Utility costs are rising without any sign of slowing down. Accountability for consumption is now a key responsibility of housing providers to show tenants how their behavior impacts the environment as well as their wallet. Education plays a powerful role in influencing the outcome of tenant consumption behavior.
When utilities are not included, accountability can start with adopting a Ratio Utility Billing System (RUBS) as a standard business practice.
A RUBS program fairly divides utility costs such as waste, sewage, water, and more amongst tenants, based on occupancy, square footage, or a combination of both. RUBS is found to be the most effective way to fairly share accountability with tenants when a utility is master-metered. Housing providers that implement RUBS empower tenants to make informed decisions on conservation in resource constrained states. In that lies an opportunity for rental housing providers to share the burden of growing utility costs with tenants. By sharing these costs, tenants will also be inspired to conserve. This also opens the opportunity to build stronger relationships with tenants, as they collectively work towards a common goal.
The Importance of Billing Back
Rising costs and limited resources are both challenges that many communities face. For example, the City of Los Angeles has experienced massive hikes in waste sanitation fees under the City’s new waste hauling monopoly, RecycLA. Massive rate increases often reflect systemic issues that can inspire communities to mobilize. When landlords and tenants are both exposed to massive hikes, together they can seek out conservation and cost mitigation solutions.
On the issue of water alone, often there is absolutely no incentive to cut back despite orders by the state, primarily because water utility usage is often wrapped up in the rent payment. Exasperating the situation, you will find tenants do have little regard for their building’s consumption, because they do not see the bill. A 2015 survey of Los Angeles apartment owners showed that while other sectors made large water conservation efforts during California’s historic drought, water usage in apartments remained unchanged, and in some cases even went up despite the Governor’s 25 percent conservation order.
The solution to rising utility costs that will empower tenants to conserve is implementing RUBS. The program’s method of sharing the costs of utilities with tenants uses an approved formula-based methodology. Other factors include building amenities such as laundry units, landscaping requirements, in-unit amenities and more. RUBS does not require the upfront investment of submetering for each unit, so conservation is very much a community building effort, in addition to being affordable
The State of California has no laws for or against the use of RUBS because the California Public Utilities Commission (CPUC) determined that rental housing providers are not selling a utility. RUBS is merely a means to bill back utility costs in a fair and equitable manner. An increasing number of rental housing providers are now adopting RUBS billing programs, and tenants are becoming more accustomed to paying for their own usage. These programs can be implemented in multi-family buildings, HOA’s/condominiums, commercial buildings and mixed-use buildings alike.
A well-designed RUBS program can be an effective way to recover utility costs, which increases the value of your property, and also serves as a platform to build community around resource conservation. Tenants gain visibility into month-over-month utility cost and trends, and can make informed decisions about reducing their consumption, and in turn, their living expenses.
An Example How RUBS Returns
According to Britt Miller, Principal at Redbridge Partners, “Our RUBS program has allowed us to recoup $8,895 in utility expenses over the past 12 months, and a projected $14,250 over the next 12 months. Not only does this help us with our cash flow (it’s like us adding 3.5 parking spaces to our garage), but just as important, it adds $316,666 in value to our building using a conservative 4.50% cap rate. If we keep up with our current trajectory and unit turns, we should realize $745,000 +/- in incremental value through this program (almost 4.5% of the building value).”
Stuck Between Rent Control and Rising Utility Costs
When rent increases are regulated, separating out utilities from rent means that the rental housing provider is not subsidizing the bill as rates rise. As history has proven, utility costs are fast increasing and nearly impossible to control since a large part of the costs relate directly to tenant usage and behavior. It makes sense that tenants should pay for their own consumption.
How to Implement RUBS – Choose Your Utility Billing Partner
To implement a RUBS program, you can engage a third-party utility billing provider, of which there are many to choose from. With the right provider, implementation should be seamless with no upfront costs.
In terms of operating in rent controlled markets, there is a clear limitation due to the restrictions on adjusting lease terms mid-tenancy, meaning tenants can only be enrolled on turnover. When it comes time to execute a new lease, you’ll want to make sure to use an addendum that stipulates the utilities to be billed back, the allocation method, and any other pertinent terms, which is also true of non rent controlled markets. Remember to market the vacancy as “Utilities not included”.
What to Look For
- Domain expertise. Regulations and tenant expectations vary market to market, so you’ll want to ensure you’re working with a provider that understands the ordinance and nuances of operating in that location.
- Data. The numbers will point to the efficacy of any RUBS program. It’s not enough to simply bill tenants back. You should expect an analysis of month over month cost and recovery, allowing you to gain actionable insights.
- Customer service. You want a provider that values the relationship you have with your tenants, and understands the risks of blindly passing through a set % of the bill on a monthly basis.
Regardless of which provider is selected to oversee the RUBS program, housing providers are positioned to share accountability. This also opens the opportunity to build stronger relationships with tenants, as they collectively work towards a common goal of conservation. Knowledge is power, and the more one knows, the more one can react and can change. And, at the same time you are helping to save the environment, you can save a little money.
Daniel Sharabi is Co-founder and CEO of Livable, a leading residential and commercial real estate utility billing company, providing a suite of cloud services, including its flagship Ratio Utility Billing System (RUBS). Livable has been serving the real estate industry since 2009, and their Utility Billing Platform was built to recover utility costs for any real estate stakeholder, property manager, housing provider, or apartment manager. Their technology solutions strive to create a community around conservation. Livable provides an end-to-end solution for any sized portfolio of properties to recover utility costs, increase profits, and build a transparent, financially accountable community of tenants. To learn more, visit www.livable.com, email firstname.lastname@example.org or call 877-789-6027.