26 March 2015

Landlords must implement consumption-based billing for heating and cooling in multi-let buildings

The original version of this article was published on 17 March 2015. This amended version has been updated to take account of amendment regulations, published on 25 March, changing the date by which Landlords must provide details to the National Measurement Office from 30 April 2015 to 31 December 2015.

Landlords of buildings in the UK with certain types of communal heating, cooling or hot water systems need to gear up for the Heat Network (Metering and Billing) Regulations 2014.

Landlords must provide details of relevant heating, cooling and hot water systems to the National Measurement Office by 31 December 2015. They will have to install meters and temperature controls by the end of 2016 and bill tenants based on actual consumption.

Which systems are governed by the regulations?

The regulations apply to systems for space or process heating, cooling or hot water that work by distributing thermal energy in the form of steam, hot water or chilled liquids from a central source. They do not apply to systems that distribute only ducted air. Government guidance assumes that properties affected will include some offices, shopping centres, student halls of residence, care homes, flat conversions and sub-let premises.

We explain below how the regulations affect landlords whose buildings contain these types of communal systems. Similar, but not identical, rules (not discussed here) apply to district heating systems that serve multiple buildings or sites, with some earlier compliance dates. 

Who must comply with the regulations?

Landlords of multi-let or multi-occupied buildings who supply heating, cooling or hot water using this type of system. The regulations apply only where there is more than one end customer, so landlords of single-let buildings are not affected unless they are on a district heating system. A tenant who sub-lets to more than one sub-tenant may also need to comply. 

The rules catch the sale of thermal energy, so it makes no difference whether the lease is long or short, or even if occupation is on the less formal basis of a licence. However, if the thermal energy is sold direct to the end user by a separate entity, such as an energy services company (ESCO) that operates the system on its own account (not merely as the landlord’s agent), the duties will fall on the ESCO instead of the landlord.  

It makes no difference that the charge to the occupier may be wrapped up in a wider service charge or in an all-inclusive rent. The purpose of the regulations is to move away from such arrangements to billing systems based on the amount actually consumed by each end user. 

Duty to notify

The most pressing duty under the regulations is to provide information on existing systems by 31 December 2015 to the National Measurement Office (email). New systems must be notified before they are brought into operation and updated notifications will be required every four years. You can use the template on the Government website to make sure that you include all the correct details. You may need the help of the manufacturer or supplier of the system to collate the information, so don’t leave it until the last minute.  

Installing meters and temperature controls

To enable the occupier to control consumption, landlords and others who supply this type of communal heating, cooling or hot water must install metering and temperature controls by 31 December 2016, where technically feasible and cost effective (as defined in the regulations). Where meters are not technically feasibility or cost effective, the landlord may have to install heat cost allocators, thermostatic radiator valves and hot water meters. The equipment installed has to meet certain requirements, which also apply if any existing meters are replaced, and the landlord is responsible for ongoing maintenance.  

The calculation of cost effectiveness is based on unsophisticated average heat demand benchmark figures that take no account of the efficiency of the actual system, level of insulation in the building or the way the system is used, so it may or may not bear much relationship to actual cost effectiveness. Technical feasibility is assessed on narrow grounds. These assessments must be reviewed every four years until meters are installed.  

Some leases give landlords rights to carry out alterations to building systems and, even where that is not the case, many tenants will not object. However, the regulations seem to ignore the fact that a minority of tenants could veto the alterations. They merely acknowledge that there may be costs of access to premises.

Billing

Bills for heating, cooling or hot water must be based on actual consumption. The regulations include detailed billing requirements. Exemptions may apply where consumption-based billing will cost more than £70 per end customer per year and is not technically feasible or economically justified.

Existing leases with service charge proportions fixed by reference to square footage or number of units, or with all-inclusive rents, may not permit consumption-based billing. It remains to be seen whether the reference to economic justification will give landlords in this situation sufficient latitude to delay the move to consumption-based billing until lease renewal or until the tenant’s agreement can be obtained, or whether the enforcement authorities and courts will take a stricter view.

Who foots the bill?

Many landlords will be able to pass on the cost of installing and maintaining the new equipment to their tenants through service charges, although this will depend on the precise wording of each service charge clause. Costs of billing can be passed through to tenants, provided this is done in the right way.

Enforcement

Enforcement officers have a range of civil and criminal sanctions at their disposal, including potentially unlimited fines.

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