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Landlords could face liability for tenants' unpaid water bills

Under a recent government proposal, residential landlords could be made liable for unpaid water bills left by departing tenants.

Under a recent government proposal, residential landlords could be made liable for unpaid water bills left by departing tenants.

The proposal has been submitted by the water services regulator Ofwat to the Healthcare Commission who have been asked by the Government to review all social, economic and environmental aspects of water charging.

These proposals follow the release of profits figures for water companies revealing massive debts and a falling demand for water and sewage services. Ofwat is attempting to ensure that water customers get a fair deal and value from their water company, by making sure that customers’ bills are kept as low as possible.

Making landlords liable for water rates will reduce the cost to the water companies and in turn increase their profits.

The new proposals will:

  1. make it a legal requirement for landlords to identify the bill payer
  2. introduce the same test of liability for water rates as currently applies for council tax
  3. make it compulsory to charge the owners of buildings when accommodation is shared by more than one tenant

So what would it mean in practice for landlords?  Clearly the additional cost would have to be absorbed into current rental levels. Either that or rents would need to increase generally to reflect the risk of unpaid debts – a move that will surely drive away prospective tenants.

These measures will place added pressure on landlords already feeling the strain in an increasingly competitive lettings market. Landlords may feel aggrieved by what they perceive as a blatant attempt by water companies to pass on part of their operating costs to third parties.

The counter-argument from the water authorities is that landlords take a security deposit up front from their tenants so are in a better position to recoup any outstanding debts if needed.  Whilst this may be true, it does seem to impose an unfair burden on landlords to collect the debts of others.  No other supplier has this advantage and in the ordinary course of business suppliers must take steps to protect themselves against bad debts rather than pass them on to other suppliers of the same customer.

On the other hand, the supply of water and sewage is not a normal arrangement. Water companies have a continuing duty to supply water to domestic users and limited rights to disconnect those services for non-payment.  Also, there is a greater likelihood that water companies’ customers will disappear without a trace when they vacate a property.

So what can landlords do if the changes are implemented?

  • increase the rent to cover the additional cost (unless it can be absorbed into the current rental level)
  • obtain forwarding addresses from outgoing tenants.  This is not always possible where the tenant simply vacates without notice or is evicted by the landlord. 
  • consider asking for a larger security deposit from tenants to cover the cost of unpaid water charges after termination of the tenancy.  The difficulty is estimating how much additional deposit should be taken, and landlords will always run the risk that insufficient sums are provided for. Some tenants may resist if they feel they are honest bill payers.
  • ensure tenants have notified the water authority once they have moved in and that appropriate billing arrangements are in place for the duration of the tenancy.
  • administer water charges themselves by entering into an agreement with the water authority to accept responsibility for water charges and recharging the cost to their tenants. Although there is still the risk of non-payment by an outgoing tenant, the landlord has greater control over the process with this method and can require monthly payments during the tenant’s occupation to limit its exposure, with any final balance being discharged out of the security deposit.

Currently, there is no incentive for landlords to notify the water authorities as to who occupies a property and also when that occupier has moved out.  Without this information, the water company cannot charge anyone.  This proposal would give landlords that incentive to provide details of the tenant or face paying an outstanding bill themselves.

At present, 23% of water companies’ debt is “leaver debt” where the water authority are unable to trace defaulting customers after they have moved out of a property.

The water industry’s trade association has agreed to meet with landlords’ representatives to discuss the issues raised by this proposal. The final healthcare commission report will be published later this year and presented to Government, when the extent of landlords’ liability in this area will become clear.

If adopted, the proposals will require primary legislation to be passed which means they will not become law until the legislation has been enacted. This formal procedure can take several months and involves close scrutiny of the bill and an opportunity for challenge and debate.  For the moment then, landlords are safe.