Government’s proposals relating to water charging
1. The Government has commissioned the Walker Review of water charges for residential property. An interim report has now been published with emerging recommendations. This is now out for consultation prior to the final form being published. The Government are proposing a Floods and Water Management Bill at the next session of Parliament so legislation may well be imminent.
2. The charging relates not only to water supplies but also to sewerage services (both foul and surface water). For ease, this note simply refers to water charges but includes sewerage charges. It should be noted that in a number of areas there are water only supply companies. In those areas the sewage services are provided by the regional water company. In other areas the regional water company provides both water and sewage services. In practice, this does not make any difference because where there are two suppliers their billing arrangements are co-ordinated.
3. Currently, there are two main methods of charging domestic customers and one subsidiary method. These are as follows:-
(i) charges based on old rateable values (pre 1990 based on the last general revaluation in 1973). These are so called “unmeasured” charges. They are a flat rate charge and the methodology is clearly very much out of date. Nationally, around two thirds of all residential premises are charged on this basis but the percentage varies from area to area because certain areas have more meters than others.
(ii) Metered supplies – meters are installed on request by the occupier free of initial charge. Water companies can insist on the installation of a meter if there is a change of occupier or if there is excessive discretionary usage, items such as car washing, watering the garden etc. It seems that these powers are not used very much. Roughly a third of domestic premises are metered.
(iii) Assessed charges – these only affect about 2% of domestic premises and apply to those cases where it is not feasible to install a water meter e.g. in multi occupied properties. The method of assessment varies from region to region but can include things like the number of occupants or number of rooms.
4. The Walker Interim Review makes a number of proposals:
(a) Charging should be on the basis of the true cost of water. This is a complex calculation but undoubtedly will lead to an increase in charges over time.
(b) There should be a move towards metering, especially in areas where there is likely to be shortages of water or the majority of premises are already metered. In these cases compulsory metering could be imposed. Until then the rateable value system of unmeasured charging should be retained for premises not metered.
(c) The need to address issues of affordability outside the charging scheme. One idea mooted is for there to be a maximum cap on charging those entitled to Council Tax benefit based on the national average water bill.
5. A key concern of the review is that bad debt problem. Water companies have total outstanding debts of over £1 billion and their outstanding debts are far more than those of electric and gas companies. They claim to have identified the private rented sector as a key element in these arrears and are particularly concerned about tenants leaving without paying bills. The main reason in the view of the water companies for these high arrears is that they cannot legally disconnect because of public health reasons whereas gas and electricity suppliers can. Their debts are, therefore, not regarded as priority debts and they have no right to deduct debts from benefits (this can only be done by voluntary agreement).
6. The water companies regard themselves as being in a special position because they are under a statutory duty to supply water. Occupiers do not have to request the service; they are entitled to it. Legally, there is no contract for the supply. Instead, in order to charge, the water companies rely on the statutory obligation of the “occupier” to pay. The occupier is not defined but is generally regarded as the tenant rather than the owner. There have been some Court cases on this but the position is not clear. It may well be that in the case of a multi occupied property such a bedsits where the landlord retains control of the common parts he would be regarded as the occupier. In practice, it may well be that in this kind of accommodation the landlord assumes responsibility anyway. The point the water companies make, however, is that they cannot go out and demand that someone signs a contract before they have to provide a supply. They argue, therefore, that they are in a similar position to the taxing authority such as local authorities and council tax. On the other hand the point has been made that in return for payment the consumer receives a service.
7. As regards council tax, there are currently three key provisions:-
(1) There is a hierarchy setting out who is the person liable to council tax. It is based on residence. The landlord as non resident owner is at the bottom of this list. The landlord is potentially liable if the tenant is not resident.
(2) Local authorities have power to obtain information by giving notice as to who is in occupation.
(3) Council tax is levied on the owners of houses in multiple occupation. For these purposes HMO has a specific definition which is different to that for housing regulation and planning. The owner is liable if either the property is constructed or adapted for multiple occupation (this is a bricks and mortar type test rather than looking at how the property is actually lived in) or rent is payable for different parts of the premises. If either of these conditions applies then it is the owner who is liable and who is left to collect the council tax from the tenants.
8. The Walker Interim Proposals are very much modelled on imposing the Council Tax Regime for water charges (whether unmeasured rateable value charges or for metered supplies). What is proposed is as follows:-
(i) A similar hierarchy of liability be imposed. It would start with the freeholder who was resident (which would address owner/occupied residential premises). Likewise, for owner/occupied long leasehold properties e.g. flats. If the property was rented then essentially the resident tenant would be liable. If there was no tenant in residence then if there was a tenancy agreement originally for six months or more (e.g. the standard fixed term assured shorthold tenancy) still in force then the tenant would still be liable notwithstanding residence. If there was no minimum six month tenancy (as originally granted) in being (e.g. because there was a monthly or other periodic tenancy in place) then the landlord would be liable where the tenant was non resident. Obviously once there was no tenancy in place then the landlord would be liable.
Importantly, these rules are disapplied in those cases where property is an HMO because the landlord, as owner, becomes liable to the water company.
9. The Review is proposing imposing an ongoing obligation on the part of
landlords/managing agents to notify water companies of the identity of who is liable to pay i.e. names of tenants, with an obligation to notify when a tenant goes. Under council tax rules this information is only required on request.
10. Modelled on the council tax formula, liability for paying water charges will transfer to the owner (leaving him to collect the money from the tenant) for both measured and unmeasured supplies where the house was an HMO (no definition of HMO has been provided) or was in an asylum seekers hostel. There are a number of other categories proposed but none directly affect landlords (other than the odd case where a landlord has a resident employee).
11. As a result of these proposals the British Property Federation (“BPF”) agreed and met with Anna Walker the head of the Walker Review to put over landlords’ concerns. This has now been taken forward with a meeting between landlords’ representatives, BPF, RLA and National Landlords Association (“NLA”) with the Water Industries Association (along with various representatives from individual water authorities and companies) along with the head of the Review Secretariat and the member of the Review Team directly responsible for debt issues. There was a very useful exchange of views and a large number of technicalities came to light. The review team clearly went away educated with the complexities involved. It was agreed that consultation responses would be submitted and there would then be a further meeting involving the three parties in September.
12. The reality is that what the water companies are looking for can only be achieved by legislation but there may well be a legislative slot to take matters forward.
13. Legislative clarification is needed in respect of liability to pay. Whether the Council tax formula is appropriate needs to be considered. Landlords’ representatives indicated at the meeting that they were willing to look seriously at a notification obligation (and indeed encourage voluntary notification in the meantime) but in return the liability to pay should remain with the consumer, i.e. the tenant. At a practical level extensive landlord liability may well apply in practice anyway in relation to multi occupied properties such as bedsits. In those cases the landlord may simply take on the liability and include the charge in the rent. Obviously where there is a flat rate unmeasured charge based on rateable value it is easier to calculate and then increase it each year if need be. It is very difficult, however, for a landlord to do this for a metered supply. Landlords’ requirements certainly want to avoid a wholesale transfer of responsibility to landlords of HMOs so that they become liable, especially as the very wide council tax definition of HMO is used. It should be remembered that under the present HMO definition in practice a lot of landlords are exempt where there is 100% student occupancy so that many shared houses have no council tax liability. There is, of course, no such exemption for water charges.
14. This is a very complex area. The interim review is a very long document. There are significant related issues regarding water tariffs and affordability issues in relation to water charges themselves.
15. Although there are clearly peculiar features to water charges as opposed to other utility charges there is a serious danger that this could set a precedent for other utility charges if there was a transfer over of liability to landlords.
16. Clearly, the water industry does face a serious bad debt problem and the review team are anxious to try to address this, along with the water companies themselves. This is one of the main reasons for action.
17. One thing the Private Rented Sector needs to try to do is to gauge who is liable in practice in the bedsit type accommodation for water charges. We can do this by speaking to landlords and asking questions at landlords meetings, as well as an on line survey. If it turns out, as we suspect, that the vast majority of landlords of true bedsit type accommodation stand the charges and recoup them from the tenants then we could look at a very narrow definition of HMO so the owner/landlord would be legally liable to the water company in these cases.
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How you can help
To help us in our negotiations, we need information from landlords about the extent to which landlords already, in practice, pay the water charges (and then recover them with the rent from tenants). This is very important information which we need.
We have created a short survey on the RLA website which can be found by clicking here