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Heat Regulations: Multi-Let Buildings

Tuesday, February 07, 2017

Lack of clarity over new obligations on landlords of multi-let buildings may lead to disputes, warn Simon Keen and Edward Newport.

Are you a landlord of multi-let buildings with central heating systems? If so, you are now considered to be a supplier of heating, cooling or hot water to a communal heating system and must comply with the Heat Network (Metering and Billing) Regulations 2014. The scope of the Regulations was explained in guidance, published on 23 April 2015.

Under the new duties, details of all communal heating systems already in operation must be submitted by 31 December 2015. After that date, suppliers must notify the National Measurement and Regulation Office of systems on or before the first date of operation. They must also provide details of locations, the number and types of buildings and customers they supply along with estimates for the yearly heating capacity, heat generated and heat supplied.

In addition, updated notifications must be submitted every four years, although it is not clear from the regulations or the guidance whether amendments can or must be submitted if details in the initial notification change. Nor is it clear whether a successor supplier (such as a new landlord) needs to submit new notifications, or simply inherit the initial notification.

Where meters/heat cost allocators have been installed since 31 December 2014, suppliers must have ensured that bills and billing information for heating, cooling or hot water by a final customer are accurate and based on actual consumption. As a minimum requirement, final customers must receive at least one bill each year based on actual consumption rather than estimates.

Service charges

For landlords, this is challenging where service charges are apportioned in leases on a weighted floor area basis or fixed percentages. Where service charge provisions include a basis for billing other than actual consumption, it may not be possible to strictly enforce the regulations; it is not clear whether the regulations or the terms of the lease will prevail.

Landlord and tenants will probably each adopt a position most beneficial to themselves, which will lead to disputes. On the grant of new leases, it would seem sensible to draft service charge provisions by reference to consumption, but this may require a change in the way service charges are managed.

It is not necessary to comply with these billing standards where it is not cost effective or technically feasible to do so. The threshold of the annual estimated reasonable cost of issuing the bills is set at £70 or less per final customer. While this is helpful, it is not difficult to think of examples where it may not be cost effective or technically feasible (if the apparatus in a building is not capable of measuring actual consumption, or if meters are damaged or faulty), but no further guidance is given.

The next step comes in 31 December 2016. From that date suppliers must:

  • Install meters where there is more than one final customer and the building is supplied by a communal heating system, to measure consumption by each final customer (this includes existing and new systems).
  • If it is not cost effective or technically feasible to install meters, install heat cost allocators and thermostatic radiator valves on each radiator, to calculate and enable each final customer to control its consumption; hot water meters must also be installed.
  • If it is not cost effective and technically feasible to install cost allocators and thermostatic radiator valves, use alternative methods of calculating charges for the supply of heating and hot water.

Assessment

The regulations set out prescribed methods to assess whether it is cost effective and technically feasible:

  • It is cost effective to install meters in buildings where the net present value of the projected energy savings over the first 10 years exceeds the net present value of the estimated costs of installation.
  • For buildings that do not mainly consist of dwellings the regulations include a presumption that meter installation is technically feasible. This can be displaced in certain circumstances.

A breach of the regulations could result in a fine of up to £5,000 per offence, plus daily penalties of £500 until remedied. However, no person will be prosecuted for a breach that occurred before 31 December 2015. There are also ‘naming and shaming’ powers and the reputational harm that could arise is probably more of a concern for landlords.

© isurv 2015

Simon Keen is Senior Associate and Edward Newport Associate at Hogan Lovells International LLP