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Beware the CRC- 12/04/2010
Commercial landlords and tenants must take into account the CRC Energy Efficiency Scheme in both new and existing leases, warns West Midlands’ law firm FBC Manby Bowdler LLP.
From 1 April more than 20,000 large organisations across the country have been required to take part in the scheme that aims to improve energy efficiency and reduce the amount of carbon dioxide (CO2) emitted in the UK. It is estimated that up to 5,000 organisations (primarily those with annual electricity bills over £500,000) will be required to record and monitor their CO2 emissions and to purchase allowances equivalent to their emissions each year during the first stage of the scheme.
“Problems will occur as the CRC applies to organisations not buildings, which begs the question as to who is responsible for the cost of energy monitoring, reporting, buying allowances and of being in the scheme,” says Rebecca Taylor, a solicitor in FBC Manby Bowdler’s Commercial Property Department.
“Both parties to a lease will need to consider how to spread the costs of complying with the CRC and this should not be ignored. It is likely that as the scheme progresses, fewer allowances will be available and the cost of buying them will increase. In effect, energy will become more expensive,” advises Miss Taylor, who is based in FBC Manby Bowdler’s Wolverhampton office.
The British Property Federation suggests that for older leases which have no provision to deal with the CRC, landlords should aim to reach agreement with affected existing tenants as to who pays for what, but it would seem more likely that landlords will attempt to recover costs from their tenants, regardless of what the lease says. The CRC may also become an additional factor for landlords when deciding whether to grant consent to a request for assignment or subletting.
For all new leases, the CRC must be considered, regardless of the size of the organisations involved. “The scheme will expand to include more organisations in the future and there is also the possibility that property will be transferred to a new landlord or tenant which falls within the CRC scheme,” continues Miss Taylor.
The CRC scheme coincides with the general movement by the property industry towards ‘green leases’. These leases cover environmental obligations such as reducing carbon emissions, but they are also beneficial because they govern the use of sustainable materials for alterations, water and waste management and green transport.
“With the advent of the CRC and organisations becoming socially responsible for their energy consumption, green leases provide landlords and tenants with a joint objective to minimise the environmental impact of their property,” says Miss Taylor. “There is incentive for both parties to move towards green leases so that neither is paying more than is necessary for allowances”.