The Surprisingly High Cost of Future HVAC Repair/Replacement

If you have heating, ventilating, and air conditioning (“HVAC”) equipment that was manufactured and installed after 2009 in your property, you aren’t going to have to consider the consequences of refrigerants used in your system (or what is in this article). However, if your HVAC unit runs on refrigerants that are being phased out, the surprisingly high cost of repairs may cause you to start looking at a replacement sooner than anticipated.

The chemical difluoromonochloromethane, also known as R-22 or by the tradename “Freon”, is a refrigerant used in about half of this country’s commercial HVAC systems. It is also recognized as an ozone-depleting substance.  In the early 1990’s, in connection with the Montreal Protocol, an international treaty which was intended to end the use of ozone-depleting substances, the United States invoked a ban on the manufacture or import of equipment using R-22 refrigerants after 2009.  Production or import of R-22 is banned after 2019 and, by 2030, the entire class of chemical compounds known as hydrochlorofluorocarbons will no longer be manufactured in, or imported to, the United States.  It was initially expected to be phased out of production because it contributes to the disintegration of earth’s ozone layer.

The earlier HVAC equipment should continue to operate until it needs to be replaced for reasons other than the unavailability of R-22 and, because R-22 can be re-used, there will be a supply of recovered, recycled, and reclaimed product for a period of time after 2019. There are also some “legal” substitutes but they are generally less efficient and more costly.  However, in the long run, the price of R-22, from whatever source, will rise quickly as supplies start to run out.  So, then, the question arises:  who is going to pay for the increasingly scarce and expensive R-22 and who will pay to replace what would otherwise be refurbishable HVAC equipment?

We bring this to your attention because, as between landlords and tenants, someone has to pay these expenses and we want to suggest that commercial tenants who are looking at potential lease space step up to the expense of hiring a professional property inspector. Professional inspectors should know about this issue; general contractors generally do not.  If a proposed lease calls for the tenant to pay for HVAC repairs or replacement, whether in whole or in part with the landlord or other tenants, it is wise to know what those costs may be.  Even if someone else is paying for the repairs or replacement, the potential downtime of a system out of operation, or not pumping out cold air as expected, may likely affect the tenant’s business operation or its employees or customers comfort in the leased space.  For landlords, and for purchasers who will be landlords, of commercial property, we also recommend hiring the professional inspector.  The cost of a property is composed of more than just the purchase price; the cost of repairs, maintenance, and replacements should be figured into the mix and we know that the cost to replace HVAC equipment can be significant. 

Bottom line: Regardless of whether you are the tenant or the landlord, know what you are getting into to avoid unexpected expensive surprises later on.  

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Categories: Real Estate

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