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The Federal Government has announced that it will introduce a price on carbon from 1 July 2012. Below is a summary of the likely impact of the Carbon Pricing Scheme (Scheme) on landlords.
Utility charges
The Scheme is expected to cause a 10% increase in electricity prices and a 9% increase in gas prices immediately after it commences. However, it is possible that electricity and gas prices will continue to rise after the introduction of the Scheme because Australia's electricity is mainly generated by coal-fired power stations that will be heavily impacted by the Scheme.
Many landlords buy electricity and gas in bulk and then on-sell to their tenants, with each tenant's consumption being metered. In such cases, landlords will be able to pass any price increases directly on to their tenants.
However, landlords also consume electricity for lighting and to operate air conditioning in common areas of buildings. A landlord's ability to pass on increased electricity charges will depend upon whether its tenants are required to contribute to the outgoings for the building which they occupy. If a landlord's tenants are not required to contribute to outgoings (ie they pay a 'gross rent') then the landlord's return on its investment will be diminished.
Inflation
The Consumer Price Index (CPI) is expected to rise by an extra 0.7% when the Scheme is introduced. Consequently, landlords who have negotiated annual CPI rent reviews will benefit at the expense of their tenants. However, it is possible that the Australian Bureau of Statistics may publish the CPI net of the impact of the Scheme (as it did when the GST was introduced).
Recommended action
Landlords should review existing metering arrangements to ensure that all electricity and gas consumption by tenants is metered. Now may also be an appropriate time for landlords to move from charging a gross rent to a net rent for new leases.
For further information or to enquire how we can assist, contact Clive Nichol or Cameron Graham.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
