NYC office landlords face $268-per-ton carbon penalties under Local Law 97, but cannot pass costs to tenants who generate 50-70% of building emissions

New York City's Local Law 97 imposes carbon emission caps on buildings over 25,000 square feet, with penalties of $268 per metric ton of CO2 exceeding the limit. The first penalty assessments were issued after the May 1, 2025 reporting deadline, and building owners are now carrying measurable annual liabilities. The core problem is that tenants are estimated to generate 50-70% of a building's energy consumption through lighting, plug loads, and after-hours HVAC, yet the law places all compliance obligations and penalties on the building owner. Why it matters: When a landlord cannot control the majority of their building's emissions because tenant behavior drives energy use, the landlord either absorbs the penalty as a direct cost hit to NOI, so the building's cap rate expands and value drops, so the owner tries to pass penalties through to tenants via lease amendments, so tenants resist or leave for newer buildings that are already compliant, so the older building loses occupancy while still carrying the penalty liability, creating a death spiral where lower occupancy and higher costs compound each other. The structural root cause is that LL97 was designed around the regulatory principle that building owners control building systems, but in a multi-tenant office building the owner controls base building systems (elevators, lobby, common HVAC) while tenants control the bulk of in-unit energy consumption, and existing lease structures were written before emissions caps existed, so there is no contractual mechanism to compel tenant behavior change.