As the economic downturn continues to affect the property market, it is not surprising that the number of tenants vacating their premises due to insolvency is on the rise. One of the many practical issues facing landlords is how to respond when an electricity bill for the vacated property falls on their doormat.
Utility providers usually provide electricity under a direct supply contract with the occupier of the property, who is solely responsible to meet the bill for the service. However, this position changes if the electricity is supplied otherwise than under such a contract. If an express contract is not in place (either because it has ended or has never been agreed), there is a statutory regime under the Electricity Act 1989 that kicks-in to imply a contract between the service provider and the occupier of the property, or, if there is no occupier, with the owner. Liability to pay the bill will then attach to them. This deemed contract will incorporate the supplier's standard published terms, subject to a few statutory restrictions preventing them from being unduly onerous.
When a tenant is declared bankrupt, the trustee in bankruptcy is likely to disclaim any liability under an express contract and will most likely write to the supplier to notify them of this and refer them to the landlord. If there is no direct supply contract, the supplier will then probably present the bill to the landlord under the deemed contract regime, who will be bound to pay in accordance with the supplier's standard terms. If that happens, it is important for the landlord to check that they are only being billed for the costs of electricity supplied after the date the contract was disclaimed (as before that date the implied contract regime will not apply).
With this in mind, there are practical steps which landlords can take to reduce potential exposure to their tenants' electricity costs under the implied contract regime and consequential expenses:
- as soon as they become aware that a tenant intends to vacate property or has become, or is likely to become insolvent, contact the electricity supplier and agree the basis of any future supply of electricity to the property. This way the default terms of the deemed contract (which are unlikely to contain the most advantageous tariff) will not apply;
- require their tenants to enter into direct supply contracts with the relevant supplier and provide evidence to the landlord of having done so; and
- think carefully before terminating a supply, taking into account the need to have electricity available at the property for fire alarms and potential viewings. Reconnection fees are high and are a cost that an incoming tenant will not be prepared to pay.