Last week we heard that Barking & Dagenham Council is supporting a challenge to the decision made in Jones v London Borough of Southwark  EWHC 457 (Ch). That is not a surprise; a challenge was bound to happen – it was just a matter of when. Up and down the country, social housing providers and local authorities have agreements in place with water suppliers whereby they collect water charges from the tenants on top of their rent.
The key question that arises is whether these landlords are acting as agents or ‘resellers’ for the purposes of the Water Resale Order (WRO) 2006.
If it is the latter, then the WRO imposes maximum charges and only allows very modest payments for administration charges.
Unsurprisingly, the potential cost for landlords can be significant. Some reports state that the total liability for Southwark was in excess of £28m once the charges had been capped.
In the case of Jones v Southwark, Ms Jones entered into a weekly tenancy agreement with Southwark in 1981.
In addition to her weekly rent, Ms Jones also paid a weekly charge for water and sewerage, which was typically around £5 per week.
Southwark Council entered into an agreement with Thames Water in 2000. That agreement coupled with Thames Water’s ‘charges schemes’ was considered by the court when deciding if Southwark was an agent or a ‘reseller’.
The court only considered the time period between 2002 and 2013 as Southwark and Thames Water entered into another deed which sought to clarify the position in 2013.
The agreement in place (up until 2013) was that Southwark would pay Thames Water an overall sum for water and sewerage supplied to properties without a water meter. The sum payable (which was payable quarterly) included a ‘voids’ rebate of 5% and thereafter a further deduction of ‘commission’ set at 18%.
Ms Jones argued that Southwark was acting as a ‘reseller’ as the 2000 agreement involved Thames Water supplying Southwark with water and sewerage services and Southwark’s tenants, including Ms Jones, in turn buying such services back from Southwark.
Southwark argued that it neither bought any water or sewerage services from Thames Water nor resold any to its tenants. Southwark argued that the 2000 agreement operated to make Southwark an agent of Thames Water, not for it to purchase water and sewerage services from Thames Water, and the charges schemes did not alter that position.
The court held that the relationship between Thames Water and Southwark was not one of principal and agent but involved Southwark buying water and sewerage services from Thames Water and reselling them to its tenants.
As a result, the WRO applied and served to limit what tenants could be charged.
The amounts that Southwark charged Ms Jones (and all of its other tenants) exceeded the ‘maximum charge’ allowed under the 2006 order.
Barking & Dagenham Council has advised Inside Housing that it is supporting a challenge but has declined to comment further. The success of that challenge will depend on the agreement that is in place between the local authority and the water provider. The key question will again be whether the landlord is considered as an agent or a ‘reseller’.
The agreement that is in place is likely to be very similar to the one that was in place between Southwark and Thames Water. This provides local authorities with a valuable source of income.
These cases are difficult to predict as they will all be based on the nature of the agreement and the way in which water charges are collected from the tenant. If there is a ‘void rebate’, and a ‘commission’, it will be interesting to see on what basis Barking & Dagenham contends it is not a ‘reseller’ of water.
The judge in Southwark specifically said at the end of his judgement: “I should like to add, finally, that the case was very well argued on both sides.” We will soon find out if Barking & Dagenham can argue the point more successfully.
Social housing providers in a similar position may find themselves facing claims for overpaid water charges, and while these sums may be small, collectively it can be very expensive, as shown in the Southwark case.
Landlords need to carefully check any agreements in place with water providers.
Great care must be taken when considering the agreement as it must be clear that the landlord is acting as a collection agent rather than a ‘reseller’.
Consideration also needs to be given to tenancy agreements – if the water charge is levied as rent then this may cause complications in rent arrears claims.
This article first appeared in Inside Housing on 20 February 2018