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5 April 2016 | Comment | Article by Bethan Gladwyn

Are claims for overpaid water charges the next big thing?

The recent case of Jones v Southwark LBC is sending ripples throughout the social housing world. Southwark LBC is facing claims for water charges from tenants and ex-tenants of up to 37,000 properties. Even if each individual claim is modest, the amount potentially at stake is vast (as is the administrative headache of trying to deal with so many potential claims).

We understand that a number of councils and registered social landlords have arrangements with the local water company under which water charges are collected from the tenant by the landlord as a service charge rather than payable direct to the water company. Such arrangements are attractive to tenants – who as a result have fewer and more manageable regular payments. They are attractive to the water company who is relieved of the burden of collection.

Typically, the arrangements will allow the landlord to keep a slice of what they recover – to compensate for the cost of collection and the risk of non-payment and voids. Hence a landlord who is effective at recovering debts is able to take a financial benefit from the arrangement too.

So what went wrong for Southwark? Under its arrangements with Thames Water (TW), it was billed globally by TW, who set out in the invoices what charges applied to each property (all of which were unmetered). The amount Southwark actually paid was then discounted by 5% to reflect the risk of voids and an additional 18% to reflect the risk of non-payment and other costs. These discounts were not passed on to tenants; if a surplus was collected the balance was paid into the Housing Revenue Account.

The arrangement was altered by a deed in 2013 when a tenant had raised the possibility of the charges being unlawful and so the case considered the recoverability of charges before that time.

The High Court held that the Water Re-Sale Order 2006 applied to the arrangement on the basis that Southwark were re-selling the water and sewerage services rather than simply acting as TW’s agent in collecting its charges. The 2006 Order restricts the amount of any administration charge passed on to the consumer to avoid any profit being made by the re-seller. The total amount which can be charged for properties which do not have a metered supply is 1.5p per day, or £5.47 per year.

As a result, Southwark should have passed on the discounts agreed with TW subject only to that £5.47 charge. This would undoubtedly have meant that the collection arrangements would have been loss-making. The 2006 Order provides for the overpaid charges to be recoverable with interest.

Southwark will be considering an appeal as it now faces numerous potential claims going back up to six years. We understand that TW has similar arrangements with 69 other housing providers and other water companies do too.

In order to avoid this problem, the arrangement with the water company needs to be properly drafted as an agency arrangement, with the landlord collecting the water charges as agent for the water company. If this has been done, the 2006 Order will not apply. Landlords need to check the arrangement and seek advice as appropriate.

It is also sensible to check the terms of the tenancy agreements to ensure that their provisions permit the landlord to make the charge for water and to vary the charge as necessary.

Claims for rent arrears and for possession on the grounds of arrears could also be complicated by arguments about the tenant’s right to off-set of water charges going back by up to six years. This is likely to cause delays where the charges might have a substantial effect on the amount of the arrears.

Any landlords affected by this issue can contact our housing management team on 029 2066 0555 for further input and advice.

Author bio

Bethan Gladwyn is head of the housing management team as a result of her capability and specialist knowledge in her field of law. A specialist in social housing law and practice, anti-social behaviour and landlord and tenant (residential), Bethan assisted in setting up Wales’s first anti-social behaviour unit at Hugh James.

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