R22 – What Effect will the EU’s ban have on Commercial Property?

April 18, 2013

R22 is a commonly used refrigerant gas in air conditioning systems installed before 2004.  It is one of a group of gases known as hydrochlorofluorocarbons (HCFCs).  R22, along with the more commonly known CFCs, is one of the refrigerant gases which is considered to deplete the ozone layer.  R22 apparently has a global warming potential that is around 1,800 times higher than that of carbon dioxide.

Use of R22 in new air-conditioning equipment has been illegal since 2004, but in 2010 existing air-conditioning equipment became affected by a European regulation which banned the use of new R22 to maintain existing air-conditioning equipment.  Since then, only recycled or reclaimed R22 can be used in existing air-conditioning equipment.

This will change again on 1 January 2015.  After that date, air-conditioning systems cannot be topped up with R22 whether it is new or recycled.

The effect of this is that systems that use R22 gas will either have to be modified or replaced by new air-conditioning equipment.

Modification of an existing air-conditioning system which uses R22 may not be possible and, if it is possible, it may be inefficient and increase energy costs which all owners and occupiers are trying to avoid, particularly in the light of the CRC energy efficiency scheme.  

Replacing the existing chillers and other parts of the air-conditioning system with new equipment is therefore the most likely option for most commercial buildings which currently use R22 in their air-conditioning systems.  

Whether a system is modified or replaced creates potential problems for both landlords and tenants.  

In a building which is let to a single tenant where the tenants are responsible for the repair and maintenance of the whole building, including plant and equipment, it is likely that the tenant’s repairing obligation will oblige it to replace equipment which can no longer be repaired but this will depend very much on the wording of the repairing obligation in each lease.  Replacing air-conditioning equipment that has been using R22 is also likely to be enforceable by the landlord under the tenant’s obligations to comply with statutory obligations which is contained in most, if not all, commercial leases.  

If the building is multi-let, then the landlord will want to recover the cost of replacement or modification through the service charge.  Whether the landlord is able to do so will again depend on the wording of each individual lease and, in a multi-let building, the service charge provisions of all leases should be checked carefully because there may differences between then.

If the landlord is able, through the service charge, to recover the replacement of plant and equipment and the cost of complying with statutory obligations, it should be able to recover the cost of the replacement or modification of the air-conditioning system to introduce another refrigerant gas.  The landlord should, however, consult its  tenants before deciding on which course of action to follow so that those tenants are fully informed and the sudden increase in service charge does not come as an unpleasant surprise.  

On new lettings, tenants should seek detailed responses to the questions on air-conditioning raised in standard property enquiries and should pay particular attention as to whether or not R22 is used as a refrigerant gas in the air-conditioning system for the building in which they are interested.   Problems with R22 are likely to have both a downward effect on rents and also lead to more tenant requests for service charge caps.

It is likely that buildings that use another acceptable refrigerant gas will be easier to let and have a higher rental value than buildings which have been using R22 and are facing expensive replacement or modification costs.  

Both landlords and tenants should act now to check what refrigerant gas is used in the air-conditioning systems in their buildings in order to put in place effective solutions for dealing with the banning of R22 at the end of next year.


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