The new California Title 24 energy code for new construction went into effect on July 1 and the financial impact on both tenants and landlords is not pretty.   

In broad brush strokes, the new code is expected to add 5%-10% to the cost of heating and air conditioning (HVAC) systems by mandating more sophisticated automation that controls utilization of fresh air vs. recycled air and is sensitive to individual room occupancies and heat loads from exterior surfaces such as glass.  (Just like your car, building systems are getting more and more computerized.)  The new code is also expected to add 10%-25% to the cost of electrical systems by requiring the use of motion detectors for lighting, the conversion to LED lighting fixtures, and electrical outlet redundancy so every duplex will have a twin that can be turned on and off by a wall switch.  Making matters worse is the uncertainty presently felt by contractors doing the bidding. 

The economic equation of a lease deal is a delicate balance of rental rates and capital spent on tenant improvements.  Cost additions stemming from nothing but new construction codes need to come out of someone’s pocket, and both the landlord and tenant want to push this burden off to the other.  Trouble ensues perfectly viable lease deals are getting blown up.  Tenants are feeling pressure to renew their lease rather than evaluating a move to a new location, no matter how crucial such a move would be to the future of the company.