HM Treasury announced on the 16th July that the allowances due under the Carbon Reduction Commitment Energy Efficiency Scheme (“CRCEES”) is an environmental tax. Does this mean that landlords can recover the costs of the CRCEES even if no specific reference is made to it in the lease?
Not necessarily. Whether or not a landlord will recover will still come down to the interpretation of the lease itself, and in particular the outgoings the landlord is entitled to recover. In fact, HM Treasury has confirmed that in defining the CRCEES as a tax it was not intending to resolve this issue.
The main obstacle landlords will have when recovering CRCEES allowances remains that the CRCEES is not levied on the Property, it is levied on the landlord’s parent companies’ consumption of electricity and other fuels throughout its portfolio. It may be possible to apportion this fairly, but demonstrating the fairness of this apportionment may be difficult.
Landlords may persuasively argue that if they can apportion the tax fairly then the clause should be interpreted on the basis that this should be recoverable from the tenant as it is only fair for the tenant to pay for their own usage of electricity and further if it cannot recover the cost from the tenant, this defeats the purpose of the legislation as the tenant has no incentive to increase its energy efficiency. But, if an individual building is only within the scheme due to other buildings the landlord or its parent company owns, is it still fair for the tenant to bear the cost?
We await the government’s further proposals for the simplification of the legislation in the autumn to see for how long this may be relevant, but allowances are being paid now and some landlords are seeking to recover their costs – whether any will try to force the issue to court is another matter.