Summary and implications

Calling all landlords: the onerous deadlines and requirements of the Heat Network Regulations are closing in – it's time to act.

The Heat Network (Metering and Billing) Regulations (the Heat Regulations) affect landlords of commercial buildings (and blocks of flats) that have a communal heating or air-conditioning system and more than one tenant occupying the building. The Heat Regulations cover many multi-let buildings served by a communal heating or cooling system, typically a central boiler or air-conditioning plant. All landlords of such properties are subject to the Heat Regulations, from commercial estates to small blocks of flats.

The obligations imposed by the Heat Regulations cover three areas:

Notifying the details of all qualifying communal heating systems

This imposes an obligation on landlords to submit very specific, complex and detailed information to The National Measurement and Regulation Office (NMRO) about the communal heating system. For any existing systems, this must be done by 31 December 2015. For new systems completed after this date, the notification must occur on or before the date that the new system is completed. Furthermore, updated notification must be carried out every four years.

Compliance with this obligation may be time consuming and expensive for landlords with no certainty that this cost can be recouped from tenants via the service charge.

Installing meters, heat cost allocators and thermostatic radiator valves

From 31 December 2016, a landlord must ensure that suitable meters are installed in all buildings with a communal heating system, where it is both cost effective and technically feasible to do so. There are detailed requirements for determining cost effectiveness and technical feasibility, which are beyond the scope of this note.

Issuing bills that comply with the standards imposed by the Heat Regulations

This legal requirement only applies to meters that have already been installed. It has been a requirement since 31 December 2014 but, since 30 April 2015 has been subject to potential enforcement action for breaches of the legislation.

The main requirement is that any bills for energy costs, which are being recovered through the service charge, must be on the basis of the actual consumption of energy by each tenant and not, for instance, based on floor area or a set percentage in the lease.

Tenants should receive a bill that is based on actual consumption at least once a year.

The NMRO has been appointed as the enforcement authority for the Heat Regulations and failure to comply could result in various civil sanctions including fines, as well as criminal prosecution.

Legal, financial and practical considerations for landlords

The Heat Regulations are turning up the heat by involving possible costly improvements to communal heating systems, changes to the way landlords divide up the costs of heating and cooling through the service charge and regular filing with the NMRO. Landlords should consider whether their portfolios contain buildings caught by the Heat Regulations.

If so, it may be necessary for landlords to review the service charge clauses in leases. If these permit charging for heating, cooling or hot water by reference to a fixed percentage, or to floor area (rather than by reference to consumption of these services) then:

  • in new leases, it would be prudent to amend the clause so that it charges by reference to consumption; and
  • in existing leases, it may not be possible to enforce the provision strictly as it is not clear whether the lease terms will prevail over the requirements of the Heat Regulations. However landlords may need to seek advice on whether the heads of service charge recovery are widely enough drafted already to provide any required flexibility in the future.

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.