UK government plans to scrap the daily gas standing charge bring noticeable uncertainty for landlords. Property owners who incorporate utility costs as a lump sum within the rent are particularly affected.
Varying impacts depending on contract structure
To date, the fixed standing charge covers network costs and infrastructure provision, entirely independent of actual gas consumption at a property. Removing this fixed component will in all likelihood prompt suppliers to reallocate costs onto the variable unit rate per kilowatt hour. As a result, the financial risk in bills-included tenancies shifts significantly towards the individual consumption behaviour of tenants.
The specific consequences for landlords depend substantially on which tariff type applies to the respective property and how energy supply is contractually arranged:
- —Domestic household contracts: Smaller residential units and individual property owners generally use domestic consumer tariffs, which are subject to standard regulatory requirements.
- —Commercial supply contracts: Larger properties, portfolios, or houses in multiple occupation (HMOs) are often supplied under commercial contracts, to which different tariff models apply.
- —Mixed arrangements in existing stock: Properties with communal heating or hot water systems often feature specific bespoke contractual agreements with energy suppliers.
Challenges for all-inclusive rental models
Tenancy agreements with energy bills included are particularly widespread in the student accommodation sector and in shared houses. Landlords here rely on historical estimates for their calculations. If unit prices for gas rise as a result of the reform, particularly cold winters or careless heating habits among occupants could place a noticeable strain on profitability.
Landlords face the task of reviewing their existing contracts in detail. If the measure is implemented, all-inclusive rents in the British market will likely undergo a reassessment to limit the risk of unpredictable cost increases.
