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The risk of collecting water charges from tenants

20 June 2016 • Rebecca Aspin

Following a landmark High Court ruling, housing providers who collect water charges from tenants on behalf of utility companies would be wise to review their agreements to ensure they aren’t exposed to legal challenge because of overcharging.

The key legal issue is whether housing providers in such arrangements act as a “re-seller” or have an “agency relationship” with the utility company. The ruling in the case of Jones v London Borough of Southwark (2016) judged Southwark LBC to be a “re-seller” meaning the claimant had been overcharged – along with potentially thousands more tenants.

The reimbursement of even a minimal weekly overcharge, when multiplied by thousands of tenants over a number of years, has obvious and significant financial implications.

The case in detail

Thames Water (TW) and Southwark LBC entered into an agreement in 2000 whereby TW would provide water and sewerage services to Southwark-managed homes. In return Southwark LBC would pay for these services with the deduction of any allowances or reductions to which it was entitled.

Under the agreement Southwark was entitled to a 5% reduction in order to take into account the proportion of unoccupied properties it was predicted to have in one year, plus a further 18% reduction described as the ‘Customer Commission’ for collecting the sums owed and to compensate the potential risk of non-payment.

In addition, TW and Southwark LBC entered into a ‘deed of clarification’ in 2013 in an attempt to prove they were not a “re-seller” for the purposes of the Water Re-sale Order 2006 (WRO).

The Claimant alleged that prior to the 2013 deed of clarification Southwark LBC was in fact a re-seller and subsequently breached the limits as to what tenants could be charged under the WRO. Southwark LBC claimed that it was merely an agent working for TW with the purpose of collecting TW’s charges from its tenants.

The decision

The High Court ruling deemed that:
1. Prior to 2013 Southwark LBC was a re-seller and therefore subject to the WRO 2006. Southwark had therefore overcharged the Claimant and other tenants during this time.
2. Southwark LBC was deemed not to have an agency relationship with TW for the following reasons:
       a. In the 2000 agreement Southwark LBC was referred to as a “Customer” which is not conducive with an agency relationship;
       b. In an agency relationship it would be expected that TW would retain control over Southwark LBC – this was not the case under this agreement;
       c. Southwark LBC was liable to pay TW regardless of the collection of monies it received or did not receive from its tenants.

The immediate effects

This decision has the potential to cause significant financial consequences for housing providers (with the limitation period being 6 years). For Southwark LBC 37,000 tenants may have been overcharged for many years.

In addition, where possession of a property is pursued due to a tenant’s rent arrears, that tenant may have a viable counterclaim to pursue repayment of overpaid water charges and subsequently their rent arrears could be partly or wholly discharged.

The risk highlighted by this decision could also encourage organisations to terminate similar agreements. Southwark LBC estimated that ending their agreement would result in a £2.3 million loss to their Housing Revenue Account. It also means tenants would subsequently have to manage their own water bills.

Our advice to RPs - limit your liability

So, how do you move forward? Our advice to housing providers is to:
1. Review any agreement that involves the collection of water charges on behalf of a utility company. If necessary redraft these agreements to provide clarity that the agreement is operating with an agency relationship. Remember an agency relationship has to be reflected in the practice not just written down on paper.
2. Where an agency relationship is not possible ensure all charges fall under the maximum charge stipulated in the WRO 2006.
3. Review and if necessary amend tenancy agreements. Ensure this is in compliance with any stipulated consultation with tenants.

 

If you want to discuss any of the issues raised in this article further, please contact our Housing Management Partner, Melanie Dirom.

The relevant legislation

The Water Re-Sale Order 2006 - This Act stipulates the maximum amount that a purchaser of water can charge when re-selling to the final consumer. This charge is to reflect a modest administration charge only and any amount recovered in excess of the maximum will need to be reimbursed.

The Water Industry Act 1991 - Section 150 gives the consumer a right to recover any charges paid that breaches the maximum amount as set out in the WRO 2006.


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