By Harry Scoffin
Leaseholders who get their heating and hot water from communal systems face price hikes of nearly 500%, and are unable to switch suppliers for a better deal.
They feel like “captives” who are being “extorted” by their “monopoly” providers, they tell the Leasehold Knowledge Partnership.
At four Ballymore developments leaseholders, shared owners and renters are angry about sudden energy bill increases of nearly 500% from Communal Energy Partners, the provider formerly known as SE Energy, that was installed by the Irish developer-cum-freeholder.
Its ability pass on extraordinary wholesale price increases are seemingly unfettered.
All leasehold developments, whether wholly residential or mixed-use in nature, involving communal utility systems and a single provider for domestic supply to the flats have their energy treated as ‘commercial supply’ by utility companies and Ofgem, the regulator.
Effectively domestic consumers, flat leaseholders nonetheless have their supplies designated as a ‘commercial’ rather than a ‘residential’ tariff, which means that that they are fully exposed to extreme market changes, as is happening today with the Ukraine crisis meaning that “Europe faces its worst energy crisis since the Arab oil embargoes of the 1970s”, according to the FT.
Moscow has the EU over a barrel on energy
Europe is already experiencing the worst energy crisis since the Arab oil embargoes of the 1970s. Record natural gas prices are stoking a cost-of-living crisis from London to Warsaw. If Russia invades Ukraine, it could get much worse. The EU relies on Russia for around 40 per cent of its gas in normal years.
This classification of energy and electricity supply to landlords in the leasehold sector as commercial, not residential, provides the long leaseholders no protection from soaring gas prices as the Ofgem price cap does not apply.
Flat leaseholders falling outside the Ofgem price cap because their supplies are deemed commercial is yet another loophole in leasehold after LKP reported last year the failure of the Financial Conduct Authority to treat paying flat leaseholders as the ‘customer’ over buildings’ insurance policies under its ICOB rules. This allows insurers, freeholders, brokers and even managing agents to collude in baking in hidden commissions into the premiums that lessees must pay.
ARMA supported leaseholders over energy costs in 2011
In 2011, managing agents trade body ARMA protested to Ofgem its treatment of leasehold blocks of flats and noted that continued regulation of the energy supply to building landlords as ‘commercial’ would also mean that leaseholders could not take advantage of the Green Deal to improve their development’s energy efficiency.
Perhaps evidencing the organisation’s more pro-consumer stance before the membership rules changed to permit freehold speculators to take out ARMA subs, ARMA claimed that utility companies needed to stop being so difficult towards lay directors who are organising their site’s energy supplies as unpaid volunteers since the resident management company “acts a trustee but the service charge monies do not belong to the company. This means that these companies generally have no assets and many file as dormant at Companies House.”
Continuing to stick up for resident controlled sites – a far cry from disparaging their leaders as overconfident incompetent Dad’s Army figures – ARMA raised the following lay director complaints with Ofgem:
“In recent years utility companies have run credit checks on resident management companies and some have refused to supply, effectively stifling competition and any search for best value. Others will only supply if large deposits are made; this is not practical for most of these companies as they do not hold any reserves. Others demand direct debit payments; a trustee or its managing agent cannot do this. For example it is against RICS rules to set up a direct debit on a client or trust account. In the interest of providing effective competition for resident management companies all supplies of gas and electricity to common parts of blocks of flats should be made residential supplies.”
John Mills, ARMA technical consultant, concluded the letter, which can be read in full here, by urging Ofgem to change its policy to ensure leaseholders are treated as domestic consumers:
“… ARMA proposes that the correct way forward is to adopt the definitions used in the VAT regulations that any supply which is to residential premises or to premises which are an adjunct to those premises should be classed as residential. Further there should be no distinction made according to the identity or nature of the landlord, the customer of the utility; what should matter is the end use to which that supply is made.”
11 years on and Ofgem has still not addressed this glaring anomaly in its rules, to the considerable disbenefit of hundreds of thousands of flat dwellers living under the antiquated and arcane leasehold system almost unique in the world to England and Wales.
Flat dwellers are now anticipating hikes of up to 500%, unlike occupiers of freehold homes with conventional heating arrangements who face 50% plus increases to utility bills when the Ofgem price cap is increased on 1 April.
Last week, The Guardian newspaper reported that at least half a million UK citizens are affected because their apartment complexes see “at least some of the heating or hot water … provided by a centrally controlled system, usually administered by the company that manages the estate”.
Energy bills: flat dwellers face massive rise despite price cap
undreds of thousands of people living in flats are facing “completely unaffordable” increases to their energy bills because their communal heating system’s supply is not protected by the government’s price cap.
District heating systems, also known as heat networks, are currently not regulated by Ofgem, which means that leaseholders who rely on such arrangements for their energy are even more vulnerable to surges in energy bills.
In late December, government finally committed to bringing these services under Ofgem oversight “to ensure consumers receive a fair price and reliable supply of heat” but has yet to announce when legislation will be brought forward, although it promises the necessary changes will be made “within this Parliament”.
UK government announces major expansion of heat networks in latest step to power homes with green energy
£19 million government cash boost announced to supply low carbon heating for thousands of homes and buildings across the country government appoints Ofgem as Great Britain heat networks regulator to ensure consumers receive a fair price and reliable supply of heat heat networks are an essential technology for cutting carbon
Commercial gas saw a 1,000% price increase last year, rising from 1.5 per unit to 15p per unit before Christmas, with the price currently hovering between 6p and 7pm per unit, according to Heat Trust, the independent, non-profit consumer champion for heat networks, which is campaigning for heat network operators to be allowed to purchase gas at capped domestic tariff rates and pass on these savings to flat dwellers.
Stephen Knight, director of Heat Trust, tells LKP he knows of one leasehold multi-block development where the occupiers were confronted before Christmas with the prospect of their heating bills sky-rocketing by 700%. He said:
“Gas price increases such as those experienced at the end of 2021 are simply not sustainable for heat network customers. They are driving up household bills in unprecedented ways – many people will have to choose between heat and food.
“In terms of leasehold specifically, we are calling for reform of the Landlord and Tenant Act 1985 (Section 20) requirement for consultation on long-term agreements, which currently deters most communal heating operators from buying gas for more than 12 months in advance. This means that tenants and leaseholders are left intensely vulnerable to price fluctuations which landlords could smooth out if they could more easily buy gas on longer-term contracts.”
Over in north London, LKP spoke to a site where leaseholders get to switch provider through a resident management company.
But any choice is illusionary because they fall outside Ofgem’s price cap and have an unregulated heat network.
Their wholesale gas costs have already risen by over 50% in 2021 and are set to rise by at least a further 150% when the lay directors are forced to search for a new gas tariff. Their current fixed rate one for the communal boiler will expire in June.
In a letter to one of the resident management company directors, local MP Kate Osamor wrote that she was in agreement that flat leaseholders have been left to fend for themselves, noting “it is completely unfair that buildings like yours do not fall under the protection of the price cap. That is an unacceptable oversight.”
She continued:
“The energy cap was introduced with the aim of protecting consumers against exorbitant price rises. It’s right that the cap should therefore apply to all consumers who might be impacted by such rises, including those who have communal heating systems. Even residents who have communal heating systems face the past increased costs of rising energy bills. The very least that the Government should be doing right now is ensuring that every consumer who needs the protection of the energy price cap gets it.”
The Edmonton MP has written to minister for energy Lord Callanan to urge that government moves leaseholders and other flat dwellers, including those with communal heating system, under the protection of the energy price cap.
A previous bill for December to February came to £44 a month on average for a one-bed flat at the current tariff, with the previous year being £35 a month.
If the wholesale gas prices remain as they are now, the north London estate’s leaseholders will be looking at the same usage costing around £100 per month for a well-insulated flat (EPC rating B) with two occupants. The larger flats will have greater energy usage and so will be facing much larger bills.
A spokesperson for the resident management company, who provided comment on condition that their site not be named to ward off further bad publicity, said:
“Innocent leaseholders are once again being hung out to dry by the glacial pace of government action. Heat networks are not a new concept and are encouraged as a way to meet emission targets, however – protections for those who are forced to use them are non-existent. The only difference between those covered by the Government price cap and those like us that are not is a cavernous gap in legislation that is well overdue for closing.
“It would be unforgivable for the government to sit on this major crisis, claiming plans are afoot to implement statutory regulations/protections in a few years’ time, whilst in the same week freezing and ultimately abolishing the TV licence fee citing it as a cost of living problem for citizens. The heat network energy crisis is much more acute and would perhaps be a more fitting problem to solve for a government rocked by scandal after scandal, desperately looking for ‘red meat’ to appease voters. Flat dwelling voters have certainly had enough.”
The picture is even more bleak at Embassy Gardens in Nine Elms, south-west London, where residents fume at a company trading by the name of Communal Energy Partners, which they are forced to use and which they claim failed to prepare and are now “profiteering” from the Europe-wide crisis in energy prices.
“The increase in bills has got me wrapped up in my fleeces, socks and long johns indoors all day. We simply can’t afford to keep the heating on constantly – so right now it’s on for two hours in the morning and two hours in the evening,” said one leaseholder.
They continued:
“We can’t choose who our heating or hot water supplier is. We are captive to the monopoly provider. It feels like extortion at the moment, it really does. The problem is that when we moved in, we were already stuffed. When Ballymore did the deal, when they constructed the property, they signed a 25-year agreement with Southwest Energy, or so I’ve heard. When I came to live here a few years ago, many people were complaining about SW Energy. If you went onto their Trustpilot profile, which is still up, you will see that they’ve achieved 83% for bad reviews, so it’s no wonder they changed their name.
“They haven’t changed their approach to the bill payers though. The best part is that they sent the communication that our charges will be going through the roof just before Christmas, on the 22nd.”
An Embassy Gardens housing association leaseholder, who also refused to provide their name added:
“The housing association staff have also spoken to me and supposedly they are promising affordability. But how is shared ownership bloody affordable if your energy bills go up by 450%+ in one go?”
Ballymore’s flagship Nine Elms scheme with transparent 82-ft ‘sky pool’ attracted further adverse publicity in December when residents went public with their campaign to have the facility mothballed in the winter months. Despite costing £450 a day to heat, they claim the water is too cold to swim in. Leaseholders’ annual heating costs to keep the world’s first suspended swimming pool in operation are understood to come to £164,250 annual heating costs.
Calls for Sky Pool to be closed in winter due to £150k heating bill
Residents of Embassy Gardens, in Nine Elms, say the pool’s water is too cold They claim it costs £164,250 to keep the 375 tons of water warm throughout year The Sky Pool sits on the 10th floor between two luxury residential tower blocks Property’s developer said the pool is popular
It is not known whether Communal Energy Partners also provide supplies to this section of the development.
Residents at other Ballymore developments High Point Village in Hayes, near Heathrow Airport, and Pan Peninsula and New Providence Wharf in Tower Hamlets, east London are also feeling fury and fear as Communal Energy Partners seeks to impose energy price hikes of up to 415%.
At New Providence Wharf’s 43-storey Charrington Tower, the block on the development with communal heating and individual meters, leaseholders are bracing themselves for an overall 415% price increase.
High Point Village is set for a 307% increase for the first quarter.
While Ballymore has announced a one-off service charge contribution for the year, which the developer-freeholder claims will have the effect of capping any service charge increase at 5% (the annual rate of inflation) amounting to £88,607.87, number-crunching leaseholders at the estate have told LKP the service charge increase is more like 7.3% than Ballymore’s claimed 5%. Clarification from the company has been sought.
The cost of living crisis for a High Point Village leaseholder of a standard one-bed with parking is coming in at a 7.6% increase from last year, which does not include the 307% hike in energy bills from Communal Energy Partners. Paying £3,734 in service charges last year, the one-bed leaseholder is anticipating service charges for their property in 2022 to be £4,016.
Buildings insurance has surged by over 55% and now comprises 10% of the development’s annual service charge budget.
At Pan Peninsula in London Docklands, even those leaseholders battle hardened by years of ‘faulty’ meters and sky-high utility bills are in shock about the latest price hikes from Communal Energy Partners.
Leaseholder Andy Yardley said:
“Let me tell you the thing that really, really annoyed me. We get this Communal Energy Partners email on January the 11th and it is signed off by some nameless billing manager boasting ‘I am pleased to say that, while prices remain unusually high, we have avoided the worst pricing and have been able to secure gas at a lower price of 8.3p per kwh to take us through to April.’ So I am sat there looking at this communication thinking a) why are you telling me this? That you bought at 8.3p b) if you secured that rate, why are you now charging us leaseholders 16.7 per kwh which is, what, either a substantial profit, or our system is only 50% efficient between the boilers and the meters in the apartments”.
Mr Yardley explains that the Pan Peninsula development has had “a catalogue of issues” with the utilities, claiming that up until 2014-15 the communal heating metering did not work, with landlord Ballymore having to split the overall bill it received from the provider by square footage of each property and billing leaseholders accordingly.
This meant those who used the heating fleetingly were charged the same price as occupiers of similar sized apartments that were luxuriating in the warmth provided by keeping the radiators on throughout the days.
The site is not the only Docklands complex where leaseholders are struggling with the utility setup.
According to current Ofgem rules, flat leaseholders “who buy their gas and electricity from the freeholder” cannot be overcharged by their building owner who, in using an authorised supplier, must abide by Ofgem’s ‘maximum resale price’ – or face legal action.
Although this hasn’t stopped some freeholders from wrongly dumping commercial rate VAT and the climate change levy onto residents’ bills, as leaseholders have found out at neighbouring West India Quay where, according to a Court of Appeal judgment handed down last year, they were being continually overcharged by at least 26% because of their landlord John Christodoulou’s inclusion of these fees contra the Ofgem guidance.
No. 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2021] EWCA Civ 1119 (21 July 2021)
New search] [ Context ] [ View without highlighting] [ Printable PDF version] [View ICLR summary:[2021] WLR(D) 403] [ Help] Neutral Citation Number: [2021] EWCA Civ 1119 Case No: C3/2020/1406 IN THE COURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)(MR MARTIN RODGER QC, DEPUTY CHAMBER PRESIDENT) [2020] UKUT 163 (LC) Royal Courts of JusticeStrand, London, WC2A 2LL B e f o r e : LORD JUSTICE UNDERHILL (VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION)LORD JUSTICE HENDERSONandLORD JUSTICE DINGEMANS ____________________ Between: NO.
West India Quay residents only found out about the 26% inflation of their energy bills because one leaseholder decided to litigate over utilities from 2014.
The case went on so long their barrister had time to have two children, and still it’s not over. John Christodoulou, the landlord, is petitioning the Supreme Court to overturn the ruling that he can’t dump the legal costs – thought to be half a million – on the service charge.
Leaseholders’ problems did not end there. Six years after West India Quay opened, the electricity meters started to fail. The residents’ association discovered that the developer hadn’t put in brand new meters. Instead, he’d bought second hand from a company dealing in old London Electricity Board stock. Electricity Boards were privatised after 1990, which means those meters were already at least 15 years old and repaired when they were installed. Last year, the landlord won the right to put in a whole new system at a cost of over £1.6 million for 158 flats.
At Pan Peninsula, Mr Yardley laughs when recalling an Evening Standard article from April 2012 headlined “London’s tallest residential building is to create its own heat and electricity”. The breathless report continued:
“The 489ft Peninsula Tower next to Canary Wharf is to use a new community heating scheme with a combined heat and power system that will reduce its carbon footprint and mean lower energy bills.
“The developer, Ballymore Properties, hopes it will be a blueprint for green developments across the capital.”
Prior to construction, the £27 million Pan Peninsula development was understood to represent the single largest installation of a “combined heat and power system” in a UK residential building. However, the CHP which generates the electricity in Pan Peninsula was only commissioned in Q3 2021, over 12 years after the residents first moved in.
The infrastructure was laid by Haydon Mechanical & Electrical, whose business development director Simon Walsh unironically told the Standard:
“The CHP system represents a small fraction of the overall building costs yet adds tremendous value by creating significant energy savings and considerable environmental benefits for the consulting engineer, contractor, developer and residents.”
Tower will make its own power
ondon’s tallest residential building is to create its own heat and electricity. The 489ft Peninsula Tower next to Canary Wharf is to use a new community heating scheme with a combined heat and power system that will reduce its carbon footprint and mean lower energy bills.
Tower will make its own power
ondon’s tallest residential building is to create its own heat and electricity. The 489ft Peninsula Tower next to Canary Wharf is to use a new community heating scheme with a combined heat and power system that will reduce its carbon footprint and mean lower energy bills.
Mr Yardley says in 2015-16 excessive bills were landing on leaseholders’ doorsteps, with some one-beds being charged £1,000 for one month’s worth of heating, chilling and hot water. After resident backlash, Ballymore and Communal Energy Partners, then Southwest Energy, resolved to fix the issues with the meters. Individual householders now get refunded for excessive utility bills, but the difference gets put back onto the service charges to be paid collectively by the leaseholders.
The second major utilities problem Pan Peninsula leaseholders have faced has been with the in-apartment analogue thermostats that power the heating and cooling. These can be complicated to use and often see the heating and cooling stay on even after residents turn off their system.
This quirk of the system, Mr Yardley says, means leaseholders have found themselves paying considerable amounts of money on energy, including for periods when they thought they had the system switched off. The residents now have a how-to guide on their website on how to disable the system to avoid the big bills, a problem that first emerged when leaseholders were paying 3.3 pence per kilowatt hour.
But the crisis of all utility crises at Pan Peninsula has been the tariff change on January 1. It has meant that some individual leaseholders have a bill of around £500 up to January 10, with ten days of new tariffs contributing to hot water of over £300.
Luckily for Mr Yardley, who has mastered his in-apartment system and has all the right buttons switched off, he only incurred a bill of £13.59 in those ten days. He is helped with his energy bills by virtue of living on one of the higher floors, which means he benefits from heat rising through the high-rise and collecting in his property.
Mr Yardley expects that individual leaseholders at the site will “rack up” a monthly energy bill of £200-£900 on the current trajectory with Communal Energy Partners.
“Let’s assume the average monthly bill was about £50 on heating and hot water. Now that’s gone up to £231.94. I’ve tried to tell everybody – no one reads the Communal Energy Partner emails – that they need to be prepared for this, sorry to say but buy a jumper. But on January 14, people immediately started taking snapshots of the bill and flooding the WhatsApp groups with them. They were all asking for advice on how to swap supplier. I had to come back and say ‘sadly you can’t, this is leasehold. We are stuck with CEP. The only option is to gain some form of control on the in-apartments systems to try and get some of these bills down’,” he explained.
Mr Yardley says the shared utility bills at Pan Peninsula have increased 54% in a year, adding a sizable increase to the service charge.
Insurance has surged by 37%, which is to be expected as the fallout from the cladding and building safety crisis continues and more and more insurers consider whether it is viable for them to stay in the UK apartment buildings market.
Although Pan Peninsula leaseholders “kicked off” about a service charges increase of 1.4% for 2022, which was publicised by Ballymore in a document issued on January 15, leaseholders would have been subjected to a 10.32% overall increase had efficiencies not been made in the service charge budget by Ballymore’s general manager of the development Dan Sanders who worked closely last year with Mr Yardley, whose initiative it was to drive costs down at the site without impacting essential services, and other concerned leaseholders.
“At the end of the day, residents here are worried that prices are going to keep going up and we’re not protected in any way. If these Communal Energy Partners guys came back and said the rate is 45p, there’s nothing we can do. People need water, they need to wash. You have no control over this. Having said that, the wholesale prices are the biggest problem. Government and Ofgem need to get their act together to make sure flat leaseholders are being protected going forward.”
Communal Energy Partners did not respond to a request for comment.
Statement from Ballymore
“We empathise with residents across the UK, including at Ballymore developments, affected by rising wholesale energy costs. Ballymore re-tenders its energy requirements to ensure residents benefit from the most competitive energy services and we shall continue to seek providers able to maximise cost efficiencies and keep bills as low as possible during these difficult energy market conditions. We will also continue to work closely with Residents’ Associations throughout this ongoing process.”
Ballymore also said that it was not the case that Embassy Gardens had a 25-year exclusivity deal with CEP. CEP is appointed on a 364-day rolling contract with built-in break clause.
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Are they covered by the Ofgem price cap?
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Does the Ofgem Price Cap apply?
Some cities like Nottingham have a power station providing communal electricity, but which burns household waste. Will their customers have any increase in the cost of the power they receive.