UK: The Heat Is On: New Regulations Increase The Burden On Landlords

Last Updated: 8 May 2015
Article by Louise Ward and Annabel Madewell

Landlords of communal and multi-let properties need to be aware of the Heat Network (Metering and Billing) Regulations 2014.

Introduction

In 2012, the EU issued the Energy Efficiency Directive to achieve the Commission's 2020 20% energy efficiency target. The UK has now implemented this Directive through the Heat Network (Metering and Billing) Regulations 2014 which came into effect on 31 December 2014.

One of the main aims of the Regulations is to provide accountability and information to the occupiers of properties about their energy consumption. To this end, landlords and management companies should note that the Regulations contain somewhat onerous notification requirements and there are various deadlines to comply with.

The scope of the Regulations

The Regulations are widely drawn and cover "heat suppliers". This means that anyone who "supplies and charges for the supply of heating, cooling or hot water to a final customer" through communal heating (ie in a building with more than one occupier) will be caught.

Landlords of multi-let buildings are therefore likely to be affected, where there are supply and charge provisions contained within the lease and these functions have not been outsourced.

Billing

From 31 December 2014, heat suppliers who have individual meters installed must ensure that all billing is accurate, based on actual consumption and complies with the Regulations.

The Regulations also require the heat provider to issue a bill to the final customer at least once a year, or quarterly in the case of electronic billing.

Compliance with the Regulations may be problematic where a landlord has a complicated leasehold arrangement or where the leasehold agreements in a multi-let building provide that tenants pay a fixed proportion of the total heating costs rather than their actual consumption. In some circumstances, such arrangements may leave landlords unable to fully recover heating costs from tenants as only the actual consumption may be charged.

Landlords should ensure, with regard to new leases and lease renewals, that fixed percentage service charge clauses are carefully drafted to ensure they are compliant with the Regulations and enable the landlord to fully recover all heating costs.

Notification

By 31 December 2015 heat suppliers must submit a notification to the National Measurement Office (NMO) with details, including:

  • the location of the communal heating
  • the estimated total of the heating capacity, generation and supply per calendar year
  • the number and type of buildings being supplied with heat
  • the number and type of meters installed
  • the number of final customers supplied by the communal heating

These notifications must be resubmitted and updated every four years.

Meter Installation

By 31 December 2016, in multi-let buildings, landlords will need to install meters to measure consumption from the communal heating system by each occupier and also install temperature control devices to enable the customer to control the consumption from the communal heating.

A landlord can avoid compliance with this provision if it can prove that it is not cost effective or technically feasible to do so and we can advise further on this in individual circumstances.

Where landlords have assessed that the above meters are not cost effective or technically feasible to install then they must instead install heat cost allocators, thermostatic radiator valves in room-heating radiators, and a hot water meter, again providing these installations are cost effective and technically feasible.

Landlords should ensure that once these meters have been installed they operate continuously, are properly maintained and also checked periodically.

Landlords should note that the requirement under the Regulations to install and maintain meters does not automatically entitle landlords the right to enter the premises to carry out such installation. New or renewal leases should ensure that there is a right of entry granted under the lease to enable landlords to carry out this requirement.

Non-Compliance

Landlords should be aware that non-compliance with these Regulations is severe and will be a criminal offence, punishable with a fine of up to £5,000 per offence. The Regulations also enable the National Measurement Office to impose civil sanctions.

Summary and action points

  • Ensure immediately that all billing is accurate, based on actual consumption and compliant with the Regulations;
  • By 31 December 2015, submit a notification to the NMO. Compilation of all the necessary information should be initiated as soon as possible as it may be a time consuming process; and
  • By 31 December 2016, install all necessary meters.
  • Review leases to check the basis of recovery for communal suppliers and ensure new leases contain the necessary rights to enable the landlord to comply with its obligations under the Regulations.

We can provide further advice and assistance regarding compliance with the Regulations including necessary lease review and drafting.

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.

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