Communal heating and hot water requirements

Summary

Landlords who provide communal heating or hot water in flats are subject to requirements to -

Notify the National Measurement and Regulation Office (NMRO).

Carry out an assessment to see if each unit of accommodation should be separately metered where you supply either communal heating or hot water.*

If it is both cost-effective and technically feasible to do so, then separate meters should be installed along with controls so that tenants can regulate use (e.g. room thermostats or thermostatic radiator valves (TRVs))*

If it is not viable to install separate meters for each unit, you have to carry out a second assessment to see whether instead it is cost-effective and technically feasible to install heat cost allocators and thermostatic radiator valves (TRVs) to each radiator which heats a room and a hot water meter. This only applies when you supply both communal heating and hot water. A heat cost allocator is an electronic device attached to the radiator which measure the output of the individual radiator.*

If it is cost-effective and technically feasible to do so then to install cost allocators and TRVs to each radiator (other than in the common parts of the building) and a hot water meter for each unit.*

Where meters or cost allocators are installed the landlord must ensure that bills for the consumption of heating and hot water are accurate and are based on actual consumption. Bills must also comply with the requirements of the regulations. This means that Bills must be provided at least once a year on an actual rather than an estimated basis and possibly more frequently.

Billing information must also be provided alongside the bill to comply with the regulations where there is separate metering or a cost allocator installed. This information must additionally be provided half yearly at least.

Communal heating systems must be notified to the National Measurement Regulation Office by 31st December 2015.

Where meters, cost allocators or TRVs have to be installed then this must be done by 31st December 2016.

IMPORTANT NOTE

This requirement is currently suspended pending official guidance being issued as to how the financial viability and technical feasibility tests are to be carried out. Further information is available at the end of this Guide.

In the residential sector the requirements only apply to self contained flat accommodation; not bedsits. Previously bedsits and other non self contained residential accommodation were to be included in the scope of the regulations but this is no longer the case. Please be warned that other guidance on the internet may be outdated on this point.

Practically, it will be landlords who own blocks where they themselves supply communal heating or hot water who are affected, e.g. an entire block of flats. On the other hand, a landlord who owns one or more flats in a block where someone else such as the flat management company, managing agent, or superior landlord, provides communal heating or hot water will not generally be affected. This is because a landlord owning an individual flat/flats in a block is not regarded as the primary heat supplier even though he/she in turn sells on communal heat or hot water to the tenant/occupier which has been supplied by the flat management company etc.

If the Assessment shows that it is not cost-effective or technically feasible to install meters (or where required the second assessment if both communal heating and hot water are supplied) a further assessment must be repeated within four years of the date of the first assessment and if meters have still not been installed then every four years after the date of the previous assessment.

An updated notification must be submitted to the NMRO within four years of the date of the first notification and submitted at the end of every four year period after that calculated from the date of the previous notification.

Introduction

These requirements apply where the landlord charges for communal heating or hot water. This includes indirect charging via an inclusive rent. Any landlord who provides communal cooling is also subject to the same requirements. Similar rules apply to district heating systems and, if a communal supply of hot water or heating or cooling is made by a district heating system, then there are additional requirements. As indicated above, it is going to be the landlord who, for example, owns a whole block and who is responsible for supplying hot water or heating communally which is subject to these regulations. In practice, a landlord of an individual flat (or flats) within a block where the owner of the block, or agent, such as a flat management company, managing agent or superior landlord who provides communal heating and/or hot water would not be directly affected. The responsibility is placed on the owner of the block as a whole, or their agent, to comply with the regulations. Such a landlord of an individual flat would be affected potentially insofar as that flat may become subject to separate metering/billing arrangements, as required by the regulations. In all cases where separate billing applies the cost will need to be recovered from the tenant/occupier either by means of a separate charge or through an inclusive rent arrangement.

These requirements apply throughout the UK.

What is a communal heating system

A communal heating system is one where steam or hot water (or chilled liquids) are distributed from a central source in a building which is occupied by more than one final customer which is used for space heating or hot water (or cooling). A final customer will be a tenant who purchases heating, cooling or hot water for their own end consumption. The key to the definition of a "communal heating" system is that there is one building with two or more final customers. If the landlord is resident and there is a communal heating or hot water system supplying just one other tenant/occupier the regulations will not apply. In counting the number of customers in this situation the landlord is not a customer because he/she is supplying himself/herself. On the other hand in this scenario where there are two or more tenants/occupiers, alongside the resident landlord, then the regulations will apply provided the accommodation is self contained. Where there is a shared house, then the regulations do not apply to that property so far as its communal supplies of heating and hot water are concerned There is a different definition for a "district heat network" - see below.

To whom to the regulations apply?

The regulations apply to a "heat supplier". This means a person such as a landlord who supplies and charges for a supply of heating, cooling or hot water to a final customer through a communal heating system. Therefore, if a charge is made which could include an inclusive rent or a service charge for these items the landlord who makes the supply is responsible for complying with the regulations. In turn, the landlord may himself/herself obtain the supplies from a communal source within the building. An example of this would be where in a block of flats there is a communal hot water system for which the landlord pays a service charge and then he/she recharges it to the tenant of a flat.

The management company or freeholder of the flats would be the "heat supplier" in this case.

The regulations do not apply to bedsits and other non self contained accommodation.

Which kinds of premises are affected

In residential properties the regulations apply where there is more than one final customer where the property meets all of the following criteria:

  • It is self contained

  • It has a living and sleeping space

  • It has sanitary facilities (including washing and toilet)

  • It has cooking and food preparation facilities

Spaces that do not meet all of these criteria such as houses of multiple occupancy or most university halls of residence where some services, such as cooking, are shared are therefore not captured. However, self-contained flats within a building supplied by one communal heating source would be. If a unit is otherwise self contained but has a separate facility for its own exclusive use e,g a separate exclusive toilet on the opposite side of the corridor this is still regarded as a separate self contained unit for these purposes.

NOTE: This guidance only applies to residential accommodation; different requirements apply to commercial premises.

What types of installations does communal heating cover?

It would cover hot water produced by a communal gas fired boiler (or oil fired boiler) whether used for space heating or heating hot water for domestic use (or both). It applies to even an electric immersion heater that serves more than one unit in order to provide a hot water supply for these units. These may be mains pressure operated but not necessarily so because there could be a header tank. It could also apply to a communal multi-point heater. The requirements apply also to communal water under floor heating systems.

What is the purpose of these requirements?

The overall objection is to reduce energy consumption especially as energy consumption is overall a significant part of total usage. The purposes are:-

  • To provide separate metering or measuring of use in individual residential units where there is a communal supply.

  • Ensure that residents can then control their own usage.

  • To bill individual users on an accurate basis reflecting individual usage.

What is the duty to notify?

Landlords who are heat suppliers must notify each communal heating system operated by them to the National Measurement and Regulation Office (NMRO). In practice, this means that it is the landlord/owner of the block as a whole. As a landlord, you may have an individual flat (or flats) in a block but where the supply is made communally by the owner of the block the management company controlling the block then responsibility for compliance with regulations lies with them; not with you as an individual owner. This can be done in any format. It can be done by email using a notifications template. Where one person is responsible for a number of systems a multi-notification template is also available. Notification is required even if separate metering is not.

Notifications must be made no later then the 31st December 2015 for existing systems and also if any new ones are installed. This date has been put back and was originally intended to be the end of April 2015. Some information on the internet is out of date and does not reflect the later date.

Notifications of communal heating systems have to contain detailed information as follows:-

  • The location of the heating system.

  • The estimated total per calendar year of installed heating capacity, heat generated and heat supplied by the installation.

  • The number and type of buildings supplied.

  • The number and type of meters or cost allocators installed.

  • The number of final customers supplied.

  • The name and business address of the landlord.

  • Where any assessment as to the cost-effectiveness or technical feasibility has been carried out the results of that assessment.

  • Details of any meters or heat cost allocators which have been installed as a result of the assessment.

  • Any other information required by NMRO.

The landlord must submit an updated notification within four years of the date of the first notification and then every four years from the date of the previous notifications. This applies whether or not any meters or cost allocators have been installed.

We are advised by NMRO that the current regulations are to be redrafted. Guidance is to be given based on a European level guidance about compliance with the financial viability and technical feasibility tests. Therefore, although you must still notify affected premises by the end of December 2015 to NMRO further compliance is currently suspended, although the implementation of 31st December 2016 still remains. Once we have further guidance we will update this note. You should therefore read the remainder of the this Guidance in the light of this information.

When must separate meters be installed?

Where there is a communal heating system for a building with more than one final customer the intention is that each separate unit should be individually metered. This is, however, subject to the proviso that it should be both cost-effective and technically feasible for this to be done. An assessment has to be carried out to assess this. This applies where either communal heating or hot water is supplied. The purpose of metering is to measure the consumption of heating or water (or cooling) by each final customer in the building. When a meter is installed the landlord must also ensure that temperature control devices are installed to enable the tenant to control the consumption of heating (or cooling) by the tenant from the communal heating system.

If a meter is not installed do heat cost allocators, TRVs and hot water meters have to be installed?

If the landlord supplies both heating and hot water to the building from a communal heating system and it is not cost-effective/technically feasible to install separate meters, then instead the landlord must ensure that the following are installed:-

  • Heat cost allocators to each room heating radiator (but not in the common parts)

  • TRVs on each room radiator (but not in the common parts), and

  • A hot water meter

However, this is not necessary unless it is both cost-effective and technically feasible to install heat cost allocators, TRVs and a hot water meter for each separate unit occupied by a final customer.

A heat cost allocator can only be required for a radiator as it is not technically feasible for other types of heat emitters.

How is the assessment of cost-effectiveness carried out?

NMRO provide an online tool to assist with this assessment of cost-effectiveness. Technical advice suggests that in most cases it will not be cost-effective to install individual meters. However, this tool operates on a standardised basis so adjustments will be needed for specific circumstances. The tool does not operate for accommodation such as bedsits that are not self-contained.

There are different criteria dependent on the assessment and feasibility of installing a meter (including a hot water meter where this is required alongside heat cost allocators and TRVs) on the one hand and on the other hand heat cost allocators and TRVs (where these may be required because it is not cost-effective to install meters for individual units but the landlord supplies both communal space heating and hot water). If the assessment shows that the total value of projected energy savings over a subsequent ten year period would be greater than the estimated reasonable costs of installing the meters or, alternatively, heat cost allocators and TRVs for every radiator in the building (as the case may be) this will be considered to be cost-effective. In making the calculation you work in net present values, i.e. work costings back to today's prices. When it comes to working out the projected energy savings for the ten year period then the percentage for savings resulting from introducing meters or heat cost allocators required is 20% on average.

IMPORTAN - see note above. This test is suspended.

What is the likely cost of installing a meter?

Government estimates are that the capital cost of a meter and the associated required data gathering system and installation costs total £450 approximately. Annual operating costs are assumed to be about £70 per unit. A meter has a lifetime of ten years. Additionally, in order to control the heating suitable temperature control devices are required such as room thermostats or TRVs. The cost of installing TRVs is estimated at £50 per unit. However, the standard NMRO tool uses different figures to these in certain instances.

What is the cost of installing heat cost allocators, TRVs and hot water meters?

The estimated cost of installing heat cost allocators (including data gathering costs) is £45 per radiator with ongoing costs of £35 per year. Alongside this the requirement to install TRVs is again likely to be of the order of £50 per unit. Hot water meters, including the cost of installation, will be around £150 per unit installed.

What can you take into account in the cost of installing meters?

These are the capital costs, installation costs, operational and maintenance costs, taking into account:-

  • The building type, age and number of individual units.

  • The number of storeys.

  • The geographical location.

  • The cost of access to do the installation including any legal costs.

  • The cost of access to or isolation of pipework.

  • Any resulting decoration or repair costs.

  • The cost of installation of temperature control devices.

  • The cost of equipment and software to get data from meters for billing purposes.

  • The cost of issuing bills and billing information and

  • The cost of recalibrating periodically

What matters can be taken into account in estimating costs of installing heat cost allocators and TRVs?

These are the capital costs, installation costs and maintenance costs to be taken into account:

  • The cost of access to do the installation including the legal costs.

  • The cost of equipment and software to get data from the cost allocators to be issued.

  • The cost of recalibrating the heating cost allocators periodically to ensure that they are accurate.

  • The cost of issuing bills and billing information.

What is the discount rate to be applied?

In calculating the net present values to work out today's cost a real discount rate of 9% is to be applied to the figures used.

How to you judge technical feasibility for meters?

It is not just cost-effectiveness which has to be assessed. Technical feasibility has to be assessed as well.

It is deemed technically feasible to install meters in residential accommodation unless there is more than one entry point for the pipes of a communal heating system into each unit or the entry point is unknown. In these cases only heat cost allocators could be technically feasible. Alternatively it is not technically feasible if the heat distributed from communal heating is by means of water with a temperature above 90°C.

IMPORTANT - this test is effectively suspended at the present time - see above.

Is there a test for technical feasibility for installing cost allocators and TRVs?

No test as such is laid down but a hot water heater has to be installed alongside these where they are required. The test for technical feasibility for installing meters generally applies to these hot water meters - see last question.

Is the retrofitting of heaters likely to be cost-effective?

In the majority of cases the use of the viability tool shows that retrofitting of meters is not cost-effective.

What are the landlord's responsibilities regarding meters?

If there is an existing meter which is part of the communal system and it is replaced then the replacement must accurately measure consumption and it must memorise and display this information.

What are the ongoing obligations in relation to meters and heating cost allocators?

If meters or heating cost allocators are installed then it is the responsibility of the landlord to make sure that all of these are continuously operating and are properly maintained as well as being periodically checked for errors.

Re-calibration is needed from time to time and the likely meter life is 10 years.

What are the requirements regarding billing?

There are requirements both in respect of bills and billing information. A "bill" is a demand for payment from the landlord to a tenant. "Billing information" is specified information required which has to be provided by the landlord to the tenant in connection with communal heating or hot water (or cooling) where meters or heating cost allocators are installed.

There is a general requirement on the landlord to ensure that both bills and billing information are accurate and are based on actual consumption. This overrides a provision of the tenancy agreement. The bills must be based on readings from meters or heating cost allocators where they are provided.

Additionally the following requirements apply:-

  • At least once a year the landlord must issue a bill to the tenant on the basis of actual (rather than estimated) consumption provided that the tenant has provided a reading or the landlord has taken a meter reading. Every bill issued must be accompanied by billing information.

  • Additionally, if the tenant opts to receive billing electronically or if the tenant requests more frequent billing information, billing information must be issued by the landlord at least quarterly; otherwise it must be issued twice a year (as well as being issued with every bill issued).

Where bills are being issued based on information from meter readings provided by the tenant then if the tenant does not provide this an estimated bill can be provided. Bills must show any fixed and variable charges separately.

What is billing information?

Billing information is following:-

  • The current energy prices charged to the tenant by the landlord. It should be noted that alongside these requirements are requirements as to the maximum recharge which can be made for energy prices, both gas and electricity.

  • Information about the tenant's energy consumption.

  • Where available comparisons of the tenant's current energy consumption and the consumption for the same period in the previous year, if possible displayed in a graph.

  • Contact information, including website addresses for organisations from whom information can be obtained on available energy efficiency improvement measures and technical specifications for products which use energy.

Are there requirements for contracts for communal heating/hot water?

Additionally, when the contract for communal heating or hot water (or cooling) is sent to the tenant for signature, or there are any variations in any such contract, contact information must be given. This is to include website addresses for organisations where information may be obtained on available energy improvement measures. Additionally, specifications for products which use energy must be provided. A tenancy agreement would be a contract which would need to comply with this.

Is there a requirement for it to be cost-effective/technically feasible to give billing information?

These requirements are subject to an overriding provision that they must be technically possible and economically justified to impose these requirements. Under the regulations it is deemed economically justified where the estimated reasonable costs of issuing bills and billing information does not exceed £70 per final customer per calendar year. In calculating this cost the costs which can be included are:-

  • Collecting, storing and processing meter readings.

  • Preparation and issue of billing information.

  • Processing of payments.

  • Issuing of demands for payment if the bill is not paid.

Landlords must also supply a tenant's billing information to an energy services provider if the tenant requests this, i.e. a company which provides energy efficiency services. Billing information must be provided to the tenant electronically if the tenant requires this. The landlord must also provide a clear explanation of information contained in a bill and the bill as calculated must specify any fixed or variable charges. The landlord must ensure that information estimates and energy costs and provided to the tenant promptly where requested. Information must be in a format which enables the tenants to compare the charges with the energy suppliers.

Can the landlord recover costs from the tenant?

The landlord must not make a specific charge to a tenant for the provision of a bill or billing information except for the supply of additional copies. However, the landlords costs of providing billing information may be passed on to the tenants provided that no profit is made or, if the landlord has arranged for this task to be carried out by a third party, then the reasonable costs for providing the third party's charges may be passed onto the tenants.

As regards installation of meters the costs could be recovered provided the tenancy agreement allows for this. There is no reason, in principle, why these costs cannot be recovered from the tenants.

The intention of the regulations is that the actual cost of consumption should be passed on to the tenant/occupier. Landlords who are directly affected by these regulations will be landlords who own/control a block where the landlord provides heating or hot water to that block communally. If there is a requirement to install separate metering and provide separate billing then the landlord will be entitled to charge the tenant for the cost of the supply. This will then depend on the contractual arrangements between the landlord, i.e. the terms of the tenancy agreement. Landlords can either provide for the tenant to pay the billed charges or alternatively charge an inclusive rent. Please remember, however, that the maximum re-sale of gas and electricity provisions apply potentially so a profit should not be made.

On the other hand, if a landlord owns one or more individual flats in a block where the owner/landlord of the block (or management company/managing agent etc) provide communal heating or hot water then under the terms of the leases (or other arrangements for managing the flats) the landlord is likely to be charged for the cost of supplies. This cost will then need to be passed onto the tenant, either by way of a separate charge or through an inclusive rent. In some instances, it may be the case that arrangements are made for individual tenants to be charged direct by the owner/management company controlling the block. Arrangements will vary according to the circumstances.

What are the different rules for district heating systems?

Broadly the same rules apply as with communal heating systems.

A district heating system is where water for heating for domestic hot water is networked to multiple buildings or sites (or cooling is provided in this way). The same rules apply except -

  • Where a building is occupied by more than one final customer a building level meter must be provided at the heat exchange/point of entry into the building.

  • If only one final customer occupies the building, meters must be installed but this is not subject to the cost-effectiveness/technical feasibility test.

  • Where a new connection is made to a district heating network or a building with one undergoes major renovations in relation to technical services of the building then sufficient meters must be installed to measure consumption by each final customer unless it is not technically feasible to do so or the estimated costs will be unreasonable. Major renovation means a renovation of a building where a total cost of the renovation of the building envelope or the technical services is higher than 25% of the value of the building (excluding land). The value of the building is the most recent reinstatement cost for insurance purposes.

How is the legislation enforced

Legislation can be enforced by following:-

  • Warnings both formal and informal.

  • An enforcement undertaking is obtained to comply.

  • Civil penalties - the penalties of up to 100% of the cost of fulfilling the requirements needed to comply can be imposed.

  • Criminal prosecution - the maximum penalty is £5,000. However, in the case of each of the duty to install meters, cost allocators, hot water meters or replacement of meters then there is an unlimited fine if a prosecution takes place in the Crown Court.

No one can be prosecuted for an offence which occurred before the 30th April 2015. There is a twelve month period during which prosecution can commence, provided evidence has been established to justify the prosecution, unless the case is one which can be dealt with at Crown Court.

Rights of entry for the landlord

The legislation does not give any specific right to the landlord to enter onto a property to carry out work. Provision is required in the tenancy agreement.

Does the NMRO have enforcement powers?

NMRO officers may inspect any meters, costing allocators or any records or documents and they may require their production. Items can be removed if required as evidence.

There is power for entry with the consent of the occupier but this does not extend to any premises used mainly as a private dwelling. A warrant can be obtained to enter premises from the Courts if there are reasonable grounds to enter the premises in order to enforce the regulations where -

  • Entry to the premises has been or is likely to be refused, and notice of intention to apply for a warrant has been given to the occupier.

  • Asking for admission or giving notice would defeat the purpose of entry.

  • Entry is required urgently, or

  • The premises are unoccupied or the occupier is temporarily away.

What is the legal authority for these requirements?

The requirements are based on an EU Directive, the EU Energy Efficiency Directive 2012. They are being implemented in the UK by the Heat Network (Metering and Billing) Regulations 2014 as amended by the 2015 Regulations.

IMPORTANT - The 2015 regulations are to be redrafted but as yet we do not have details. As indicated above implementation of separate metering where required is effectively in suspense pending new regulations and fresh guidance being given.

IMPORTANT - The 2015 regulations are to be redrafted but as yet we do not have details. As indicated above implementation of separate metering where required is effectively in suspense pending new regulations and fresh guidance being given.

Update on Regulations

Implementation of requirements to fit meters, etc has been delayed beyond the 31st December 2016 deadline.

The National Measurement and Regulation Office (NMRO), who are responsible for compliance, have the issued the following note: -

The Regulations came into force on 18th December 2014, implementing changes in the provision of heating, cooling and hot water via communal systems. Under the Regulations there is a 31st December 2016 deadline for:

  • All heat suppliers operating communal schemes to have assessed whether it is technically or financially viable to have metering systems and or heat cost allocators, thermostatic valves and hot water meters in existing communal heating schemes, which do not have working metering schemes from which customers can be accurately billed.
  • Installation of heat meters, where they are deemed technically and financially viable.

The viability test mentioned above consists of a tool¬kit, which sets out how to determine whether the Net Present Value (NPV) of energy savings over ten years is greater than the NPV cost of installing heat/hot water meters or cost allocators, thermostatic valves and hot water meters. However, there have been problems with the cost-effectiveness tool.

The Government website now states that from 31st December 2016 viability assessments and subsequent installations must be carried out for individual heat meters or for heat cost allocators with hot water meters in buildings with more than one final customer. The same webpage also highlights the problems with the cost-effectiveness tool and advises that the requirement to install heat meters to measure final consumption of heat from a heat network in buildings occupied by one final customer will not be enforced pending revision of the tool.

Following a request for clarification of the position, the NMRO's updated advice as follows:

This summer has been unique in its impact on the environment we are working in. The referendum result, change of Prime Minister and amalgamation of DECC and BIS have, as I am sure you can imagine, created a significant impact on “business as usual”. Policy have been seeking ministerial approval on a way forward which was received last week. So the plan is for BEIS to introduce an updated cost effectiveness tool with accompanying regulations at the earliest possible opportunity. This gives a likely timeline of:

  • launching a public consultation in early 2017 on a revised methodology for assessing the cost effectiveness of metering for district and communal heat networks. The consultation will also seek views on some additional areas where we believe the regulations could benefit from clarification following experience from the first two years of enforcement.
  • launch a new cost effectiveness tool and accompanying regulatory amendments later in 2017.
  • In relation to the upcoming deadline, which requires heat suppliers to test the cost-effectiveness of fitting heat meters in multi-occupancy buildings, and where appropriate to fit them, by 31 December 2016; we can confirm that BEIS RD will be taking a pragmatic approach for any non-compliance with this requirement until a new tool and re-testing date is in place. We do not expect any actions to be progressed relating to the fitting of individual meters where subject to the viability test during this period. BEIS are liaising with the Financial Conduct Authority so that those heat suppliers subject to their rules will not be disadvantaged by any non-compliance in relation to the requirement to test the cost-effectiveness of fitting heat meters in multi-occupancy buildings, and where appropriate to fit them, by 31 December 2016.”

In effect, this means that the requirement to test is not going to be enforced for the time being while these processes are gone through.

Landlord & Investment Show
Martin Co
Six Hills House
Landlord Broadband

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