City residents will avoid a proposed 18% increase in water rates but face stiffer penalties for failing to pay water bills under a new agreement between Mayor Bloomberg and the City Council. Under the new legislation negotiated yesterday, the Department of Environmental Protection will be able to initiate lien sales to force property owners to pay overdue water bills.

Council Member James Gennaro, chairman of the Environmental Committee, said he decided to support the plan after protections were included to prevent the use of liens to compel single-family homeowners, low-income seniors, and disabled New Yorkers to pay. He said lien sales would be used to target larger buildings.

Speaker Christine Quinn said in a statement that the plan would “crack down on unscrupulous owners who take advantage of the system, while establishing important protections for the consumers who follow the rules.”

In addition to authorizing lien sales and preventing a rate increase, the legislation will establish an ombudsman unit to monitor DEP performance, require the installation of a new water meter reading system by 2010, and ban the DEP from retroactively charging customers for payments more than two years overdue that the agency failed to initially request.