Water Charges – Reseller? Repayment and risk?

Inside Housing reported on 2 December 2019, that “social landlords face potentially huge compensation bills” after a High Court ruling against Kingston-upon-Thames RBC on 29 November 2019.

We summarise below the outcome of that High Court case and which landlords may need to take action when.

Background

Housing associations and local authorities who have collected water charges from tenants, subsequently paid those water charges onto a water utility company, and then been paid a “commission” for doing so, will need to take into account the decision of Kingston-upon-Thames RBC v Derek Moss, decided in the High Court on 29 November 2019. 

This is a High Court decision and may well be appealed further.  This case effectively re-ran the arguments in a previous case (Jones v London Borough of Southwark), which was decided in 2016.  The key question was whether the landlord was acting as an “agent” or “reseller” for the purposes of the Water Resale Order 2006.  Southwark had an agreement with Thames Water, and in the 2016 case, Southwark was found to be a “reseller”, and that it had, therefore, overcharged tenants more than they were legally entitled to, which is limited by the Water Resale Order 2006.  It is now reported that Southwark repaid 41,000 tenants a total of £28.6m.

In this new case, there was also an agreement with Thames Water, who said they had agreements at the time with some 70 councils and housing associations.  The terms of the agreement in the Kingston case are helpfully set out in full at the end of the Law Report, so it is possible to compare whether a landlord’s water charges contract in question is in the same or very different terms.  Kingston were also found to be a water “reseller” and that they had, therefore, potentially overcharged tenants. (The Water Resale Order 2006 permits a charge of £5.48p.a. for each tenant, but calculations would need to be carried out to see if their % commission exceeded that for each tenant.)

Other cases

It is worth remembering that in 2017 the High Court ruled that Rochdale Borough Council was not liable to compensate tenants for water bills because it was not a reseller but an agent.  This was because of the wording of the agreement that they had in place.  The risk level is, therefore, very much dependent on the individual contract with the water supply company.

Risk

For those landlords who may have had the same agreement with Thames Water as in the Kingston case, then the risk is higher.

Comment

• These water charges agreements have generally all been terminated now by either the water companies or the landlords.
• Many landlords and water companies signed a Deed of Rectification in around 2016 to clarify that they were operating as an agent, not a reseller. 
• In the Kingston case, it was agreed that the effect of the Deed of Rectification was that there could be no claim by the tenant to recover any overpaid charges after the date the Deed was entered into. 
• The Deed of Rectification in the Kingston case stated that although signed on 3 August 2017, it took effect from 1 April 2016.  It was accepted that Kingston could not assert the Deed against Mr Moss, as he was not a party to that Deed, so that the arrangement only altered to one of “agency” on the date the Deed was actually executed in 2017.  This point was agreed.  It seems highly likely, therefore, that from the date a Deed of Rectification was executed, no further claims can be made, but equally backdating the Deed to a previous year will not be effective against an individual tenant.
• Limitation.  In the Kingston case, the Council indicated that they would not pursue the six-year limitation period point, so it was not decided by the Court whether they could.  The reason why that argument was not pursued is not given. 
• If any landlord had the same agreement with Thames Water, then they will be treated as a “reseller” until the date any Deed of Clarification was entered into and/or the agreement was terminated.  This means that a landlord may have charged its tenants sums in excess of the maximum charges permitted.  Those sums will need to be calculated.
• In reality, landlords are likely to see this point raised in rent possession claims as a Defence and potential Counterclaim. 
• Some landlords, after carrying out calculations on being challenged in rent possession proceedings, have discovered that they had in fact under-charged the tenant for the water provided because they estimated the charges.  The fact that a landlord had signed the same or a very similar agreement to the Thames Water agreement will not necessarily mean, therefore, a refund is always due to each tenant.
• This issue may now be routinely raised against all landlords including those who have never even had an agreement of this nature with a water company.  Landlords should quickly identify that in order to deflect such a Defence. 
• Those landlords who have different agreements to the one with Thames Water should take legal advice on whether they would likely be treated as a “reseller” or an “agent”.

Appeal?

• This case may be appealed shortly.
• Tenant’s solicitors may seek a stay of any rent possession claims until the appeal has been heard.  However, an appeal may take 12 months.   
• Landlords should resist a stay.  There are other pragmatic options available if any actual overpayment is discovered after calculations have been checked. 
• Landlords should check which arrears have arisen from the date any Deed of Rectification came into force or any water charges agreement was terminated as the amount of the rent payable from that point onwards would, of course, not be affected.

How can we help?

We have been advising landlords on this issue since 2016.  Should you need assistance as a landlord, please contact Helen Tucker.