Key points
• It is unlikely that conditioning equipment running on R22 will become “out of repair” on 1 January 2015, but repairing covenants should be scrutinised for any wording such as “maintain” or “cease to operate properly”.
• Air conditioning equipment that only needs a top up of R22 to return it to working order may or may not be “out of repair” in 2015. There is uncertainty that may take a court case to clarify.
As of January 2015, certain repairs to R22 refrigerant systems will be illegal, meaning existing systems will need modifying or completely replacing before then. This is likely to be one of the more contentious areas of landlord-tenant relations over the coming years.
While in theory nothing actually needs to be done to comply, delaying action now could result in serious downtime to air conditioning systems. Inaction may also lead to breaches of covenants to repair.
R22 and repair covenants
R22 has been one of the most commonly used refrigerants in air conditioning systems since the 1960s, but since concerns over its ozone-depleting qualities were raised, the gas has begun to be phased out. This has been governed by the European Regulation 1005/2009 on ozone depleting substances (the ODS Regulation).
In 2010, the “use” of virgin R22 was banned in the maintenance of all air conditioning equipment and from 1 January 2015 the “use” of recycled R22 will be banned. This does not mean that it will be illegal to operate equipment that works with R22, but the use of R22 for maintenance or repairs will be illegal. Therefore, if equipment containing R22 fails in such a way that R22 needs to be decanted or topped up, the repairs will be illegal.
The legislation therefore has a significant impact on organisations throughout the UK and some occupiers are sensibly taking the opportunity to undertake remedial works to prevent falling foul of the ODS regulation in the future. However, a huge amount of work still needs to be done before 2015 to ensure there is no disruption to air conditioning provision when otherwise minor failures occur. Many occupiers may be misguided into thinking there is no rush to begin remedial works.
Repair and maintenance challenges
As an example, take an office building where the air conditioning is provided by chilled water fan coil units. The chilled water is produced by a twin circuit chiller using R22. If a compressor on the chiller fails before 2015, the chiller can run at 50%, providing some chilled water. Meanwhile, the other compressor is drained of R22 and repaired or replaced. After the repair the chiller will be back up to 100%.
If a compressor fails after 1 January 2015, then such a repair will not be possible and the chiller will be left to run at 50% until the chiller is either refurbished and converted to run on an alternative refrigerant or replaced. Either of these options could take weeks or months to organise.
Unplanned maintenance and repairs of air conditioning systems tend to happen at the height of summer when they are being pushed to their limits and are most needed. An older system still operating on R22 will not be quickly repaired, leaving occupiers without air conditioning when they most need it.
Clearly this illustrates that it would be prudent to undertake such works in advance of 2015 so that the project can be planned to cause minimum disruption. The best time to refurbish or replace air conditioning equipment (especially chillers) is over the heating season, when they are not in demand. If occupiers have not planned works this heating season they are left with either the winter of 2013/2014 or leaving it until the last minute in the winter of 2014/2015.
Advice for landlords and tenants
Landlords and tenants will need advice from an engineer wherever a system uses R22 because the remedial work will be different depending on factors such as type and age of equipment, the wording of the lease and the length of the term remaining. Not all equipment can be successfully converted to use a different refrigerant and there will now be air conditioning in buildings that has been inappropriately converted.
As the end of the lease term approaches, tenants need to understand if they are in breach of covenant due to inappropriate works, and landlords need robust methodologies to validate equipment to make sure it is working properly.
Tenants signing new leases in the next couple of years need to look at the air conditioning systems being used and make sure they are not paying premium rent for air-conditioned offices while also agreeing to take on the costs of replacing the existing R22 system. Pre-lease surveys are vital so that tenants can negotiate service charge caps. Those remaining in occupancy need to be aware of their responsibilities and plan ahead for the changes by having an expert review the lease terms.
This is a much talked about subject, however there is still not enough action being taken and tenants and landlords need to start mitigating their liability against significant future expenditure.
Stephen Lemmon is a partner and manages the in-house mechanical and engineering team at Malcolm Hollis