Amid the stream of initiatives and legislation aimed at improving the energy efficiency of buildings, the Heat Network (Metering and Billing) Regulations 2014 may have been missed.
The scope of these regulations is wide and compliance is likely to be both time-consuming and costly. Those caught could include public and private sector landlords and management companies who need to act now to avoid civil and criminal sanctions. This article looks at the details of the obligations applying to communal heating systems and the key dates for compliance.
DEFINITIONS AND APPLICATION
The regulations apply to “heat suppliers”, meaning a person who supplies and charges for the supply of heating, cooling or hot water to a “final customer” through either “communal heating” or “a district heat network” (though this is less common and not covered here). The landlord is usually the heat supplier and will have to comply with the regulations. However, this depends on the supply and charging arrangements in place, which may have been outsourced, or whether there is a superior landlord.
Communal heating is defined as the “distribution of thermal energy in the form of steam, hot water or chilled liquids from a central source in a building that is occupied by more than one final customer, for the use of space or process heating, cooling or hot water”. In practice this means that a multi-let building (residential or commercial) with a communal heating system will be included, so long as there are two or more final customers, ie, tenants.
From 31 December 2014, where individual meters are installed, the heat supplier must ensure that billing is accurate, based on actual consumption and compliant with the detailed requirements of the regulations.
This does not sit easily with lease provisions where tenants pay a fixed percentage of heating costs. For example, in a single multilet building with four tenants, each tenant may be required by their lease to pay a fixed 25%. However, the actual use of tenants one to three is 20% each while tenant four uses 40% of the heat generated. How does the landlord make a full recovery?
The regulations appear to limit the landlord’s recovery from the first three tenants to “actual consumption”, ie, 20% and not the 25% specified in the leases. The lease to tenant four only gives rise to a contractual entitlement for the landlord to recover 25% from that tenant. For the remaining 15% the landlord can ask tenant four to pay the full amount consumed; however, the tenant will doubtless refuse as he is only contractually obliged to pay 25%, leaving the landlord out of pocket.
By 30 April 2015, the heat supplier must inform the relevant regulatory body of the presence of a communal heating system. For new communal heating systems commissioned after 30 April 2015, notification must be made on or before the first date of operation. Notifications must be updated every four years.
This is an onerous obligation as the notification must include details of the heating system, number of customers and meters and estimated consumption and capacity. Landlords are likely to need assistance from experts to compile this data and will need to ascertain whether these costs are recoverable from their tenants.
VIABILITY ASSESSMENTS AND INSTALLATION
By 31 December 2016, where there is communal heating, viability assessments must be carried out to ascertain whether it is cost effective and technically feasible (in accordance with the criteria set out in the regulations) to install meters to monitor individual consumption of heating, cooling or hot water. If not, then additional assessments must be carried out as to the viability of heat cost allocators, thermostatic radiator valves and a hot water meter.
Where found viable, also by 31 December 2016, relevant meters must be installed together with a heat control device that enables customers to control their consumption. Radiator valves and hot water meters must be installed where meters are unviable and the heat supplier provides both heating and hot water. Once new meters have been installed the heat supplier must ensure that they are continuously operating, maintained and periodically inspected.
If installations have not been made, viability assessments and reports have to be repeated every four years.
The legislation is to be enforced in the UK by the National Measurement Office (NMO); there is no right of private enforcement. Failure to comply with the metering, billing, maintenance or notification regulations is a criminal offence, punishable with a fine of up to £5,000 per offence. The regulations confer on the NMO a broad power to impose civil sanctions. These include the power to impose a compliance notice, an enforcement undertaking or to pay a non-compliance penalty.
ACTIONS FOR LANDLORDS
- Carry out a portfolio review, including third-party contracts and lease arrangements, to determine whether they are a heat supplier with a communal heating system and if there are two or more final customers who are billed.
- Make the relevant notifications by 30 April 2015. It is understood that the NMO will accept partly complete notification forms so long as the person submitting them then keeps using reasonable efforts to collect and supply the missing information.
- Carry out viability assessments, notify these assessments and make resulting installations by 31 December 2016.
- Once meters are installed, consider what systems need to be put in place to manage the billing process and ensure that the billing requirements are complied with.
- Comply with the regulations when existing meters forming part of a communal heating system are replaced. Compliant meters must be installed.
- For new developments, check that contractual arrangements are in place to ensure that, where applicable, the regulations are complied with.
- Review existing leases – particularly service charge provisions, rights of entry and statutory compliance clauses – to identify whether the provisions are at odds with the regulations.
- Carefully consider the drafting of new leases in light of the regulations, especially the use of fixed service charge percentages.
This article was published in Estates Gazette in March 2015.