Where the client has an investment portfolio, the net cost to it of participation in the CRC may not be recoverable from its tenants. It will therefore be an additional overhead.

If the accounting practice of the client is to bear this cost at company level, it will reduce the profitability of its business and this may affect the share price (perhaps on a takeover or flotation).

If the client allocates costs against particular properties, then the CRC cost attributable to a particular property will reduce the net rent that the property produces. This may affect the capital value of that let property.

This net cost will have several components, including:

It will not be that easy for landlord clients to pass the net cost down to their tenants (even if they want to) because:

For a working draft of lease clauses dealing with CRC issues, see Standard clause, Consultation draft CRC clauses for insertion into standard form leases.

It may start off small, whilst the cost of CRC allowances is capped at £12 per tonne of CO2 during the Introductory Phase of the CRC (1 April 2010 to 31 March 2013). How small will depend on:

However, the potential for shortfall (between cost of allowances and the Revenue Recycling payment) will increase if the price of CRC allowances goes up from Phase 2 of the CRC onwards, particularly if the client does nothing to encourage reduction in energy consumption.

This is not the installation of check meters or sub-meters, to monitor the tenant's consumption. It is the installation of a totally separate supply so that the tenant will contract direct with the energy company for the supply of the energy.

This may help because whether it is the landlord or the tenant who has to participate in the CRC in relation to energy supplies to a building depends on who is "responsible for the energy supplies". In simple terms, where the landlord procures and pays for the energy that is supplied to the tenant and the tenant reimburses the cost, it is the landlord who will be responsible for that energy supply under the CRC. The landlord will therefore have to report on the emissions arising from that supply and buy allowances to cover these.

If the tenant procures and pays for the energy itself, it will be responsible under the CRC for that supply and the landlord will not need to buy allowances to cover the emissions arising from that supply.

Whether separate supplies can be achieved is partly dependent on the physical nature of the building (for example, the size of risers and available space in the plant room) and partly on cost (the electricity supplier will have to agree to install the separate supply and they will charge for so doing). It may be worth considering in new developments.

Even if a separate supply to the tenanted areas can be achieved, the landlord client will still need to comply with the CRC as far as supplies to the common parts are concerned.

There are several reasons for this:

Quite what energy efficiency measures will be worth pursuing will depend on the age and nature of the building, the types of occupant, the nature of their business and the amount of energy consumed. The cost of some measures will far outweigh the likely CRC cost saving.

There can be an optimum time to carry out energy efficiency works, to gain the best reward via the League Table.

Your client should seek professional advice on this, perhaps from an energy consultant or building surveyor with CRC expertise.

If your landlord client only has tenanted property, it may still wish to explore practical ways to reduce energy consumption because either this will reduce the net cost to the client of compliance with the CRC (where the client pays), or it will reduce the contribution that the client's tenants may have to make (where they reimburse these costs). This may, in time, make your client's building more attractive than those of its competitors, because the additional costs to the tenant will be lower.

Your client should draw the information together (possibly prior to putting the property on the market) to avoid any delays to the transaction.

For the working draft of the CRC CPSEs, see Article, What pre-contract enquiries should be made about CRC issues?.

Whilst the client may not be a full Participant in the current Phase of the CRC, it may still have to make an Information Disclosure and/or record data relating to its energy consumption. Your client needs to know whether it falls into this category and what to do.

Your client may need to register as a Participant in the next Phase of the CRC (see CRC timeline).

If your client is purchasing a new property, your client may need to know what the implications may be for it under the CRC in future. Your client may even wish to avoid purchasing a property that will push it above the registration threshold. This means raising the right preliminary enquiries and knowing how to interpret the answers.

For the working draft of the CRC CPSEs, see Article, What pre-contract enquiries should be made about CRC issues?.

If CRC costs are passed down to your client by the landlord, this may increase the cost of that property to your client. This may even make the property less attractive (or command a lower price) when your client assigns the lease. Your client will need to know what to look for in the lease documents or supplementary documents in order to determine whether it may be required to pay towards CRC costs.

The service charge cost may increase if the landlord pursues energy saving initiatives (perhaps conducting repairs or improvements to the common parts or the plant and machinery) to improve its CRC performance. This may have an impact on the value of the lease when it is assigned. Your client may need to review service charge accounts more closely.

Where the landlord is keen to amend the lease to permit recovery from the tenant of the net cost of compliance with the CRC, your client may be able to use this as an opportunity to negotiate other amendments to the lease that it would find attractive (perhaps relaxation of prohibited uses, or a greater freedom to make alterations).

Landlords may be keener than before to invoke any green lease provisions in the lease (or any ancillary document such as a memorandum of understanding), to achieve co-operation in reducing energy consumption. This may result in additional expense for the tenants. However, the reduction in energy costs due to lower consumption could offset or exceed this cost. For more information on green leases, see Practice note, Green leases: list of materials.