The Short Answer
Local Law 97 assesses penalties against the building owner. The law does not make tenants directly liable to the City for a building's emissions penalty.
Whether an owner can recover part of that cost from tenants depends on the lease. Many leases in effect today were written before 2019 and do not address a per-tonne carbon penalty directly, so owners and tenants are working out how existing provisions apply.
For owners and tenants alike, an allocation is easier to agree on when the underlying filing, the method, and the arithmetic are documented and shared.
How Lease Provisions Apply
Three types of lease provisions typically come into play.
Operating expense escalations. Many commercial leases allow the owner to pass through increases in operating expenses above a base year. Whether an LL97 penalty counts as an operating expense depends on the lease language, including any exclusions for fines or penalties.
Compliance with laws. Some leases require tenants to comply with laws that apply to their premises, or to share the cost of compliance. How these clauses apply to a building-wide emissions limit depends on their wording and scope.
LL97 and sustainability provisions. Many newer leases and renewals include specific language on LL97 cost sharing, often with a defined allocation method. Where such a provision exists, it generally governs.
Lease interpretation is a legal question. Owners and tenants should review their specific provisions with counsel.
Common Allocation Methods
Where the lease permits cost sharing, the penalty has to be divided among occupants. Three approaches are common:
| Method | How it works | Considerations |
|---|---|---|
| Floor area | Penalty × (tenant SF ÷ building SF) | Simple and transparent; does not reflect differences in energy use |
| Metered use | Penalty allocated by measured consumption | Closely reflects actual use; requires submetering |
| Modeled use by occupancy type | Each space's estimated emissions compared with its allowance | Suited to mixed-use buildings; depends on documented assumptions |
In a mixed-use building, the emissions limit is the sum of the allowances for each occupancy type. The way floor area is assigned to each type therefore has a direct effect on both the building's limit and each occupant's share.
What Makes an Allocation Well Supported
Four areas come up repeatedly when allocations are reviewed. Addressing them in advance helps owners present an allocation tenants can follow, and helps tenants understand the figures they receive.
1. Occupancy classifications are consistent across filings
Emissions allowances vary by occupancy group, in some cases substantially. If a space is classified differently in the LL97 report than in earlier LL84 benchmarking filings, the building's limit changes even if energy use does not. Where a classification has changed, documenting the reason makes the allocation easier to explain.
2. Gross floor area is reconciled
A building's floor area can appear differently in Department of Finance records, benchmarking filings, and the LL97 report. Because the limit scales with area, it is worth reconciling these figures and recording which one the filing uses.
A change in area changes the limit, even when actual emissions stay the same.
3. Energy data is measured where possible
Benchmarking submissions indicate whether energy data was measured or estimated. Estimated values, particularly for district steam, add uncertainty to both the penalty and the allocation. Using measured data where it is available strengthens the result.
4. Allocated shares reconcile to the building penalty
When each occupant's excess emissions are calculated separately and occupants below their allowance are counted as zero, the individual shares can add up to more than the building's actual penalty. Reconciling the allocated amounts to the actual penalty keeps the method internally consistent.
A simple check: the sum of all allocated shares should equal the penalty the building owes.
Practical Steps for Owners
- Document the method. Record the allocation approach, data sources, and assumptions, and share them with tenants along with the allocation.
- Reconcile to the filing. Confirm the allocation uses the same floor area, classifications, and energy data as the LL97 report.
- Address LL97 in new leases and renewals. Clear cost-sharing language reduces uncertainty for both parties in later compliance periods.
- Plan for 2030. Limits tighten in the 2030 to 2034 period, so allocations that are modest today may grow. Measures that lower the building penalty benefit owners and tenants alike.
Practical Steps for Tenants
- Request the supporting information. Ask for the building's LL97 report and the allocation calculation. Prior-year benchmarking data is also publicly available through NYC Open Data.
- Review the lease. The lease determines whether and how LL97 costs are shared.
- Compare with utility records. Tenants with direct utility accounts can compare their own consumption with the figures used in the allocation.
- Use renewals to set terms. A lease renewal is an opportunity to agree on LL97 cost sharing before the 2030 limits take effect.
Summary
LL97 is a building-level obligation, and many covered buildings have multiple occupants. The penalty calculation is defined by the law, while allocation among occupants is set by each lease and is still developing in practice. A clearly documented allocation, based on the same data as the building's filing, is usually the most efficient outcome for owners and tenants.
For a building-level estimate of LL97 exposure, see our LL97 calculator. For background on how penalties are calculated, see How NYC's Local Law 97 Fines Work.
Questions About an LL97 Allocation?
We review LL97 filings, emissions calculations, and cost allocations for building owners and tenants. Initial consultations are free.