Manditory Energy Disclosure in California

California has long been known as the leader with environmental laws. Now the state is again leading by requiring mandatory energy disclosure for nonresidential buildings with Assembly Bill 1103 and Assembly Bill 531.

The governor signed AB 1103 in 2007 which among other things requires Energy Disclosure for nonresidential buildings when they are sold, leased, or financed. The bill requires that building owners enter their buildings’ energy related data into EPA’s Portfolio Manager database and get an Energy Star rating. Building’s energy consumption is rated against similar buildings, then assigns a score from 1-100, with 100 being the best most energy efficient score. The bill originally required that energy disclosures begin in January of 2010. In October of 2009 the Gov. Schwarzenegger signed AB 531 which deleted the January 1, 2010 deadline and replaced it with a disclosure schedule developed by the California Energy Commission (CEC).

Even though the energy disclosure requirements will not hit the unprepared real estate industry in January of 2010, building owners would still be well advised to get ready for the world of energy disclosure.

In anticipation the need to disclose their buildings’ energy rating, what should real estate owners do now? Building owners should consider ordering Energy Audits or energy bench marking reports from an energy engineering company. Energy Audits can tell them not only what their energy expenditure is, but also how to lower it. Incidentally, this also solves the problem with Portfolio Manager’s operational rating system, since an energy audit is essentially asset-based and will paint a more complete picture for prospective buyers and tenants.

Let’s face it – the future is green. Being environmentally friendly is not only politically correct, it is also fiscally responsible. Despite the delay, it seems inevitable that a better building energy rating is going to become synonymous with better business.