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Commercial Property – Carbon Reduction Programme

Commercial Property

Landlords and Tenants of larger property will continue to become increasingly interested and concerned in equal measure over the carbon reduction commitment (CRC) energy efficiency scheme. This is a mandatory carbon emissions reporting and pricing scheme to cover all organisations using more than 6,000MWh per year of electricity (equivalent to an annual electricity bill of about £500,000). Businesses who fall into this category should have registered their business with the Environmental Agency by September 2010. Those businesses will monitor their energy output and then, from 2012, purchase allowances for each tonne of carbon they use, the cost of this is the disincentive to produce excessive carbon. It is intended that there is a financial incentive to perform well in the CRC.

The governments spending review at the end of 2010 produced two important changes in this scheme, namely:

The money raised from the sale of allowances will be retained by the Government rather than recycled back to CRC participants.
The first sale of allowances to cover emissions in fiscal year 2011/12 will be in 2012 rather than 2011.

The first of these is important for Landlords and Tenants as it will significantly increase the cost to whichever holds the liability. There are currently increasing concentration in the drafting of clauses within leases to in consideration of this. The Landlord will be looking to ensure the Tenant pays a fair proportion of the CMC costs and administration, and the Tenant will be looking to limit or exclude these costs. Interrogation of Sellers or Landlords at the outset will be important as part of due diligence including; establishing the type of meters, previous energy consumption, recovery of costs, and any sale of CRC allowances.

There is still further consultation surrounding these regulations, and they may changes further but what is important is that businesses are ready to take advantage and position themselves as best they can in light of the current rules.

If you have any questions regarding your commercial property, then please call

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