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Lease implications of the withdrawal of the air-conditioning refrigerant gas R22

Brethertons LLP : 22 March, 2013  (Special Report)
With the use of refrigeration gas, R22, being banned from January 2015 with no exceptions, Brethertons LLP offers guidance on the lease implications of the withdrawal of the refrigerant.

Partner Tom Lawrence and Head of Leasehold Enfranchisement Roger Hardwick have prepared a webinar which highlights and analyses the different options Landlords and tenants must consider to adapt their air-conditioning systems to comply with the new laws.

The webinar can be viewed free of charge

R22 (Chlorodifluoromethane) is a refrigerant gas widely used in many modern air conditioning, refrigeration and freezer systems. From 1st January 2010, it has been illegal to use newly produced, or "virgin", R22 gas for the purposes of repair or service of existing systems, but recycled or reclaimed R22 refrigerant (being R22 which has been through a rudimentary cleaning procedure) can still be currently used in such circumstances.

From 1 January 2015, however, it will be illegal to use any form of R22, whether fresh or recycled, in the servicing of such air conditioning or refrigeration plant. The potential impact of this outright ban is significant, meaning all systems currently using R22 refrigerant will eventually require to be upgraded or ultimately replaced to comply with current legislation.

Why are the R22 legislation changes being made?

The reasoning behind the changes in the R22 refrigeration legislation is simple- studies have shown they have a detrimental effect on the ozone layer resulting in excessive UV levels. Due to this, the R22 refrigerants may contribute to further environmental damage. The extent to which R22 refrigerants contribute to global warming is still the subject of intensive debate, although many affected companies have taken the opportunity to comply with the new regulations earlier than planned. This is being demonstrated at two levels:

Firstly, the majority of R22 refrigeration units are at least one third of their way through their foreseeable life. As existing R22 refrigeration systems begin to require modernisation, the majority of companies are choosing to phase these out rather than go to expense of needlessly repairing or maintaining them.

Secondly, unlike the R22 refrigerants, each new factory build/extension will now use refrigerants such as ammonia and R404A which have zero ozone depleting potential. These refrigerants are also proven to be more energy efficient than the R22 refrigerant and are therefore a wiser and more popular choice.

Most companies affected by the R22 legislation will have a policy to specify only the following environmentally friendly refrigerants are incorporated in new equipment: ammonia, R404A and R407c.

When do the changes have to be completed by?

Although many companies have undergone or are in the process of exchanging their R22 refrigerants, huge conversions still need to be undertaken to ensure that the 2015 deadline for complete R22 replacement is accomplished.

Key to a smooth transition lies with ensuring the successful project management of the removal of the R22 refrigerant and professional installation of a replacement system.

Central project issues include effective and efficient utilisation of existing equipment wherever possible, construction of new building, minimising disruption to ongoing operations and the smooth integration of new plant during a suitable period. Most importantly, the careful and safe removal of the R22 and its integral chemicals is foremost to an effective exchange. The replacement of R22 also carries substantial risk as the new refrigerants contain hydrocarbons. Consisting mostly of Iso-butane, Propane and Ammonia, these refrigerants have additional hazards associated with them which will require specialist engineering skills to deal with.

In addition, there is also an impending ‘Mandatory registration' of engineers onto the ACRIB register and Companies onto the REFCOM register that must be adhered to.

Lease implications

Although two years away, this is not a long period of time in relation to the rolling maintenance and repair of shopping centres, for example. Commercial landlords are therefore strongly advised to consider their existing leases well in advance of this deadline, in order to identify responsibility for any plant or equipment which will require modification or replacement as a result of these changes. Preferably, specialist advice should be sought to assess whether existing systems are able to use a compliant refrigerant or whether these systems will require to be modified or replaced. Landlords can then seek to put measures in place to mitigate any cost implications prior to the ban coming into effect.

Any service charge provisions in leases should be looked at to see if the Landlord can charge the tenant for such costs. In multi-let premises which have provision for a service charge, it is likely that such plant & equipment will be regarded as forming part of the common parts. It is vital that the service charge provisions are considered with caution, particularly where service charge caps have been implemented or there are specific exclusions from what a landlord is able to charge under the service charge regime. From a practical perspective, even where such repair or replacement costs may be recovered by way of service charge, a prudent landlord should also consider the impact any necessary repairs may have on cash-flow, as it may be the case that such repairs have not been budgeted for in the annual service charge budget issued to tenants.

In single occupancy leases, common market practice to date has dictated that a tenant is usually responsible for maintenance of plant & equipment, by virtue of the repairing obligation within the lease. A well advised landlord should, however, give careful consideration to the precise wording of the repairs clause, as in some circumstances this may not extend to an absolute replacement obligation. This could lead to an unfortunate scenario where the relevant plant & equipment cannot be adapted to use a compliant refrigerant, whilst at the same time a wholesale replacement of the system falls outwith the scope of the tenant's repairing obligation under the lease. A landlord would therefore find themselves duty bound to replace the system, with no ability to charge the tenant for the potentially significant costs incurred in doing so. There could also be difficulties if, for example, there is a Schedule of Condition attached to the Lease. This could limit the Tenant's obligation to deal with this. Much depends on the statutory obligation clause and the repairing obligation.

It is clear that the effect of the ban on the use of R22 gas will be far-reaching and landlords should act now to avoid any unforeseen consequences of non compliance with the law.

Further information

Legislative Update and Strategies for HCFC Phase-out

Institute of Refrigeration - R22 Phase out - guidance for owners and users of refrigeration equipment

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