If you are the landlord of a multi-unit building, you may be footing the bill for all of the utilities because the building is not metered for individual units.
This can be a significant cost and you may be wondering if you can somehow pass along these costs to your tenants. After all, when the tenants are not paying the costs of the utilities, they may not care that they are wasting electricity, gas or water and that can compound your costs over time.
In this article, I am going to cover how landlords can charge tenants for utilities even when the units are not metered. I will also cover related, but important topics, like state and local laws that may limit this option and some tips on how to successfully put in place a policy change around utility payments.
If you have don’t have the time to read through it all, here’s a short answer to the question:
A landlord may charge tenants in unmetered units for utilities using a number of methods, including ratio utility billing systems (RUBS), flat fees, or raising the rent to cover costs. However, mid-lease changes are usually not allowed and the landlord must consider state and local laws that may limit some of these options in their area.
Ok – let’s get into it.
The information contained in this post is for informational purposes only. It is not legal advice. You should seek the advice of a qualified legal professional before making any decisions relating to the topics covered by this article.
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RUBS
Ratio Utility Billing Systems (RUBS) are a popular way for landlord to pass on utility costs to tenants living in unmetered homes.
What are they? RUBS are a billing system that requires each tenant to pay their share of the overall cost of a property’s utilities based on a predetermined formula (or ratio) that reflects a number of factors.
These factors may include the size of the unit, number of occupants, number of bedrooms and baths, number of water fixtures, and appliances (e.g., units with dishwashers, washers and dryers and similar items may be charged more).
You can use RUBS to allocate costs of a variety of utilities including:
- Electricity
- Water
- Trash
- Sewage
- Gas
RUBS are popular for a reason. Here are some of the key benefits:
- Fully Covers Utility Costs: They fully take the financial load off the landlord. Instead they divide that cost among tenants in an objective way. This promotes more responsible use of utilities by tenants, which also has the added benefit of preserving energy and helping the environment.
- More Fair Than Other Options: While it may not be 100% fair because some tenants will still use more utilities than others even though they are billed the same, it is more equitable than a flat fee or other less nuanced approaches that do not take into account all of the factors we discussed above.
- Minimal Investment Required: They may also allow landlords to remove the burden of utility costs without significant investment in sub-metering or other high cost options.
- Customizable: Landlords can adjust the ratios or formulas as needed to more accurately allocate costs among tenants by property. For example, one building may need a different formula than another. RUBS allow easy and more precise customization that will lead to better results.
Flat Fees
A simpler option is to charge tenants a flat fee for utilities.
A landlord can structure this in a number of ways, including charging larger units more, but the principal difference is that the overall utility costs in a given month may not line up with the fees that a landlord collects.
That could lead to a profit or loss each month.
It also can be viewed as less fair by tenants, since there is less thought given to individual unit characteristics. Still, not a terrible way to cover some of the costs of utilities in an unmetered building.
Simply Raising the Rent
Or you can just raise the rent to offset some of the costs of utilities.
This is perhaps the simplest way to recover utility expenses in unmetered buildings.
Now, there are some important things you will need to consider when doing this, including prevailing rental rates and rent control laws.
And unlike the RUBS option, your tenants have no incentive to keep costs down because their utilities are “free” from their point of view.
Tips for Informing Tenants of the New Billing System
Effective communication is crucial when introducing a new billing system to tenants.
This means notifying renters in writing of the change, setting up a townhall or meeting with them to go over the procedure, and supplying resources or pamphlets if they have any questions.
Obviously, be prepared to hear objections and concerns, but also respond to them professionally and in all cases be honest and fully transparent about what is going on.
Remember to comply with lease terms and applicable laws before putting the new billing system in place (more on that later).
Tips for Ensuring Payment
Just because you have implemented a new system doesn’t mean that tenants will automatically comply.
To promote compliance, you can consider charging late fees to make sure tenants pay for unmetered utilities (check applicable laws on this, though).
It goes without saying that you should be very careful about using “self-help” remedies like shutting off utilities to the non-paying unit – many states prohibit that and you could get into a lot of trouble for doing so.
Legal Considerations
Examine Your Lease Agreement First
The first step in determining whether you can implement any of these options is to review your lease.
Unless your lease specifies otherwise, you likely can’t change the existing utility billing method without obtaining the tenant’s consent. Of course, you can make the change once the lease terminates (subject to applicable laws) or negotiate it as part of a lease renewal.
Research Applicable State and Local Laws
Each of these options must also be viewed through the lens of applicable state and local laws. As you can imagine, each jurisdiction may have different rules around how (and how much) landlords may charge tenants for utilities.
For example, California has a very complicated set of rules around the use of RUBS and submetering in general. Fees may be permitted, but if the landlord stands to make a profit, that could land them in hot water. Source.
Obviously, this article can’t address the hundreds of varying state and local laws that apply to each situation, so you will want to research the rules that apply to your properties (or hire a lawyer to help you).
For your convenience, here’s our 50 state reference table (including D.C.) that will link you to the official landlord tenant laws of your state.
If you prefer to have a lawyer assist you, I would try JustAnswer. They boast access to thousands of highly-rated, verified real estate lawyers whom you can connect with via their unlimited chat service.
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Conclusion
So there you have it – some great options to to charge your tenants for utilities in unmetered buildings. Hope you have found this helpful and happy landlording.