Articles of Law by BHAG SINGH | June 29, 2010

Landlords and bills

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Should the landlord be held responsible if his tenant defaults in the payment of utility bills?

A landlord may be envied for being a property owner who generates income for himself by letting out his premises. Apart from the fact that to be a landlord, one needs to have financial resources or at least access to them, the role is not without its problems.

Tenants who are in breach of their obligations are sometimes threatened with having their supply of water and electricity disconnected. In the absence of express and specific provisions, this approach is not advisable.

Whilst the landlord may be perceived to be in a better position because he can choose his tenants, he is more exposed to risks. The landlord’s obligation is only in the form of handing over possession of premises when the tenancy commences.

But it is the tenant’s obligations to the landlord to pay the rental and upkeep the property which is more difficult to enforce. If the tenant runs into arrears of rental, causes damage to the premises or leaves without paying for the utilities, there is nothing to hold him on except to sue him.

Non-payment of electricity bills is one area where tenants have left landlords in the lurch. When this happens, landlords are held responsible by the supplier and cannot reconnect supply for new tenants or sell their property without paying up their bills.

Supply disruption
If it is the tenant who has not paid the electricity bill, is it right for the landlord to be held responsible? A landlord will feel aggrieved at having to settle the unpaid electricity bill. Whilst the supplier concerned may expect payment from the landlord before resuming supply, such decisions are dependent on whom the electricity was supplied to. Was it supplied to the tenant who was the occupant or the landlord who is the owner?

The Electricity Act 1990 states in its preamble that it is “an Act to provide for the appointment and functions of a Director-General of Electricity Supply, the supply of electricity at reasonable prices, the licensing of electrical installations and the control of electrical installations ... and for purposes connected therewith.”

Following this, it is provided by Section 24(1) that a licensee, meaning the supplier, shall upon being required to do so by the owner or occupier of any premises, provide supply of electricity to the premises. As such the supplier knows whom it is supplying electricity to.

Upon receipt of a request seeking supply of electricity, the supplier is duty-bound to supply electricity but the supplier can specify the payment required and any security that must be given. In view of this, if the person who seeks the supply is the tenant and not the landlord, the supply contract would in such circumstances be with the tenant as would be the rights and obligations.

In addition to the security required and given, Section 28(2) of the Act empowers the supplier, where the security is insufficient, to increase the security. Failing to comply with this is a ground for disconnecting the supply. Therefore, adequate provisions exist to safeguard the supplier.

As the supplier has an opportunity to protect itself against unpaid bills by taking an adequate deposit, it would not be fair to hold the landlord responsible and withhold supply because of the tenant’s default. This is especially so where the supplier has through its own negligence, allowed the debt to pile up.

Owner’s request
However, the contract is usually in the name of the property owner, who is the landlord. A clause in the tenancy agreement makes it obligatory for the tenant to pay the electricity charges and other utility bills. This, for all it is worth, is merely an internal arrangement between the landlord and the tenant.

As far as the supplier is concerned, the arrangement is with the landlord. If electricity bills are not paid, the supplier is entitled to recover them from the landlord. If payment is not made, it is not wrong for the supplier to discontinue supply or refuse to resume supply.

Unpaid bills is a matter between the landlord and the tenant; it does not concern the supply authority. It is for the landlord to pay up and then seek recovery from the previous tenant. Whether he wishes to rent out the premises again is of no consequence.

Hence, the landlord must be aware that electricity bills are paid promptly. Monitoring can be done by including an appropriate clause in the tenancy agreement.

The tenant can be required to provide the landlord with evidence of payment of the electricity bills of the preceding month together with the rental for the current month. Failure to do so could be made a ground for terminating the tenancy.

The electricity deposit should not be a nominal sum. It should reflect an amount that is a reasonable estimate based on the expected usage so as to provide adequate security.

There should also be a clause to vary the electricity deposit. Thus if it appears that the electricity consumption per month is more than what was earlier anticipated, it could be increased in the light of higher usage so as to be meaningful.

Conclusion
To the supplier, the landlord is a sure source of payment. If the landlord is not made to pay, the supplier may not be able to recover the arrears as the previous tenants may no longer be around and the same may happen with future tenants.

But one must not forget the provisions empowering the supplier to obtain security. If it can have an adequate sum as deposit to cover defaults, and exercise its power to discontinue supply, it can minimise problems with unpaid bills.

If the supplier wishes to make the landlord responsible in any event, then at the time of supply the landlord should be made a party to the supply agreement.

However, in the absence of a contractual relationship with the landlord, it appears to be neither fair nor equitable to compel him to pay when the supply contract is with the tenant.

For those who feel aggrieved, Section 30(4) of the Act provides an option in that the matter could be referred to the Director-General of Electricity Supply for determination of such disputes. Pending the determination, the supplier is required to continue providing supply.

http://www.starproperty.my/PropertyGuide/Legal/5513/0/0