effective Local Law 97 retrofit strategies combine quick operational improvements with targeted capital upgrades to HVAC, controls, and electrification, all sequenced to meet the stricter 2030 limits. Owners that plan and phase work between 2024 and 2029 can avoid far larger fines and emergency retrofits after 2030.

Start with diagnostics and low-cost measures

• Energy audits and commissioning:
  • Conduct an ASHRAE Level II or III audit focused on LL97 gap closure.
  • Retro-commission systems to reset schedules, sequences, and setpoints.
• Controls and operational changes:
  • Optimize BMS schedules and deadbands.
  • Improve night setbacks, occupancy-based controls, and ventilation schedules.
• Lighting upgrades:
  • Convert remaining fluorescent or HID fixtures to LEDs with controls.
  • Many NYC buildings still carry a meaningful lighting opportunity with paybacks under 3-5 years.

Big-ticket measures that move the LL97 needle

• HVAC system modernization:
  • Replace aging boilers, chillers, and air handlers with high-efficiency systems.
  • Shift from fossil fuel-burning equipment to electric heat pumps where feasible.
• Electrification and fuel switching:
  • Electrify space heating and domestic hot water over time, especially in buildings with older oil or gas boilers.
  • Coordinate with electric capacity upgrades and grid interconnection planning.
• Building envelope improvements:
  • Improve insulation, glazing, and air sealing to reduce heating and cooling loads.
  • Target façade work to align with periodic Local Law 11 (facade) cycles where possible.
• On-site renewables and storage:
  • Evaluate rooftop solar PV where structurally and financially feasible.
  • Consider batteries to manage peak demand and support resiliency goals.

Financial planning and incentives

• NYC PACE financing:
  • Property Assessed Clean Energy (PACE) can fund LL97 compliance work with long-term, tax-assessed financing.
  • Works well for deep retrofits that align with long-term hold strategies.
• Federal incentives:
  • Section 179D deductions for energy efficient commercial buildings.
  • Other Inflation Reduction Act incentives that support electrification and efficiency.
• Utility and state programs:
  • Con Edison rebates and programs.
  • NYSERDA grants and technical assistance, especially for large portfolios.

Tenant coordination to unlock deeper savings

• Coordinate build-out standards for new tenants to require:
  • Efficient lighting and plug loads, and
  • Connection to base building controls where possible.
• Implement "green lease" provisions that:
  • Encourage submetering and sharing of usage data, and
  • Align landlord and tenant incentives to cut energy use.
• Engage large tenants in behavior campaigns, load shifting, and flexible operations tailored to their use patterns.

How do you challenge a Local Law 97 violation or fine in New York City?

To challenge a Local Law 97 violation or fine, an owner typically combines technical evidence with legal arguments through DOB review and the NYC Office of Administrative Trials and Hearings (OATH). The process focuses on correcting data, demonstrating Good Faith Efforts, and applying for adjustments or penalty mitigation where rules allow.

Typical path for contesting a Local Law 97 fine

1. Review the notice and calculations:
   • Confirm the building classification, square footage, and assigned emissions limit.
   • Recalculate emissions using the same inputs and factors DOB used to spot any errors.
2. Engage an engineer for a technical review:
   • Validate utility data, meter configurations, and usage allocations between building systems and tenants.
   • Check for misclassified space types that may have stricter or looser limits than appropriate.
3. Identify legal and procedural defenses:
   • Timeliness and sufficiency of DOB notices.
   • Eligibility for adjustments, exemptions, or Good Faith Efforts mitigation under current DOB rules.
4. Submit corrections or adjustment applications to DOB:
   • If data errors exist, provide corrected data with clear backup.
   • If seeking an adjustment, file the appropriate DOB forms with supporting evidence before applicable deadlines.
5. Prepare for OATH hearing if needed:
   • Work with counsel to assemble a factual record, technical affidavits, and legal arguments.
   • Present Good Faith Efforts evidence to seek reduction or deferral of penalties.
6. Explore settlement options:
   • In some cases, owners may negotiate reduced penalties tied to firm retrofit milestones and reporting obligations.

Grounds for challenging or reducing penalties

• Incorrect building classification or area:
  • Mislabeling of space as "data center" vs "office" or similar can materially skew limits.
• Data or calculation errors:
  • Incorrect utility billing periods, duplicate meter entries, or omitted on-site generation.
• Newly completed retrofits:
  • Work completed soon after the reporting year may support Good Faith Efforts arguments.
• Hardship or special circumstances:
  • Where DOB rules provide limited adjustments for unique conditions, such as certain affordable housing or landmark constraints.

How tenants should respond if their landlord receives a LL97 fine

• Request notice if the landlord receives LL97-related violations affecting the building.
• Ask for updates on any appeals or mitigation strategies, especially if the landlord seeks to pass costs through.
• Monitor whether compliance work will impact your operations or trigger rights under:
  • Alteration, access, or quiet enjoyment clauses, and
  • Any rent abatement or offset provisions.

When should you hire a lawyer or technical expert for Local Law 97 issues?

You should bring in legal and technical experts for Local Law 97 when projected fines or retrofit costs are material to the asset's value, when you face a violation, or when you negotiate significant leases or financings. Coordinated legal and engineering advice is often the difference between routine compliance and multi-million-dollar exposure.

Situations where owners should retain counsel and consultants

• High projected fines:
  • Modeling shows annual LL97 exposure in the six or seven figures, especially after 2030.
• Active DOB enforcement:
  • You receive a violation, penalty notice, or DOB inquiry about your emissions report.
• Major capital planning:
  • You are planning large HVAC, envelope, or electrification projects directly tied to LL97.
• Refinancing, acquisition, or sale:
  • LL97 exposure could affect pricing, loan proceeds, DSCR, or buyer interest.
• Complex ownership or condo structures:
  • Multiple owners must share compliance responsibilities and costs across a mixed-use condominium or multi-building campus.

When commercial tenants should hire counsel

• Landlord demands payment of LL97 fines or LL97-related "operating expenses" under existing leases.
• You negotiate a long-term or anchor lease in NYC and need to structure LL97 cost-sharing and performance standards.
• Retrofit projects will materially disrupt your use of the premises or shut down critical operations.

Types of experts to consider

• Real estate counsel with LL97 experience:
  • For lease drafting, pass-through disputes, financing negotiations, and enforcement defense.
• Mechanical/electrical engineers and energy modelers:
  • For emissions gap analysis, retrofit scoping, and compliance roadmaps.
• Cost estimators and construction managers:
  • To translate targets into realistic budgets and schedules.
• Tax and incentive specialists:
  • To maximize PACE, utility, state, and federal support for compliance work.

What are the next steps for NYC landlords and commercial tenants facing Local Law 97 risk?

The most effective next steps are to quantify your Local Law 97 exposure, align owners and tenants on data and cost-sharing, and lock in a staged retrofit and compliance plan before fines escalate. Waiting until DOB issues violations will narrow your options and weaken any Good Faith Efforts claims.

Action checklist for building owners and asset managers

1. Quantify your LL97 baseline:
   • Engage an engineer to calculate 2024 emissions and compare them to 2024-2029 and 2030 limits.
2. Model business-as-usual fines:
   • Project fines for 2024 through at least 2034 under current operations.
3. Map retrofit options:
   • Identify quick wins and longer-lead projects that can narrow or eliminate the gap.
   • Sequence projects to align with lease rollovers and major building work like Local Law 11.
4. Align with your lender and investors:
   • Explain LL97 exposure and your compliance plan.
   • Ensure loan covenants allow necessary capex and any PACE or incentive financing.
5. Review leases and operating expense structures:
   • Identify how much of retrofit costs or fines, if any, you can contractually shift.
   • Update lease forms to address LL97 explicitly for new deals.
6. Prepare your Good Faith Efforts file:
   • Document audits, decisions, contracts, permits, and financing steps to date.
   • Fill gaps before DOB or OATH asks for proof.

Action checklist for commercial tenants

1. Inventory your NYC leases:
   • Flag buildings covered by LL97 and provisions related to operating expenses, capital expenditures, and penalties.
2. Request LL97 information from landlords:
   • Ask for high-level emissions and compliance plans, particularly if you are an anchor or high-load tenant.
3. Assess pass-through risk:
   • Work with counsel to evaluate whether LL97 fines or costs can be allocated to you under current leases.
4. Plan for build-out and operating changes:
   • Design new fit-outs to be energy efficient and compatible with landlord decarbonization plans.
   • Evaluate IT, process, or occupancy changes that can reduce your load.
5. Negotiate LL97 clauses in renewals and new deals:
   • Set clear caps or formulas for LL97 cost allocation, and
   • Align incentives to support joint compliance instead of future disputes.

Strategic takeaway

Local Law 97 is now a core part of New York City real estate strategy, not a side compliance issue. Owners and commercial tenants who treat it as a business problem - with data, contracts, and capital planning - will be far better positioned than those who wait for the first round of large fines in 2026 and beyond.