19 December 2012

Until now, it has generally been accepted market practice that, as between a landlord and a tenant, responsibility for the maintenance and servicing of plant and equipment lies with a tenant.

This non contentious point has generally received little attention when negotiating a lease.  This practice, however, is set to change with the arrival of European Regulation 1005/2009 (“the Regulation”) which stops the use of a gas (hydrochloroflourocarbons R22 (“HCFC R22”)) widely used throughout air conditioning equipment and process chiller and industrial refrigerant plants.  Although use of HCFC R22 has gradually been phased out since 2004, a total ban will apply from 2015.

The reason for the ban is simple.  Studies have shown that the gas has a detrimental effect on the ozone layer resulting in excessive ultraviolet levels.  As a result, it may contribute to further environmental damage. Although the extent to which the gas contributes to global warming is still the subject of debate, parties affected by the Regulation are obliged to comply with its terms. As you would expect, compliance comes at a cost and in the case of a landlord and tenant, who picks up the cost is likely to become a hot potato. It is therefore advisable that this be negotiated as early in the lease process as possible, ideally at the heads of terms stage.

Who does the Regulation affect?

Landlords, tenants, owner/occupiers, managing agents, legal advisers, refrigeration engineers and suppliers of alternatives to HCFC R22.

When did the Regulation come into force?

1 January 2010.  From this date “virgin” HCFC R22 could no longer be used to service equipment and systems, for example, refrigeration or air conditioning equipment.
From 1 January 2015, the use of all HCFC R22 gas whether recycled or reclaimed will be banned.

Types of properties are affected by the Regulation?

Air conditioned properties: offices, retail or storage.

Jurisdiction?  European Union.

What is the effect of the Regulation? 

The Regulation bans the topping-up of equipment and systems with “virgin” HCFC R22 i.e. unused HCFC R22 that has not previously been charged into the equipment or systems. 

Recycled or reclaimed HCFC R22 can, however, still be used until 31 December 2014.  [Recycled HCFC R22 is a recovered gas that has been subject only to a basic cleaning process, for example, mechanical filtering and moisture removal. Reclaimed HCFC R22, is a recovered gas that has been chemically reprocessed to a specified standard and identified as such by the label.  For further detail on the technical processes please see www.ior.org.uk.

What alternatives can be used from 1 January 2015? This depends on the system, design and equipment used.  For guidance please see www.ior.org.uk.

How does the Regulation affect your lease?

Commonly a lease will oblige a tenant to repair, maintain, inspect and service plant and equipment. 

This will include regularly checking for and repairing leakages, maintaining service records and recovery of gases. The person dealing with this must be appropriately qualified in such matters.

As “the plant and equipment” will include, for example, air conditioning equipment and process chiller and industrial refrigerant plants using HCFC R22, this will not generally be acceptable to a tenant because of the cost of using a replacement refrigerant or worse still, having to replace the equipment in question.  If, therefore, a tenant is in the early stages of negotiating a lease, the tenant should look to their landlord to replace the relevant equipment so that it is Regulation compliant prior to taking entry or alternatively negotiate a split in the cost. 

In a multi-occupancy let, a tenant should be aware that a landlord may seek to recover compliance costs through service charge. Compliance may also have an impact on rent at review because although properties with air conditioning may attract a higher rent than one without it, high replacement costs for new equipment may reduce rental levels.

In short, check what plant and equipment you are either proposing to use or are actually using as there will be a cost implication and the 2015 deadline is fast approaching. If the Regulation affects you or your business or you are unclear as to whether you are affected, please feel free to contact bto.