Question 1

Compensation for interruption of Water Supply

Accepted Answer

Q: I write concerning the interruption to our water supply due to a burst main and subsequent work by Southern Water. This occurred in November; the water supply was off for about 30 hours and a further number of hours while the building's drained system got back up to normal. During that time our contractors received calls from residents with problems in their supply following the emergency. I believe the regulator specifies an amount of £20 per household which is ‘automatically’ paid in compensation. We are billed directly for all residences and commercial units in our buildings, based on consumption, so residents will not receive this directly. They pay for their water through their flat's proportion of the service charge An enquiry to Southern Water resulted in advice to claim for this incident through our insurance company. However this would increase our premiums and would involve an excess payment. We are thinking of going ahead with an invoice to Southern Water for the compensation. Is there anything we need to know before proceeding? Any advice you can offer would be welcome. We owe it to residents and business owners in the block to get as much compensation as possible for the very real inconvenience suffered. [question answered January 2022] Nick Roberts, FPRA Legal advisor replied: A: Your query raises a rather interesting point which I have not come across previously. As I understand what you say, Southern Water render one bill for water and sewerage charges to Freeholders Ltd and you then re-bill the residential and commercial leaseholders via the service charge. This is an arrangement which is commonly encountered with blocks of flats, but it does raise a rather difficult issue: are there 105 residential customers (plus some commercial customers) in the block – or does Freeholders Ltd constitute a single commercial customer (or, possibly, a single residential customer)? This sort of problem does arise in a number of contexts within blocks of flats. For example, the electric companies have to observe a Code of Practice before they disconnect domestic customers: but I have heard of some of FPRA members finding that electricity suppliers say that the supply of electricity to the common parts of a block of flats is a commercial, and not a domestic supply. This can also affect the tariffs that are offered. I appreciate that the position with the water supply to Freeholders Ltd is rather different, as Southern Water are likely to be working on the basis that there is a single supply to the whole building: but I hope that you take my point. The basic Standards of Service and Summary of Payment Amounts administered by OFWAT seem to be set out here: Standards of service - Ofwat. These are described in rather more detail here: The-guaranteed-standards-scheme-GSS-summary-of-standards-and-conditions.pdf (ofwat.gov.uk), but neither of these documents seems to offer a definitive answer to the question as to whether there is one, or multiple customers, involved in your case. The fact that the first of these documents refers to tenants being treated as if they were customers seemed to be encouraging. It suggested to me that individuals other than those who ‘had their name on the bill’ might be entitled to claim compensation, as individual residential customers. It appeared to indicate that the ‘renting tenants’ might be entitled to compensation. If so, then the argument could be used that as leaseholders are, in law, also ‘tenants’, then they would be entitled to claim as individuals. However, I think it is important to appreciate that the Standards of Service as set out by OFWAT do not have the force of law. The actual law which OFWAT is administering is set out in Regulations made by the Secretary of State: The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008, SI 2008/594. Regulation 4 of The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (legislation.gov.uk) does not actually extend the term ‘customer’ to include ‘tenant’ but instead refers to an ‘occupier’ being entitled to claim. But it goes on to say that ‘customer’ includes ‘an occupier of premises whose supply of water or sewerage services is the subject of a separate charge for which a person other than the occupier is liable’. This would indicate to me that, if a freeholder or leaseholder lets out a flat, and pays the water rates on it, then their renting tenant would be able to claim compensation, as if the tenant were himself or herself the customer. But I cannot see how the leaseholders (or their tenants) can rely on this extended definition of ‘customer’ as neither leaseholders, nor their tenants, are paying a ‘separate charge’ for water and sewerage services. A court would surely have to say that a ‘separate charge’ must mean ‘a separate charge charged by the water company’: I cannot see that the fact that leaseholders pay a separate charge as part of their service charge would be decisive here. From the perspective of Southern Water, no separate charge is being made. Having had a look through the Regulations, my view is that they are drafted on the basis that, as a matter of strict law, compensation is payable in respect of each property that pays a separate charge to the water company. I appreciate that that is not what you want to hear, but I can only advise on the law as I see it. The view is also consistent with a decision of the Court of Appeal just over a year ago which decided that (in the particular circumstances of the case, which were similar to yours) the local authority, rather than its tenants, was the ‘consumer’ so far as the water company was concerned: see The Mayor & Burgesses of the Royal Borough of Kingston-Upon-Thames v Moss [2020] EWCA Civ 1381 (27 October 2020) (bailii.org). The local authority then ‘resold’ the water to its tenants. Regulation 8 of the The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (legislation.gov.uk) includes some detailed provisions. Reg 8(6) assumes that the supplier will take the initiative in making the compensation payment to each customer. Regulation 8(7)(b) would then require customers for whom the supplier has no name to make the claim within 3 months. This would cover the position where a tenant who does not pay the water rate/water charges has suffered interruption. But this has to be read subject to the ‘separate charge’ condition in Regulation 4 (see above). The provision in Regulation 5(1) (b) to the effect that it is not required ‘to make a payment to more than one person in respect of any one claim’ would be consistent with this, and would mean that, if a tenant should claim, their landlord could not, and vice versa. That said, I can see no harm in each of the leaseholders (or their tenants) trying to make an individual claim against Southern Water, and see how they interpret the 2008 Regulations. If they do not pay up, it could be followed up by bringing in the Consumer Council for Water, and if necessary referring the matter to OFWAT (see ‘Disputed claims’ in Standards of service - Ofwat). As stated, as a matter of strict law, I would not be optimistic. OFWAT might be prepared to take a more pragmatic stance. But Southern Water might think that they and the other water companies had sufficient financial interest in this as a test case to take OFWAT to judicial review if they thought OFWAT was not properly applying the law. I am afraid that I can see no basis at all under the 2008 Regulations for Freeholders Ltd bringing a claim on behalf of all of the leaseholders, except perhaps for a single claim in respect of the whole premises. This would, unfortunately, be at the lower rate of £20 (see Reg 8(5)(a)) as the whole premises – including any commercial elements – would seem to be ‘domestic premises’ as defined in Regulation 4(1) of the The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (legislation.gov.uk): the whole premises (ie the block) is used partly as a dwelling. I have not considered in any detail whether Freeholders Ltd might have grounds to bring a separate claim at common law (rather than under the 2008 Regulations) against Southern Water. Any claim would seem pointless. Freeholders Ltd has not itself sustained any quantifiable financial loss as a result of the interruption to the supply, and I cannot see any basis upon which it can bring a claim on behalf of individual leaseholders or residents. The separate personality of limited liability companies ‘cuts both ways’. Any loss would have to be quantified individually for a claim by each leaseholder or resident – which is why, for convenience, the Regulations provide for a set standard figure. I would be interested to hear how you get on with any claims. It is possible that all this reveals a gap in the law.

Question 2

Compensation for interruption of Water Supply

Accepted Answer

Q: I write concerning the interruption to our water supply due to a burst main and subsequent work by Southern Water. This occurred in November; the water supply was off for about 30 hours and a further number of hours while the building's drained system got back up to normal. During that time our contractors received calls from residents with problems in their supply following the emergency. I believe the regulator specifies an amount of £20 per household which is ‘automatically’ paid in compensation. We are billed directly for all residences and commercial units in our buildings, based on consumption, so residents will not receive this directly. They pay for their water through their flat's proportion of the service charge An enquiry to Southern Water resulted in advice to claim for this incident through our insurance company. However this would increase our premiums and would involve an excess payment. We are thinking of going ahead with an invoice to Southern Water for the compensation. Is there anything we need to know before proceeding? Any advice you can offer would be welcome. We owe it to residents and business owners in the block to get as much compensation as possible for the very real inconvenience suffered. [question answered January 2022] Nick Roberts, FPRA Legal advisor replied: A: Your query raises a rather interesting point which I have not come across previously. As I understand what you say, Southern Water render one bill for water and sewerage charges to Freeholders Ltd and you then re-bill the residential and commercial leaseholders via the service charge. This is an arrangement which is commonly encountered with blocks of flats, but it does raise a rather difficult issue: are there 105 residential customers (plus some commercial customers) in the block – or does Freeholders Ltd constitute a single commercial customer (or, possibly, a single residential customer)? This sort of problem does arise in a number of contexts within blocks of flats. For example, the electric companies have to observe a Code of Practice before they disconnect domestic customers: but I have heard of some of FPRA members finding that electricity suppliers say that the supply of electricity to the common parts of a block of flats is a commercial, and not a domestic supply. This can also affect the tariffs that are offered. I appreciate that the position with the water supply to Freeholders Ltd is rather different, as Southern Water are likely to be working on the basis that there is a single supply to the whole building: but I hope that you take my point. The basic Standards of Service and Summary of Payment Amounts administered by OFWAT seem to be set out here: Standards of service - Ofwat. These are described in rather more detail here: The-guaranteed-standards-scheme-GSS-summary-of-standards-and-conditions.pdf (ofwat.gov.uk), but neither of these documents seems to offer a definitive answer to the question as to whether there is one, or multiple customers, involved in your case. The fact that the first of these documents refers to tenants being treated as if they were customers seemed to be encouraging. It suggested to me that individuals other than those who ‘had their name on the bill’ might be entitled to claim compensation, as individual residential customers. It appeared to indicate that the ‘renting tenants’ might be entitled to compensation. If so, then the argument could be used that as leaseholders are, in law, also ‘tenants’, then they would be entitled to claim as individuals. However, I think it is important to appreciate that the Standards of Service as set out by OFWAT do not have the force of law. The actual law which OFWAT is administering is set out in Regulations made by the Secretary of State: The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008, SI 2008/594. Regulation 4 of The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (legislation.gov.uk) does not actually extend the term ‘customer’ to include ‘tenant’ but instead refers to an ‘occupier’ being entitled to claim. But it goes on to say that ‘customer’ includes ‘an occupier of premises whose supply of water or sewerage services is the subject of a separate charge for which a person other than the occupier is liable’. This would indicate to me that, if a freeholder or leaseholder lets out a flat, and pays the water rates on it, then their renting tenant would be able to claim compensation, as if the tenant were himself or herself the customer. But I cannot see how the leaseholders (or their tenants) can rely on this extended definition of ‘customer’ as neither leaseholders, nor their tenants, are paying a ‘separate charge’ for water and sewerage services. A court would surely have to say that a ‘separate charge’ must mean ‘a separate charge charged by the water company’: I cannot see that the fact that leaseholders pay a separate charge as part of their service charge would be decisive here. From the perspective of Southern Water, no separate charge is being made. Having had a look through the Regulations, my view is that they are drafted on the basis that, as a matter of strict law, compensation is payable in respect of each property that pays a separate charge to the water company. I appreciate that that is not what you want to hear, but I can only advise on the law as I see it. The view is also consistent with a decision of the Court of Appeal just over a year ago which decided that (in the particular circumstances of the case, which were similar to yours) the local authority, rather than its tenants, was the ‘consumer’ so far as the water company was concerned: see The Mayor & Burgesses of the Royal Borough of Kingston-Upon-Thames v Moss [2020] EWCA Civ 1381 (27 October 2020) (bailii.org). The local authority then ‘resold’ the water to its tenants. Regulation 8 of the The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (legislation.gov.uk) includes some detailed provisions. Reg 8(6) assumes that the supplier will take the initiative in making the compensation payment to each customer. Regulation 8(7)(b) would then require customers for whom the supplier has no name to make the claim within 3 months. This would cover the position where a tenant who does not pay the water rate/water charges has suffered interruption. But this has to be read subject to the ‘separate charge’ condition in Regulation 4 (see above). The provision in Regulation 5(1) (b) to the effect that it is not required ‘to make a payment to more than one person in respect of any one claim’ would be consistent with this, and would mean that, if a tenant should claim, their landlord could not, and vice versa. That said, I can see no harm in each of the leaseholders (or their tenants) trying to make an individual claim against Southern Water, and see how they interpret the 2008 Regulations. If they do not pay up, it could be followed up by bringing in the Consumer Council for Water, and if necessary referring the matter to OFWAT (see ‘Disputed claims’ in Standards of service - Ofwat). As stated, as a matter of strict law, I would not be optimistic. OFWAT might be prepared to take a more pragmatic stance. But Southern Water might think that they and the other water companies had sufficient financial interest in this as a test case to take OFWAT to judicial review if they thought OFWAT was not properly applying the law. I am afraid that I can see no basis at all under the 2008 Regulations for Freeholders Ltd bringing a claim on behalf of all of the leaseholders, except perhaps for a single claim in respect of the whole premises. This would, unfortunately, be at the lower rate of £20 (see Reg 8(5)(a)) as the whole premises – including any commercial elements – would seem to be ‘domestic premises’ as defined in Regulation 4(1) of the The Water Supply and Sewerage Services (Customer Service Standards) Regulations 2008 (legislation.gov.uk): the whole premises (ie the block) is used partly as a dwelling. I have not considered in any detail whether Freeholders Ltd might have grounds to bring a separate claim at common law (rather than under the 2008 Regulations) against Southern Water. Any claim would seem pointless. Freeholders Ltd has not itself sustained any quantifiable financial loss as a result of the interruption to the supply, and I cannot see any basis upon which it can bring a claim on behalf of individual leaseholders or residents. The separate personality of limited liability companies ‘cuts both ways’. Any loss would have to be quantified individually for a claim by each leaseholder or resident – which is why, for convenience, the Regulations provide for a set standard figure. I would be interested to hear how you get on with any claims. It is possible that all this reveals a gap in the law.

Compensation for interruption of Water Supply

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