2015 Air Conditioning Laws

Commercial Corner

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By Michael Farrar


As of January 1, 2015, the use of HCFCs (R-22) is considered illegal in refrigeration, heat pump and air conditioning systems for commercial properties in Arizona. This greatly impacts the Arizona commercial industry, since R-22 has been the refrigerant for 90% of the commercial air conditioning systems for decades.

The effect of this ban has a major impact on air-conditioning costs for systems that use R22 gas. Existing systems require a modification or replacement by new air-conditioning equipment. Modifications of an existing air-conditioning system may not be possible, if it is possible, it may be inefficient and increase energy costs. Replacement of existing chillers and other parts of the air-conditioning system with new equipment is a most likely option for most commercial buildings

Any increase in energy costs is something property owners and occupiers want to avoid given recent legislative developments, such as the introduction of the Carbon Reduction Commitment Energy Efficiency Scheme and the passing of the Energy Act 2011. The Energy Act paves the way for new rules, making it unlawful to let properties have low energy performance ratings without undertaking work to improve their energy performance.

Whether a system needs to be modified or replaced creates potential problems for both landlords and tenants. The key question for landlords and tenants is who will pay for these two options. Each will need to look at the particular wording of their lease to establish who will meet the expense. Repair clauses and statutory compliance clauses will be particularly relevant.

Single Tenant Occupancy

In single occupancy leases, common market practice to date has dictated that a tenant is usually responsible for maintenance of plant & equipment, by virtue of the repairing obligation within the lease. A well advised landlord should, however, give careful consideration to the precise wording of the repairs clause, as in some circumstances this may not extend to an absolute replacement obligation. Much depends on the statutory obligation clause and the repairing obligation.

Multiple Occupancy

In a multi-let building, the service charge provisions will determine if the costs of dealing with the problem can be recovered by the landlord from its tenants. It will be important whether the provisions allow for the costs of repair, improvement and/or replacement of any AC system to be charged to the tenants.

Prospective Tenants

For prospective tenants, repairing obligations will be relevant to discussions at the start of a lease. Such tenants may be reluctant to agree to a full repairing obligation in respect of AC equipment that contains R22 or may demand that the equipment be replaced before the lease commences

Current Tenants

For current tenants it may be that those responsible for repair, improvement or replacement of AC equipment will factor that responsibility into their decision as to whether or not to exercise any break option.

It is clear that the effect of the ban on the use of R22 gas is far-reaching. If landlords have not already done so, the time is now to avoid any unforeseen consequences of non-compliance with the law.

Michael Farrar, MBA, MIM is Vice President of the metro Phoenix Division for Colliers International. Michael can be reached at (480) 655-3321 or email at mike.farrar@colliers.com.