In earlier postings on our environmental update blog we have introduced the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (“CRC”). From 1 April 2010 the CRC Regulations will apply. Property investors, even those who fall outside the CRC themselves, will have to supply their buyers with information on their buildings’ carbon emissions. Lack of information could wreck the timetable for the deal.

This posting is designed to give you a brief idea of what you will need to disclose on the sale of an investment property once the CRC comes into force on 1st April this year.

From now on, sellers should expect any buyer to ask them about the fuel consumption of a building. Some investors already know they have to comply with the first phase of the CRC.   These are the UK groups of companies which consumed over 6,000 MWh of electricity in 2008 through half-hourly meters. Many of them will have been gearing up for the CRC for a while, but some investors, particularly those who do not themselves have to comply with this phase, will be shocked by what is to come.

The question of how significant the building’s carbon emissions will be on a sale will depend on whether the buyer is affected by the CRC – if it is, then the seller is likely to be asked the questions below. In addition, where a buyer does not at the time of the purchase fall within the CRC, it may be asking the same questions to check whether or not the proposed purchase will push it into the CRC for the next phase (seven years from 1 April 2013). Seller’s agents may therefore want to find out the buyer’s CRC status early on in the process.

In either of these scenarios, the seller will have to answer questions on –

  • who has the responsibility for the supply of fuels to the building (often in multi-let properties this will be the investor);
  • the nature of the electricity and gas meters;
  • fuel consumption figures for the building broken down between individual fuel types and meters (where the seller is in the CRC);
  • whether the tenants are covering some or all of the CRC compliance costs (many existing leases will not allow the landlords to recover those costs and the BPF have been consulting the property industry on that subject. The subject is fiendishly complex where landlords supply electricity or gas to their tenants because the Regulations apply at group level of the Landlord and not in relation to individual properties).

This posting is not intended to be a detailed analysis on the CRC. Our previous environmental updates will help with that. We have a specialist team who can advise on the impact of the CRC and we are offering seminars and workshops to existing clients. Contact your usual Reed Smith attorney or the authors for details.