Introduction
Key elements of supply of heat to consumers
Consequences for landlords
In practice


Introduction

On January 1 2014 the Heat Act took effect. The act regulates the supply of heat to (small) consumers, which it defines as "persons to whom heat is supplied through a heating network and who have a connection with a maximum capacity of 100 [kilowatts (kW)]". The Heat Act contains a set of regulations for suppliers of heat to consumers and sets down requirements for the agreement between the supplier and the consumer. But what if the landlord of a multi-tenant office building or a shopping mall also provides the (onward) supply of heat to its tenants pursuant to tenancy agreements? Does the landlord qualify as a supplier within the meaning of the act, with all the associated consequences?

Key elements of supply of heat to consumers

The Heat Act is applicable only when heat is supplied to a consumer within the meaning of the act. Supply to a person with a connection with a maximum capacity of more than 100kW is in the free domain, similar to a heat consumption for a floor area of approximately 2,000 square metres. The statutory term 'consumer' has three key elements:

  • heat;
  • heating network; and
  • (smaller) connection.

A person is a consumer and the supply of heat is regulated only if these three key elements are satisfied.

When heat is provided through a collective heat supply (eg, collective heating for a block of flats or district heating) in commercial, office or retail properties without tenants being connected individually, it is not always clear whether this constitutes supply to consumers within the meaning of the Heat Act. In such situations the question may easily arise of whether all the key elements of the statutory term 'consumer' are satisfied.

In the event of a lease including the heat supply in the service charge, it is often uncertain whether the tenant has the connection referred to in the act. The statutory term 'connection' is not defined and technically tenants do not usually have their own connection. On its website the Netherlands Authority for Consumers and Markets (ACM) answers the question of whether there is a connection by establishing the criterion of 'self-contained dwelling'. However, an office is not a dwelling, and in practice the line between self-contained and non-self-contained units in multi-tenant buildings cannot always be drawn clearly.

According to the definition of 'heating network' in the Heat Act, the heating network ends at the building boundary and the internal heating system does not qualify as a heating network. So, in the event of supply of heat to, for example, an office building, is the key element of (supply through) a heating network even satisfied?

The Heat Act defines 'heat' as "hot water destined for room heating et cetera". If a room is heated by means of hot air rather than hot water, there is no heat within the meaning of the act. Therefore, in such case the statutory definition of 'consumer' will not be satisfied.

Consequences for landlords

There is major uncertainty as to whether the Heat Act applies to the supply of heat included in service charges under leases of commercial, office or retail space. If the answer is affirmative, there will be consequences for landlords.

Anyone who directly supplies heat to a consumer within the meaning of the Heat Act must apply for a licence or register the supply. In the event of violation of this obligation, under the Heat Act the ACM may impose an administrative penalty of up to the higher of €450,000 or 1% of turnover for the financial year preceding the violation.

Furthermore, the Heat Act requires the landlord as supplier and the tenant as consumer to enter into a written agreement for the supply of heat. The landlord may not stipulate a higher price for the supply of heat than the maximum price determined by the ACM annually. The maximum price is based on the integral costs that a consumer would incur purchasing the same quantity of heat using gas as an energy source. The maximum price caps the service charges for the supply of heat, which for commercial lease agreements are usually calculated based on the allocation formula of the General Provisions of the Dutch Real Estate Board.

In any event, the supply agreement should contain the following elements:

  • the supplier's personal details and address;
  • a description of the supply and quality level, including minimum and maximum temperatures;
  • meters or heat cost allocators and the relevant payment method;
  • conditions for suspension and termination;
  • provisions for compensation in case of failure, restriction or interruption of supply; and
  • a dispute resolution process to be carried out by an independent committee (in addition to the civil court).

The Heat Act is immediately applicable, without any transitional law. Any new or existing arrangements that derogate from the act are null and void.

In practice

To date, there is no case law on the possible qualification of landlords and tenants of commercial properties as suppliers and consumers within the meaning of the Heat Act. The ACM is not yet willing to respond to substantive questions on behalf of commercial property owners. For now, uncertainty prevails.

Given the implications of the Heat Act, it would be advisable for investors in and managers of commercial property to identify whether any risks of this kind may arise as a result of the onward supply of heat to tenants in their properties, or as part of due diligence investigations into properties that they wish to acquire. Subsequently, they should review whether existing lease agreements require amendment or addition. For new lease agreements, property owners may consider implementing the supply of heat by the operator of the heating network directly to tenants. There may also be the possibility to make arrangements with the operator to prevent the owner getting 'stuck' between the operator and its tenants.

For further information on this topic please contact Léone Klapwijk or Timo Huisman at Loyens & Loeff NV by telephone (+31 10 224 62 24), fax (+31 10 412 58 39) or email (leone.klapwijk@loyensloeff.com or timo.huisman@loyensloeff.com).