Case Studies

 

Airtech - R22 Replacement Experts

Impact on Property Management

Airtech – The R22 Replacement Experts

Impact on Property Management?

Why R22 replacement legislation could impact commercial terms of lease.

It’s been well documented for a number of years now, that after 31 December 2014, all air conditioning systems across the UK, running on R22 refrigerant, will require replacement if they fail due to major parts failure e.g. compressor or even if they suffer refrigerant leaks due to R22 refigerant having been banned  from use after this date.

 

Most of the property management fraternity will know that R22 refrigerant based applications were banned from sale back in 2004. Since then a gradual phase out has been imposed on the use of the gas for maintenance - before a complete ban is imposed from 31 December 2014.

 

However, it’s clear, that a huge number of buildings still rely on their pre 2004 R22 air conditioning and a maintenance regime that allows the use of reclaimed R22 to service the equipment.

 

With the total ban imminent and the rapid depletion of reclaimed R22 stocks causing maintenance costs to soar….what are the choices facing building owners and tenants alike?

R22 Legislation & Impact on Lease.

The legislation will shortly impact on all maintenance and repair of R22 air conditioning equipment.

With depleted stocks of reclaimed R22 available, the cost of maintaining the systems up until deadline date will only escalate. Add to this the fact that the pre 2004 R22 air conditioning plant costs at least twice as much to run as most of the new air conditioning equipment, it’s no wonder there is pressure to replace the old kit.

What then the impact on terms of lease?

Multiple Occupancy

In a multi-let building, the service charge provisions will determine if the costs of dealing with the problem can be recovered by the landlord from its tenants.

It will be important whether the provisions allow for the costs of repair, improvement and / or replacement of any AC system to be charged to the tenants.

What constitutes repair, improvement or replacement is not always black and white. For example, if the AC equipment is still able to function, although not in the most energy-efficient way, does that mean it is in disrepair?

The RICS Code for Service Charges in Commercial Property (Second Edition) gives guidance on how to distinguish between the costs of repair, improvement and replacement when deciding whether to bill costs to the service charge, which may assist.

Prospective Tenants

For prospective tenants, repairing obligations will be relevant to discussions at the start of a lease. Such tenants may be reluctant to agree to a full repairing obligation in respect of AC equipment that contains R22 or may demand that the equipment be replaced before the lease commences.

A two- tier market for air conditioned premises could possibly emerge: with a divide between the rent achievable for premises with R22- dependent AC equipment and those premises without such equipment. Professional advisers will need to bear in mind the impending ban when negotiating heads of terms and lease provisions.

Current Tenants

For current tenants it may be that those responsible for repair, improvement or replacement of AC equipment will factor that responsibility into their decision as to whether or not to exercise any break option. Equally, such issues will be relevant to discussions about dilapidations at the expiry of a lease. How the ban will affect rent reviews remains to be seen.

Managing agents will have to consider what action must be taken before 2015 and whether the costs involved can be recovered from tenants.

For more advice and the best way to handle R22 Replacement call Paul Mallon at Airtech Cooling Services / Tel: 0151 933 0023