Two High Court decisions on water rates collection arrangements have reached the opposite outcome as to whether a landlord is entitled to retain the commission and voids allowance that is standard practice in such arrangements. So what are the key considerations for landlords?
Readers may recall that in Jones v Southwark LBC [2016] EWHC 457 the High Court set the cat amongst the pigeons by ruling that Southwark LBC, who recovered water rates from their tenants as part of the rent and paid Thames Water direct, was a re-seller and therefore prohibited by the Water Resale Order 2006 from retaining the commission and voids allowance. The decision led to LB Southwark refunding water charges back to 2001 to its tenants at an estimated cost of £26.8m.
In the subsequent decision of Rochdale Boroughwide Housing v Izevbigie [2017] EWHC 790, the High Court found that a water rates collection agreement between Rochdale Boroughwide Housing and United Utilities did not make the landlord a re-seller, therefore the landlord was entitled to retain the voids and commission allowances and to charge the water rates to its tenants without deductions.
Although some of the reasons for the outcome in the Rochdale case were specific to the particular landlord, others set a useful list of criteria for future agreements to meet in order to avoid being found to be re-selling arrangements. These are:
- The recitals to the agreement provided that the landlord was collecting charges "on behalf of" the water company and providing "collection services" for the water company;
- Internal reports before the relevant agreements were entered into made it clear that the landlord intended to enter into the agreement to collect charges "on behalf of" the water company; and
- The agreement provided for the landlord's right to collect money owed by tenants to the water company and there was no assumption of responsibility to pay the charges to the water company.
Landlords entering into new water collection agreements or considering historic arrangements (in may cases 'inherited' on a stock transfer) will need to carefully consider the nature and content of those arrangements in light of the above cases.
It remains to be seen whether a challenge will be made to the principle of the Jones v Southwark decision. It has been reported that some London boroughs are supporting such a challenge. However, given that any challenge would most likely need to be made in the Court of Appeal, it could be up to 18 months before the Court of Appeal rules on the matter. In the meantime, landlords should consider their status under the Water Resale Order 2006 in respect of their current and historic arrangements.
