Historic issues on charges for utilities may arise on acquisitions and sales of commercial property during the due diligence process, where a buyer has the opportunity to review information and documentation provided by a seller.
A common issue arising is where an outgoing landlord or tenant has never been invoiced for their supply of fresh water and a buyer is concerned about their potential liability for past usage moving forward. Regardless of whether a property is being sold, the prospect of receiving a backdated water bill will still be concerning for owners.
Customers who have not paid, or underpaid, for the supply of fresh water to their property can receive backdated bills for past usage. Ofwat, regulator of the privatised water and sewerage industry in England and Wales, confirm that customers could be back-billed for the maximum period of 24 months if a wholesale or retailer has raised a dispute about charges owed, or where both parties agree that charges have not been calculated correctly. In any other case, the period will limited to 16 months. Whilst this limitation applies to customers who have underpaid, companies are able to charge for up to six years of water charges in cases where customers have not paid for their water at all. This is common in buildings with multiple occupants and communal meters, because water companies find it difficult to determine who exactly is benefitting from a fresh water supply and do not invoice accordingly.
If a water company were to become aware that a customer receiving fresh water has not historically paid, this customer could expect to find themselves with payment reminders confirming the amount that needs to be paid and when by. Following this, the water company is then likely to issue notice of intention to register a default against the customer’s credit file. At this stage, it would be prudent for a customer to attempt to negotiate, such as requesting a write off of some of the payment due or agreeing a particular repayment plan in settling the debt, especially if they have attempted to contact the water company in order to request invoices in the past. If a backdated bill were to remain unpaid, the water company would ultimately be able to take a customer to court to recover the debt. As with usual contractual claims, this has to be done within six years under the Limitation Act 1980, although is unlikely.
In property subject to a leasehold interest, it is the tenant who is responsible for paying bills from the date they moved into the property if the bills are registered in the tenant’s name. Various Codes of Practices produced by water companies, for example Southern Water, state that it will usually be the occupier of the property receiving the services who is liable to pay the charges. This applies even if the occupier is a tenant and the tenancy agreement says the landlord is responsible for charges, as a landlord will only be liable if they have agreed this with the water company directly. The same principle applies in that current tenants are not responsible for any debts left behind from previous tenants. Therefore, should a tenant assign their lease, the new tenant will not bear responsibility for paying for historic water usage relating to the previous tenant’s occupancy.
Where a property is being sold with outstanding water charges, both seller and buyer could attempt to insert an indemnity into the sale contract ensuring liability will rest with the other party moving forward. However, it would be unusual for the buyer to agree to indemnify the seller as it is unlikely to be commercially acceptable. A well advised buyer should resist giving such an indemnity, unless purchase of the property is necessary for business or personal needs and this cannot be avoided.