Retail surgery: Will participating landlords be able to recharge the cost of CRC allowances to the tenant?

The Government said in its spending review that recycling payments will be credited to public finances and will not be returned to participants that had performed well under the scheme. CRC will now become an outgoing cost for landlords, which they will most likely look to recover from tenants.

Retailers need to be aware of two options being debated as methods for recovering CRC costs under existing leases. Catherine Reilly, professional support lawyer in the property department at Brodies LLP, says one is recovery through the general clauses providing for the recovery of taxes and outgoings. “The scrapping of the recycling payments has pushed the argument that CRC is a tax to the fore,” says Reilly. “However, tenants may argue that it is not a tax since there is no set level of duty.” The second is recovery as part of the service charge. However, says Reilly: “Not all service charge clauses will have been drafted in a manner which would permit such recovery. There are also difficulties in reconciling service charge payments with the payments required for CRC as the charging years will not always coincide and the amounts required for CRC will be uncertain.”

Going forward, landlords will probably seek to recover the costs by including CRC specific provisions in new leases. But until current consultation on the proposals to simplify the scheme and consequent adjustments have been finalised, retailers can be assured that landlords must tread carefully, says Reilly. In the meantime, how landlords reconcile the machinations of the CRC scheme may continue to differ from case to case.