Landlords of multi-let buildings who supply heating, cooling or hot water through a communal system should be aware of the requirements now imposed by the Heat Network (Metering and Billing) Regulations 2014 and consider how they apply alongside the existing lease terms.
Why are these significant?
The Regulations may require owners or head leaseholders of such buildings to make expensive improvements to the communal heating system and changes to the way they charge for services as well as regularly filing details of those properties affected with the National Measurement and Regulation Office.
On whom do the 2014 Regulations impose a duty?
The duties are imposed on a “Heat Supplier” being the person who supplies and charges for the supply to a final customer through a communal heating or district heat network. They apply to both commercial and residential buildings where the building has a central source of steam, hot water or cooled liquids to distribute thermal energy. The Heat Supplier will often be the landlord of a multi-let block who supplies services by District Heat Services where the costs are recovered as a District Heat Charge or service charge. The “Final Customer” is the person who consumes the energy. This is usually the long leaseholder but in some cases the flat or unit may be sublet and therefore the Final Customer is not the direct tenant of the Heat Supplier. This does raise practical issues for Heat Suppliers in relation to collection of charges from subtenants.
Heat Suppliers must make regular notifications to the National Measurement and Regulation Office every 4 years. The Heat Supplier must also ensure that bills and billing information are based on actual not estimated consumption and comply with the billing standards set out in Schedule 2 to the Regulations which contains minimum requirements for billing at least once per year. From 31 December 2016, there will be an obligation to install meters to accurately measure consumption.
Will the existing lease provisions on billing prevail?
There has been remarkably little commentary on the application of the Regulations. It is simply not clear whether the Regulations will override the terms of the existing lease. Most Landlords are unlikely to base their calculation of energy costs for each tenant on consumption. Until clarified, a well advised landlord should proceed on the basis that the Regulations may impose different obligations. In particular there is debate between commentators with some taking the opposite view that the contractual terms of the lease will prevail if the lease came into force before the 2014 Regulations. However, the best approach for a landlord is to proceed on the basis that the Regulations may override the terms of the lease. That said where the provisions in the lease are more onerous than the Regulations, a well advised landlord will continue to comply with the terms of the lease, at all times treating the requirements in the Regulations as the minimum requirement that must be met. This will protect from both the sanctions for non-compliance and against arguments by long leaseholders as to the recoverability of charges.
See link to previous Law Now.