The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme has been in force for over three years.
It requires retailers who receive over 6,000 MWh of electricity per year to register in the scheme. Participants must buy allowances, as well as put in place systems to collate data about their energy use and carbon dioxide emissions, and report annually.
Who pays: Landlord or tenant?
CRC is assessed at an organisational level, and cannot easily be attributed to particular buildings. Many retailers will be renting, so in the situation where a landlord buys electricity, which it then supplies to its tenants, the landlord will be responsible for that energy supply, including the emissions associated with it. This will be added to the landlord’s total of electricity received.
It is common for landlords to pass the costs of the electricity to their tenants through service charges. However, tenants are now finding that landlords are also trying to pass the CRC costs to them and it will come as no surprise that they are not happy about this. This raises the question that as CRC is assessed at an organisational level, how can a landlord say what amount of its total CRC costs should be payable by a tenant of a particular building or part of a building?
Leases generally include a provision enabling the landlord to recover the costs of taxes from a tenant, and some argue that CRC is, in effect, a tax, and so the tenant should pay. Others argue that CRC is covered by the clause in the lease that enables the landlord to recover any outgoings from the tenant. In both cases, the lease is likely to be restricted to taxes and “relating to the property” and CRC is not property specific.
In acknowledgment of this, some landlords are including specific CRC clauses. Whilst a tenant may be willing to contribute towards some CRC costs, it is unlikely that they will be prepared to pay for the landlord’s costs of registration and reporting. Before insisting on CRC clauses in leases, landlords may want to consider the impact on rent review - it may be better off paying the CRC costs itself to avoid an unfavourable valuation on rent review.