ADVANCED CONSULTATION DRAFT CPSE.6F - CRC enquiries for acquisition of leasehold property with vacant possession where Buyer is not a CRC participant

Where the Buyer is not a CRC participant in the current CRC phase, it will not need, following completion, to report the energy supplies to the Property, or purchase CRC allowances to cover the CO2 emissions relating to those supplies. This is true, regardless of how high the level of the supplies may be. There is no need to register as a "late participant" in the current CRC phase just because it has purchased the Property. Therefore the Buyer will not generally be concerned to know about past levels of consumption of electricity, gas or other fuels at the Property.

However, the Buyer may want to know the type of electricity supply to the Property and the levels of past electricity supplies because of the implications for its possible registration as a participant in the next CRC phase. The Buyer may particularly want to avoid this (perhaps because it does not wish to take on the potential management time and expense of compliance with the CRC). It may wish to be sure that the electricity supply to the Property (when aggregated with its other supplies in other properties) will not push it over the threshold for registration as a participant in the next CRC phase. If this is a risk, the Buyer may prefer to purchase a different property.

Registration for each CRC phase is based on the supplies of electricity in the "Qualification Year" for that phase. This falls a considerable period before the first year of that phase when an annual report must be submitted and allowances bought and surrendered. For example, the Qualification Year for the second CRC phase is April 2010/March 2011, even though the first CRC report for that phase is made in July 2013 in respect of the CRC compliance year 2012/2013. The Buyer may therefore need to consider this issue well in advance.

Whether the Buyer will have to register as a participant in the next CRC phase depends on

• Whether the Buyer will be responsible for the electricity supply to the Property (see the notes to Enquiry 1).

• Whether the electricity supply to the Property is measured by a settled half hourly meter (see the notes to Enquiry 2).

• The amount of half hourly electricity supplies to the Property in the relevant Qualification Year (see the notes to Enquiry 3).

A Buyer may also want to know about the Seller's responsibility for energy supplies (not just electricity) and the quantity of those supplies because:

• it anticipates that it will have to register as a CRC participant for the next CRC phase (irrespective of whether it acquires the Property). It may want to have some idea now of which energy supplies in relation to the Property it will be responsible for, and how large those supplies have been in the past.

• it expects to sell the Property on reasonably quickly (before it has had the chance to build up a sufficiently long record of supply patterns and usage) and wants to have the information to hand should a future buyer, who is a CRC participant, ask for this information.

If this is the case, additional enquiries must be raised. Whilst CPSE.6F (in Enquiry 1) asks for confirmation of which types of energy are supplied to the Seller, Enquiries 2 and 3 ask only about electricity (these questions being relevant to the issue of potential registration as a CRC participant). They do not establish the nature of other fuel supplies (such as gas) or how large those supplies have been.

Sometimes it will be the landlord, rather than the Seller, which is responsible for some or all of the energy supplies, for example, when:

• the Property forms part only of a larger multilet building, and does not have its own separate energy supply; or

• there are common parts in the building, and the landlord is responsible for heating and lighting those parts.

CPSE.6F contains further enquiries designed to establish whether the landlord (if is responsible for any energy supplies) recoups its CRC costs from the Seller. These enquiries also ask whether the Seller can be required to cooperate in reducing energy consumption. These enquiries are relevant whether the Buyer is a CRC participant or not because the Buyer needs to know whether such arrangements exist which may increase its overall costs of owning the lease. They may not be apparent in the lease itself. They may be contained in ancillary documents or a voluntary scheme, such as a memorandum of understanding.

Under the CRC, if a person:

• "receives a supply" of energy (as described in Paragraphs 1-4 of Section 1 of Schedule 1 to the CRC Order). This is colloquially known as a "direct supply"; or

• supplies itself with energy (within the strict requirements of Paragraph 6 of Section 2 of Schedule 1 to the CRC Order) ("self-supply")

then it (or the group of which it forms part for the purposes of the CRC) must report on that energy supply and buy CRC allowances to cover the carbon dioxide emissions relating to that supply. This is commonly referred to as being "responsible for the energy supply" although that phrase is not defined in the CRC Order.

If the Seller is responsible for the energy supplies to the Property, then the Buyer will inherit that responsibility on completion of the purchase.

Where a leasehold property is sold with vacant possession, either the Seller or its landlord may be responsible for the energy supplies to the Property. The landlord is almost always responsible for the energy supplies to any common parts.

It should be straightforward to decide whether the Seller has a "direct supply". For example, where:

• the Seller is the named customer of the energy supply company

• the Seller receives the bill direct from that company

• the supply is measured by a main ("fiscal") meter; and

• the Seller pays the bill direct

this will be powerful evidence that it receives a "direct supply" of that energy.

However, these factors will not always determine when there is a "direct supply". For example, the Seller may buy its energy through a facilities management company. This is a third party which procures the energy supply on behalf of a number of customers (the end users) and by bulk buying in this way, can secure a better pricing structure for all its customers. The facilities management company is the customer of the energy supply company, and will receive and pay the overall bill. However, the facilities management company uses none of the energy itself. It passes it all down to the Seller. Under the CRC it is the Seller, not the facilities management company, which is responsible for the supply.

Where the Seller, as tenant, both uses and pays (its landlord) for energy, this will not necessarily make it responsible for the supply. There are special rules applicable to supplies by landlords/licensors (see paragraph 13 of Schedule 1 to the CRC Order).

For further guidance on the supply rules, see Paragraphs 1-4 of Section 1 of Schedule 1 to the CRC Order and EA Guidance on the CRC Energy Efficiency Scheme: Supply rules (www.practicallaw.com/3-501-8606)

This enquiry asks whether the electricity supplied to the Property is measured by a settled half hourly meter, because this is one of the criteria for registration as a CRC participant.

A settled half hourly meter is defined in Paragraph 2 of Schedule 2 of the CRC Order. It is one for which both the following tests are satisfied:

• The meter records, every half hour, how much electricity was used in the previous half hour. The data produced is referred to as half-hourly data.

• The half hourly data is both used by:

  • the electricity supplier to work out the cost of that electricity to the Seller; and

  • the electricity supplier (for example, Scottish Power) and the transmitter of the electricity (for example, the power station) for the purposes of the Balancing and Settlement Code, to monitor, on a half hourly basis, the balance between electricity generated and consumed and any consequent payment due between the electricity supplier and the transmitter. This is the distinguishing feature of a settled half hourly meter (as opposed to a non-settled half hourly meter).

A settled half hourly meter will always have an MPAN number that starts 00. It will also always have either a telephone line or an internet connection but this may not be readily apparent on physical inspection. Since non-settled half hourly meters also have an MPAN number starting 00, and other types of meter may have such a telephone/internet line, neither method is a wholly reliable way to identify a settled half hourly meter. Indeed, there seems to be no other reliable method. As a result, the Seller may find it difficult to answer this enquiry.

The practical solution is for the Seller to ask the electricity supply company what type of meters relate to the Property. We do not yet know whether they will be prepared to respond, or how quickly.

At the start of the CRC, the Environment Agency (EA) wrote (based on information given to them by the electricity supply companies) to those people it believed had a supply through a settled half hourly meter. The EA has already said that there will be some such meters for which no customer can be identified, and others where the customer will have been wrongly identified. If the Seller has received such a letter, whilst it should be able to check that that particular meter is on its property, it may well be unable to cross-check that the classification of the meter is correct. It will have to accept that information at face value.

Therefore, if the Seller (or a superior company in its group) has received such a letter (or letters - there was no obligation on the EA to consolidate all the relevant meters onto one letter to the same addressee), it should retain it/them as an important reference document. When answering this enquiry, the Seller could choose to copy the letter(s) for production to the Buyer to demonstrate which settled half hourly meters it believes relate to the Property. It seems unlikely that the EA would take enforcement action where the Buyer acted in good faith on the basis of such a letter.

In addition to this initial letter, the supply company can be asked to provide an annual statement listing the MPAN numbers of any meters covered by the supply contract, and the annual energy consumption measured by each such meter (article 63 of the CRC Order as expanded by advice in the DECC User Guide (www.practicallaw.com/5-501-2745)). It is not clear that that statement will (or could be required) to identify whether the meters are settled, non-settled, or half hourly meters. The request for such a statement must be made before the end of the relevant CRC compliance year, and the supply company must reply within six weeks of the end of that CRC compliance year.

For more information on meters and the CRC, see EA Guidance on the CRC Energy Efficiency Scheme: Meters and metering (www.practicallaw.com/5-501-8605)

The registration threshold is set by reference to the total supplies of half hourly electricity. For the first phase of the CRC (the "Introductory Phase") this was 6000 MWh. It may be different for subsequent phases of the CRC.

Half hourly electricity may be supplied by any of the following means:

• Through a settled half hourly meter.

  For further details of what this means, see Enquiry 2: Types of electricity meter in the Property.

• Through a non-settled half hourly meter.

  For further details of what this means, see Non-settled Half Hourly Meters

• By way of a dynamic supply.

  For further details of what this means, see Dynamic supply

This enquiry seeks to establish how much electricity of these types has been supplied to the Property. Where the Seller is a CRC participant, it is asked to supply the information by using the figures for core supplies that it will have reported in its annual CRC report. For this reason, the enquiry asks for the figure for the last two annual reporting years, not the 24 months immediately preceding the date of the enquiries.

Where the Seller is not a CRC participant (and therefore has no duty to file an annual CRC report) or where, despite being a CRC participant, the Seller does not have the figures for core supplies, then the enquiry asks for copy energy bills for the 24 months immediately preceding the date of the enquiries or (if less) the period that the Seller has owned the Property).

The Seller may not be able to break down its electricity consumption by type of meter. It may not know what type of meters it has, or may not have separate records (by meter) of consumption. If so the enquiry asks instead for copy energy bills for the relevant period. The Buyer will then have to do its own analysis, if necessary raising enquiries of the electricity supply company as to the type of meters.

Non-settled Half Hourly Meters

A non-settled half hourly meter is defined in Paragraph 3 of Schedule 2 of the CRC Order. It is one which can measure electricity used on a half-hourly basis, and uses that data to work out the cost of that electricity to the Seller, but does not use that half hourly data for the purposes of the Balancing and Settlement Code.

To qualify as a non-settled half hourly meter, both the following tests must be satisfied:

• The meter is able to measure the electricity at least every half hour. It may measure it more frequently.

• The meter has been read remotely by the Seller (or someone acting on its behalf) at some point during the current CRC phase.

It is not clear whether, having been read remotely once during the CRC phase, the meter will only continue to qualify as a non-settled half hourly meter if it is read remotely in each of the succeeding years of that CRC phase. Paragraph 3(3) of Schedule 2 of the CRC Order, and its interrelationship with Paragraph 3(1)(b), is ambiguous. Since the broad intention behind the CRC Order is to bring within the CRC as many energy supplies as possible, it would seem more likely that the definition would capture meters that had been read remotely once, even if they were not (for whatever reason) read remotely regularly after that first reading.

Remote reading may be by telephone or on-line, rather than by standing in front of the meter identifying the reading from the display. Such meters are therefore likely to have a phone or internet line attached to them, though this may not be readily apparent on a physical inspection. Sometimes these meters are linked to a building management system and their readings feed directly into that system.

A half hourly meter (whether settled or non-settled) always has an MPAN number (visible on the meter itself, and on the bill) starting 00. Thus it is not possible to distinguish a non-settled half hourly meter from a settled half hourly meter by the MPAN number or by looking at the meter itself or the method of connection.

Nor can the Seller rely on the initial letter from the Environment Agency to identify this type of meter because that letter will have listed only settled half hourly meters. The only other option will be to ask the electricity supply company to provide information on the number and nature of the meters. They may provide this information voluntarily, in response to a request from the Seller, but we do not know within what time scale they will reply, nor whether the information provided will be comprehensive. Alternatively, the Seller may be able to wait and rely on the requested list from the electricity supplier under article 63 of the CRC Order (see Enquiry 2: Types of electricity meter in the Property).

It is necessary to distinguish non-settled half hourly meters or devices from other types of "automatic" meters that can be used to monitor the electricity usage by different parts of a property. These may have been fitted by the Seller, they do produce data to show the energy usage pattern and that data may be collected remotely. However, that data is not used by the supplier to determine the bill for the electricity. Their readings are simply used for internal purposes (perhaps to see how heavy a user one occupation tenant is in relation to another). These are often called "check meters".

Dynamic supply

A dynamic supply is defined in Paragraph 5 of Schedule 2 of the CRC Order. It is a relatively unusual variety of electricity supply. Instead of the whole supply being metered, a device (not necessarily a meter) records daily when electricity is supplied to one piece of equipment on the Property. The other similar pieces of equipment are neither metered nor monitored by such a device. From that reading on the first device, the supplier works out (on a half hourly basis) the total electricity supplied to all the pieces of equipment.

The most common example is street lighting, where one lamp standard is monitored and the supplier knows that there were, say, 20 lamp standards on the circuit, all on at the same time. It multiplies the metered supply to the one lamp by 20 and charges for that total supply. Other examples might be a set of phone masts or traffic lights.

For more information on meters and the CRC, see EA Guidance on the CRC Energy Efficiency Scheme: Meters and metering (www.practicallaw.com/5-501-8605)

Where the Landlord is responsible for energy supplies, either to the Property (because it does not have its own separate supply) or to the common parts, it may (if it is a CRC participant) pass some or all of those CRC costs down to its occupation tenants, such as the Seller. If it is not a CRC participant, then it will have no such CRC costs to pass down.

The Buyer will want to know whether the landlord does actually pass down some or all of its CRC costs to the Seller, and if so, on what basis and how much the likely costs have been in the last two years. This information will enable the Buyer to decide whether the extra costs (on top of rent, service charge and insurance rent) will mean that the Property is too expensive for it. Even if the current landlord does not pass down its CRC costs (perhaps because it is not a CRC participant), the Buyer will want to know whether this has been done by previous landlords. In either case the Buyer will want to know what the legal basis is for such a charge (particularly if it is not apparent from the lease itself, perhaps because it arises by virtue of an informal procedure such as a side letter, memorandum of understanding or just ad-hoc practice).

Where the landlord is responsible for energy supplies (either to the Property or to the common parts) it may have agreed with the Seller measures or practices for reduction of energy consumption or a mechanism for consultation or collaboration on introducing such measures or practices. This is because reducing energy consumption will have a direct impact on the level of energy supplies needed and thus on the number of CRC allowances the landlord needs to cover the emissions relating to those supplies. This will be particularly important if the landlord will not be able to recover its CRC costs from the Seller (and any other tenants in the building).

Such measures or practices may not appear in the lease supplied to the Buyer. Instead they may be included in tenant regulations or an even more informal memorandum of understanding. They may, for example, require the landlord and the Seller, together with the other tenants in the building, to participate in a building management committee that will discuss energy saving measures (amongst other things).

The Buyer will need to know whether these measures or practices exist, and what obligations they impose that will bind the Buyer (many informal arrangements do not bind successors in title).