How to manage fuel rationing as energy prices rise

COMMENT: Amid the valid and widespread concern about the impact of surging energy prices on homes and businesses, the government’s new energy price guarantee will be a welcome intervention for millions of people. This new policy will see a cap on the price that suppliers can charge for a unit of energy, meaning that the average household will see bills of approximately £2,500 per year for the next two years. For businesses, the cap will last for six months. However, as the price cap applies to the unit cost of energy, the amount households and businesses will have to pay depends on how much gas and electricity they use. While the situation may not be as perilous as prior to government intervention, it does still leave home owners, businesses and landlords facing higher costs than before. And this increases the prospect of people defaulting on their rent payments, which in turn raises challenges for property managers. In addition, while the government has announced plans to improve the security of the UK’s energy supply, this will take years to come into effect. Given global pressures caused by Russia’s invasion of Ukraine, a harsh winter in which the UK is required to use more energy could result in the serious possibility of a shortage of energy for the UK market. If this is the case, with people unable to heat their own homes and businesses under pressure to reduce daily usage, there may be no other option but to ration or cap commercial usage. Managing potential restrictions At Strettons, we are responsible for – and have financial custody of – a number of service charge buildings, all of which are facing a significant rise in consumption. Budget reviews have never been more critical, and difficult cost of living conversations with both commercial and residential tenants are just around the corner. And we are not alone – this will be the case for all managing agents across the country as they prepare to communicate the inevitable increase in service charge budgets. Some agents, like ourselves, have access to online portals that allow a more accurate assessment of ongoing usage and how this translates into informed cost estimates going forward. But, despite the cap, the rise in costs is troubling in itself, and there are other potential problems ahead. At Strettons, we manage a number of buildings that rely on gas for heating. And with gas firmly in pole position for any initial supply caps, it will be crucial for the vast majority of managing agents to source alternative heating methods. But with this comes new problems. We have experience with buildings without gas supplies and quickly learnt that a tenant’s first port of call is usually the electric heater. Quick to acquire and easy to use, electric heaters seem like an obvious choice, but they use a significant amount of energy and can just as easily short out the main fuse board, resulting in not only no heating but no power to other parts of the building, too. Instead, a well-advised managing agent should make arrangements to establish what capacity their building has to support alternative methods of heating and start a dialogue with its occupiers. Strettons has worked closely with Clark Electrical Industries for more than 30 years. Its managing director, Dave Burns, shared the following advice: “The first port of call is to carry out a clamp test which will ascertain how much power the building can draw from the grid, and how much power each floor can draw from the supply. Once we know what power is available per building and per floor, we can draw up a contingency plan.” Such a plan might be to turn off other services such as lifts, or hire emergency generators if you have enough outdoor space and available funds. A contingency plan will also enable managing agents to talk to their tenants to advise how many heaters they can safely use per floor while running other services to the same location without blowing the supply. If electric heaters are being used, care should be taken. Safety processes and procedures should be communicated to insurers to ensure fire safety protocol is adequately planned for and followed. Further pressures on rent collection The supply and cost of energy will undoubtedly cause knock-on effects on rents. Staff within our property management department are already having conversations in relation to affordability and ability to pay. As we saw throughout the pandemic, landlords are often seen as the first port of call for financial assistance to businesses. Landlords want to help, but they also need to make ends meet, and after two years of difficult conditions may no longer be able to do so. As with many property management issues, communication and planning are essential. With rent collection, managing agents such as Strettons will advise on when to insist on payment in full and when to listen and resolve real difficulties. I am sure that effective communications will be even more essential over the coming months as we navigate numerous market complexities. Having these conversations and developing plans now will reduce the potential impact on your tenants this winter. Simon Tilsiter is managing director at Strettons