Key points:

A landlord which sells a building after 1 April 2011 and:

  • is a registered participant in the CRC (either on its own or as part of a group);
  • is responsible for energy supplies at the building (whether to the let premises themselves or the common parts or both); and
  • has the ability to recover CRC costs from its tenants;

should consider whether to include provisions relating to outstanding CRC costs in the sale contract.

Background

The first trading year of the Carbon Reduction Commitment starts on 1 April 2011. Approximately 2,800 participants have registered for the scheme, although as registration is on a group-wide basis there will be many more organisations that are part of the first phase.

Affected organisations will need to purchase allowances to cover CO2 from energy supplies used from 1 April 2011. However, in a change from the scheme as originally designed, the allowances themselves will not actually be available for purchase for at least another year.

Sale of an investment property after 1 April 2011

Participants who own investment properties may be entitled to recover contributions towards the costs of the CRC from tenants. These participants need to consider what happens if they decide to sell a property after 1 April 2011.

When the time comes to purchase allowances in April 2012, the landlord will need to purchase sufficient allowances to cover energy emissions at the building in relation to the period before the sale. However, if the landlord has not charged CRC costs to tenants in advance, it may find that, post-sale, it does not have an effective mechanism to recover CRC costs which are attributable to that building's energy consumption.

Even if tenants have made payments on-account in relation to CRC costs, these will necessarily have been on the basis of estimated energy usage. Actual energy use by the tenants – and hence CO2 emissions – could be greater than estimated.

CRC participant landlords in this position should therefore consider with their legal advisers whether additional provisions should be included in the sale contract to protect their position.