Green Building Escrow Requirements California 2026
Starting January 1, 2026, California commercial buildings larger than 50,000 square feet must upload energy-use benchmarking data to the state portal before the city will issue a final certificate of occupancy. If the certificate is not available at closing, escrow cannot record the deed and the entire transaction stalls. Buyers and sellers need to bake this new mandate into their 2025 purchase agreements or risk daily extension fees that start at $500 and climb quickly.
The law applies to new construction, major renovations and change-of-use projects in Los Angeles, San Francisco, San Diego and any city that adopts the state green building code. The benchmark must be prepared by a California certified energy manager and uploaded at least 10 business days before the scheduled occupancy date. City staff then have 5 business days to review; if the data is incomplete, the file is rejected and the clock restarts.
For commercial escrows, the practical impact is a new contingency that mirrors a title clearance. The escrow holder must verify that either (1) the certificate has been issued and the building is cleared for occupancy, or (2) a cash reserve equal to 125% of the estimated utility cost for 6 months is parked in escrow pending approval. On a 200,000 square foot office tower, that reserve can reach $180,000.
Typical Reserve Calculation
- Building size: 200,000 sq ft
- Estimated annual utility cost: $1.20 per sq ft = $240,000
- Six month utility exposure: $120,000
- Required escrow reserve (125%): $150,000
- Release trigger: Certificate of occupancy plus final benchmarking approval
Sellers can avoid the reserve by obtaining a temporary occupancy certificate while the final benchmark is pending, but most municipalities will not issue a temp cert on new commercial construction. The safer path is to order the energy audit during the due diligence period and deliver the benchmark file to the city at least 20 days before the scheduled close.
Buyers should add language to the PSA that places the compliance burden on the seller and makes the earnest money refundable if the certificate is not issued by the outside date. A sample clause: “Seller shall deliver a final certificate of occupancy including green building compliance at or before closing; if such certificate is not issued by the outside date, buyer may terminate and receive immediate return of the deposit.”
Lenders are also taking notice. CMBS and life company loans now require a green building compliance letter as part of the closing set. If the letter is missing, the lender will not fund and the buyer faces extension interest on the entire loan balance. Build an extra 15 days into the loan timeline and confirm the certificate status before scheduling the loan committee meeting.
Secured Trust Escrow has already established a green building sub-account product that holds the utility reserve in an interest bearing account and releases it automatically once the city uploads the clearance to the state database. Interest earned while the funds are held is credited to the seller, and the 1099 is issued in the year of release.
Bottom line: green building compliance is no longer a nice-to-have; it is a closing condition. Order the benchmark early, budget the reserve if necessary, and let escrow hold the funds until the city clicks “approve.” Secured Trust Escrow tracks the certificate status in real time and can wire the reserve back to the seller within 24 hours of clearance. Contact our commercial desk today to add the green building contingency to your purchase agreement before the 2026 deadline arrives.
