From 1 January 2015, it will be illegal to use any HCFCs to service refrigeration and air conditioning equipment, given the effect on the ozone layer. This includes R22 gases, which are one of the most commonly used refrigerants. Many commercial properties use R22 gas in air conditioning systems, and supermarkets, restaurants, bars and hotels may well use them in cold stores. Who will be responsible for the cost of replacing the current system, or modifying it to use a new type of gas?
Establishing responsibility now is key, to avoid lengthy and costly disputes in the run up to the ban in 2015.
Considerations in establishing responsibility
Is there a direct repair obligation imposed on the tenant?
The repairing clause should be carefully considered, and the position is not necessarily straightforward. Consider what is included within the definition of the subjects exclusively demised to the tenant, and whether these are the subjects to be exclusively repaired by them. Is there a lesser obligation to repair plant and equipment, but not the structure and internals? Is there a Schedule of Condition which specifically carves out responsibility? Were the systems already in place when the lease was put in place, or are they a tenant fit out? If they were already in place when the lease was entered into, could the responsibility fall to the landlord by virtue the fact that this is not a repair or replacement, because repair is no longer economically possible? If the tenant’s obligation is limited to repair, could that arguably mean replacement? Case law does suggest that repair includes renewal of the component parts of an item, but not renewal of the whole of that item.
Is this a service charge cost?
In a multi-occupancy building, it is likely that systems form part of the common parts, and are therefore the landlord’s responsibility, albeit that they are paid for by the tenants. The service charge clause should be considered carefully, to identify whether this is a cost which can be recovered by the landlord. There could be service charge exclusions in place, and/or a service charge cap. Not only is it important to identify if the cost is recoverable or not, it is important to identify if it can be included in the proposed charging year. The landlord may have an obligation to prepare a service charge budget in advance. If modifications of the existing systems and/or new systems are not included in the budget, the landlord could find that they need to pay the cost of the new systems or modifications themselves, and only charge the cost when carrying out the year end reconciliation (which would have cash flow implications). Worse still, they might find they have to wait to include the cost in the next year, if they want to charge the tenants for this cost. If the service charge year is a calendar year, it might be too late to include the cost in the budget for 2013, and so it may have to wait until 2014. Given other potential repairs required, if service charge caps are in place, costs should be carefully considered.
Is there an obligation as a result of statutory compliance?
The lease may well include an obligation on the tenant to comply with any Acts of Parliament, including EU directives and subsequent regulations. This should be considered alongside the repair obligation.
What if no one is directly responsible?
Where the Tenant has carved out responsibility for replacement or modification of the systems, it is important to check to ascertain if there is any obligation on the landlord to make the modification or replacement. This can be the case where there is a Schedule of Condition, carving out responsibility for certain repairs in an otherwise FRI lease. Removing the responsibility from the tenant does not automatically impose responsibility on the landlord.
It's not too early to act
Establish responsibility now, and start to implement a course of action. In just over two years, the current system needs to be replaced or modified.