Ask Lucas

Ask Lucas 018: What’s the Best Way to Split Shared Utilities in a Multifamily Property?

Summary:

Elise from Utah asks about her seemingly high gas utility bill. The landlord manages the shared utilities, and it doesn’t seem accurate. Who is responsible for shared utilities at multifamily properties, and what is the best way to divide the cost among the units?

Full Transcript:

Lucas: What’s up, everyone? This is Lucas Hall from Landlordology and Cozy. Welcome to the 18th episode of Ask Lucas. It’s a bite-size Q&A show where I answer your questions about landlording and property management. If you have a question you can leave a recorded message on landlordology.com/ask-lucas, and I’ll answer it in this podcast.

Today’s question comes from Elise from Utah, but first let me tell you a little bit about Cozy.

Cozy is an online rental management tool designed for landlords like you and me. I use it and I really do think it’s the best way for landlords to manage their properties from application all the way the move out. With Cozy you can collect online rent, accept online rental applications, and even screen your tenants with credit reports. It’s super easy to use and the best part is it’s completely free, so it’s absolutely, completely free for landlords. No other company on the planet let’s you process rent and screen tenants for free. It’s worth checking out. Get Cozy at Cozy.co.

Now let’s hear what Elise has to say.

Elise: Hi, my question is regarding utilities and the renter’s responsibility, especially in Utah, Holiday, Utah. I rent an apartment and multiple renters here are being charged a very high price for using gas. We haven’t been heating our apartments at all for the last couple months, and these costs are just going up. My question is why is it legal that I am potentially paying for somebody else’s usage in Holiday, Utah. Why am I not just responsible for my own usage, and do I have the option of contacting Questar and having my own account so that I can just pay for what I use?

Lucas: Hey there. Thank you for that question. That is actually a really good one. I’ve been getting a ton of questions on Landlordology about utilities and how to split them up, and what’s right, what’s wrong. I don’t know if it’s really just the time of year. Maybe it’s springtime, maybe there’s a full moon or something, but it seems like people are utility crazy right now.

I want to address your question, and before I get too far in, you did say that you wanted legal advice, but I can’t give that to you. I am not a lawyer, nor is this legal advice, so if you do want the legal answer you should talk to a lawyer, because that’s what they do. But I can tell you about the general principles of utility disbursement, and how that works, and what is usually done.

To start, first I think we need to think about whose responsibility it is to pay the utilities. I think generally speaking that is addressed in the lease, and it will say either the landlord is responsible for the utilities at a certain amount or perhaps the tenant is responsible for paying the landlord or even maybe paying the utility bill to the actual utility company itself, but there’s a lot of ways to do it.

Occasionally I’ll come across someone who has a lease and it doesn’t actually mention utilities at all. People are still going to use utilities so we need to address that in the lease. If it doesn’t, then I think the common thought throughout the industry is that the person who consumes the good is the person who’s ultimately responsible. Doesn’t that make sense? It’s a consumable good, so if you use it you should pay for it. We don’t live in a world where you use water and then somebody else should pay for it; it just doesn’t work that way.

I think that ultimately there are some utility companies that do hold the landlord responsible no matter. Water companies, for example, are notorious for that because they want to put a lien on your property if you don’t pay your water bill, water or sewer for example, but generally speaking it’s the person who used up the goods.

Now, even if it is the tenant’s responsible to pay for the bill, how do we figure out what’s the right amount? That’s the next big question. How do you split it up? I think that gets to the heart of your question. It sounds like in your situation you’re just receiving some sort of flat rate or some high-priced bill that doesn’t seem to match the season. It’s springtime, the heater’s not on anymore, and therefore why should there be a high gas bill?

It really comes down to how the building is split up. Some communities or large apartment buildings don’t have separate meters. Having a separate meter on each unit is the absolute best way to track this stuff, because that’s what the meter does: it tracks your exact usage and it tracks everyone else’s usage so you can easily divide it up and know exactly who paid for what. But in a lot of cases they don’t have separate meters. There’s only one meter for the whole building, so the community itself is lumped together and there’s absolutely no way to track it. You just have a bill that comes in and you say, “Okay, I don’t know who used up all the gas but we did. We have a big bill this month,” and you got to figure it out.

The next step down from having separate meters, the next best thing, is to split it up by square footage. Oftentimes a landlord will just figure out the square footage of each unit and give that a prorated scale. That percentage will then go towards the percentage of the utility bill. If you occupy 6% of the building because of your square footage, and there’s a $100 gas bill, then you should pay $6. I think that that is actually the most fair way to do it if there’s no meter for each unit. Again, that’s not quite as good as if you had a meter for each unit, but in the absence of that you can’t really install these meters later on without a tremendous expense, so the best way to do it is by square footage.

In your case, I don’t know what’s going on exactly. It could be that possibly the landlord is just doing a flat rate. Maybe it does have something to do with square footage but it has nothing to do with the actual bill that month. A good example is something that I do at one of my properties. It’s a duplex, and I don’t have separate meters on it. When the gas bill comes in I know that in the summertime it’s about maybe $60 a month, but in the wintertime it’s like $340.

What I figured out is that the monthly average was about $120. I figured out that my tenants actually preferred to just have a flat rate. They pay $120 every month and that is the average; it balances out. If something happens and it’s an extremely warm winter and it’s just not as cold as it usually is, then I’ll figure all that out and I’ll balance it out at the end, and if I owe them some money, I owe them some money, or vice versa. Perhaps they owe me more, but I would actually never go back and ask for that. Anyway, that’s a third option, and is commonly done in cases where there aren’t meters.

Anyway, to summarize, it is best if every unit has their meter, but in the absence of meters it’s best to split it up by square footage, especially in multifamily buildings where there’s dozens or hundreds of units. Sometimes small landlords will just decide on a flat rate that seems fair, and they’ll put that in the lease.

As for the next steps in what you can really do about this situation, I think you have a couple options. One is you can certainly go talk to your landlord and just ask them to validate the numbers that they’re throwing out at you. Generally speaking, if they’re coming up with utility bills and they’re asking tenants to pay it, they have to have some sort of formula that they’re using to calculate that. If they can’t produce that formula or they’re really hesitant to show it to you, then that means something’s up or they’re just making up numbers. If they’re just making up numbers, then certainly you can go after them legally and put some pressure on them through demand letters or hire a lawyer, or even take them to small claims court, and then the judge will force them to come up with some sort of calculation. Hopefully at that point they will just be honest.

Other than that, you could call Quest and ask them perhaps the same question, and say, “What should my landlord be doing?” and see if they come up with some other answer. Outside of that, Quest really can’t do much if there aren’t meters on each of the units. They can’t go in and they can’t put meters on there if the owners isn’t going to let them on the property or to do that, or even pay for it, because it is a substantial expense to do that.

Then, if there aren’t separate meters on each unit, Quest isn’t going to be able to give you your own bill, because they’re not going to know how much you’ve spent. I think you might be between a rock and a hard place but I think it’s best just to ask you landlord how they’re calculating the utilities, and then take it from there. I know that’s not the answer you were hoping for, but I hope it does help a little bit, and I really appreciate that you asked this question, because it is a common issue. Thanks again. Have a great day.

About Lucas Hall

Lucas is the Chief Landlordologist at Cozy. He has been a successful landlord for over 10 years, with dozens of happy tenants and a profitable income property portfolio.
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