R22 fluid is a cooling fluid which is used in some refrigeration and air conditioning systems. Since 1 January 2010, it has been illegal to use virgin R22 fluid in the maintenance and servicing of refrigeration and air conditioning equipment. However, the continued use of recycled or recovered refrigerant has been permitted and therefore, the maintenance of these systems has remained relatively simple for landlords and tenants, dependent on who has the responsibility for the maintenance under the lease.
However, as of 1 January 2015, the use of this substance will be banned completely. This could have a big impact on both tenants and landlords as we outline below.
Consider the following situation: The tenant of a commercial property has a lease with an expiry date of 31 December 2014. Under the terms of the lease, the tenant is required to hand the property back to the landlord in full repair (including the R22 air conditioning system). To ensure that the system is in full repair, the tenant will only be required to top up the system with recycled or recovered R22 fluid. The tenant should therefore be able to comply with its obligations under the lease reasonably easily and cheaply.
On the other hand, consider the situation where the tenant’s lease determines on 1 January 2015, after the new legislation has come into effect. If on the expiry date, the system is found not to be in full repair, the tenant will no longer have just the costs of purchasing the recovered or recycled gas to top up the system to ensure that it complies with its obligation as this will no longer be possible. Instead it may be required to replace the entire air conditioning system. This is clearly something which will require considerable expense and therefore the R22 issue is potentially a financial ticking bomb for a tenant who is unaware of the change in legislation.
Practical points for tenants
- If a tenant is about to take a new lease or extend a lease, it should think very carefully about the air conditioning system and the length of the term, and what will be required of it at lease termination.
- If a tenant already has a lease which will expire post 1 January 2015 and has an air conditioning system using R22, it should consider now whether the system can use a drop-in replacement gas as an alternative to R22 to save itself costs on termination of the lease.
- All tenants should examine carefully who is responsible for the air conditioning system in their building.
Landlords will also be impacted by the change in legislation, particularly those who own multi-let buildings and who may therefore be responsible for the air conditioning system and who try to charge any repairs back through the service charge.
Practical points for landlords
- Landlords may find that tenants are more reluctant to take extensions of leases in buildings with R22 systems and may be more likely to operate break clauses to avoid the potential increase in dilapidations liability
- Landlords should also check leases to see whether they are responsible for the air conditioning system and whether there is scope to recover this through the service charge. If so, they should consider the termination dates of the leases to ascertain the best time to undertake replacement work to avoid arguments from tenants whose leases are close to expiry.
- Landlords should ensure that their appointed building surveyor is aware of the upcoming change in legislation to ensure nothing is missed on dilapidations inspections.
Whether you are a landlord or a tenant you should start to consider this topic now. Whilst 1 January 2015 seems a long way off, if changes in strategy do need to be made you will want to be planning them now.