New York, Boston and the benchmarking cities

A carbon fine is not an operating expense in most leases

Building performance mandates put two new kinds of cost on a reconciliation: the penalty for exceeding a limit or failing to report, and the retrofit done to avoid it. They are different questions with different answers, and both are answerable from your own lease.

Sources: New York City Local Law 97 of 2019 and its reporting penalties; Boston BERDO 2.0. Both place the obligation on the building owner.

1. The penalty

   Local Law 97 charges an owner for emissions above the building limit and a separate amount for failing to file, and BERDO works the same way. The obligation sits on the owner. Most negotiated leases exclude fines, penalties and interest in terms, which makes the charge a landlord cost in full rather than a share of one.

2. The retrofit

   Lighting conversions, controls, metering and envelope work are capital by nature. Where the lease excludes capital, a retrofit is excluded whatever drove it. Where the lease allows capital required by law, the allowance is conditional: the law generally has to post-date the lease, the work has to be the minimum required, and recovery is by amortisation over the useful life rather than in the year it was done.

3. Who was the mandate addressed to

   This is the question that settles most of it. The filing duty, the emissions limit and the liability are the owner obligations, and a cost incurred to discharge an owner obligation is not automatically an operating expense shared by the tenants.

4. Check your own statement

   Rule R59 looks for the penalty in the pool and rule R48 tests the retrofit against your capital clause, allowing the amortised slice and claiming the rest. Two files and both answer in minutes.