Property industry consultation on how to apportion CRC costs between landlords and tenants | Practical Law

Property industry consultation on how to apportion CRC costs between landlords and tenants | Practical Law

An update on a consultation paper issued by a working party representing the interests of the property industry (the Industry Working Party), on 17 December 2009, seeking the industry's views on how the costs of complying with the forthcoming Carbon Reduction Commitment Energy Efficiency Scheme (CRC) should be apportioned between landlords and tenants.

Property industry consultation on how to apportion CRC costs between landlords and tenants

by PLC Environment
Published on 17 Dec 2009 • England, UK, Wales
An update on a consultation paper issued by a working party representing the interests of the property industry (the Industry Working Party), on 17 December 2009, seeking the industry's views on how the costs of complying with the forthcoming Carbon Reduction Commitment Energy Efficiency Scheme (CRC) should be apportioned between landlords and tenants.
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On 17 December 2009, a working party representing the interests of the property industry (the Industry Working Party) issued a consultation on how the costs of complying with the forthcoming Carbon Reduction Commitment Energy Efficiency Scheme (CRC) should be apportioned between landlords and tenants. The deadline for sending responses to the consultation is 5 February 2010.
The aim of the consultation is to reach a consensus amongst landlords and tenants, which should enable standard wording to be drafted for inclusion in leases.
On 17 December 2009, a working party representing the interests of the property industry (the Industry Working Party) issued a consultation on how to apportion the costs of complying with the forthcoming Carbon Reduction Commitment Energy Efficiency Scheme (CRC) between landlords and tenants.
The deadline for sending responses to the consultation is 5 February 2010.
In June 2009, the Industry Working Party issued guidance for landlords and tenants on the CRC (see Legal update, Property Industry Working Party publishes guidance on the Carbon Reduction Commitment).
The main issue that the CRC raises for landlords is where they supply energy to tenants for use in common and demised areas and then charge the costs of that energy to tenants through the service charge. Under the CRC, landlords will be responsible for the carbon dioxide emissions associated with the energy that they procure (even if that energy is actually consumed by their tenants). Many existing leases will not contain provisions to allow the costs incurred by the landlord in complying with the CRC to be passed to tenants as part of the service charge or otherwise.
Following publication of the guidance, the property industry set up a working party to explore whether the costs that landlords will incur in complying with the CRC should be passed to tenants and, if so, how.
The working party has issued a consultation paper seeking the industry's views on how CRC costs should be apportioned between landlords and tenants. The aim of the working party is to reach a consensus amongst landlords and tenants. This will allow standard wording to be drafted for inclusion in leases.
There are a number of questions that need to be answered before a standard approach to apportionment of CRC costs can be agreed. These are set out in the consultation paper and include:
  • What items should be included within CRC costs (for example, the cost of allowances, the costs of registration and annual CRC fees and/or the costs incurred by the landlord in administering the scheme)?
  • How should the cost of allowances be calculated, bearing in mind the landlord may be buying allowances for different buildings over a long period of time?
  • How should the cost of allowances be allocated between different tenants (for example, should these costs be apportioned based on sub-metering or floor area)?
  • Should recycling payments be passed back to tenants, and, if so, on what basis should they be apportioned between the various tenants (for example, should a tenants' efforts at increasing energy efficiency be taken into account)?
  • How can the differences between the service charge year and a CRC compliance (scheme) year can be reconciled so that landlords know what costs and what recycling payments should be apportioned to which tenants?
In the meantime, until an industry standard has been developed, PLC Property has drafted some clauses for leases to deal with the apportionment of CRC costs between landlords and tenants (see Legal update, New content: draft CRC clauses for leases). The PLC draft clauses are intentionally very simple, and as a result, cannot and do not address all of the many complexities to which the CRC may give rise to in a landlord and tenant relationship. These complexities are explained in detail in the guidance the Industry Working Party issued in June 2009 and its new consultation document. PLC Property would welcome subscribers' views on these draft clauses so that they can refine them before incorporating the clauses into the PLC Property standard document leases. Please e-mail the PLC Property team at [email protected].
For background information on the CRC, and green leases in general, see Practice notes: