As utility costs increase, owners of multifamily properties have searched for a fair method to pass on these expenses. Most multifamily properties in the western states today have been built with separate electrical and gas metering so tenants expect to pay their own electric and gas bills. Landlords have traditionally paid for the water and sewer. This pattern is changing. Especially in large cities and towns, tenants have come to accept utility bill backs.
Landlords have many options to pass on these expenses – often, landlords implement a Ratio Utility Bill Back System (RUBS). (RUBS) is a method of calculating a resident’s utility bill based on occupancy, apartment square footage, number of beds, or a combination of factors.
Using RUBS to bill residents for water, gas and/or electricity expenses has several advantages including:
- It requires no cash investment to get started
- It enables owners to recoup any portion of the overall billings
- It can be implemented easily and quickly
- It immediately improves cash flow
Some landlords and management companies choose an amount of money, say $40 per month per apartment and use that as an estimate of water and sewage use to pass on to tenants. This approach typically keeps the rate lower to the tenants but can short change the landlords.
Many landlords take the bills and divide all of the water costs by the number of units minus an estimate for common area usage such as landscape irrigation and laundry room use. The quotient is passed on as the expense. They pass on the sewer expense using the same ratio. The challenge with this approach is that many tenants complain about unequal water use, where some tenants use more water than others.
Landlords can implement a RUBS system themselves or use a property management company to handle the process for them. Many existing apartments have a utility configuration that does not support the installation of sub-metering equipment. For example, properties that heat water and supply water through a centralized boiler system such as high-rise apartment complexes and older condominium units can have multiple pipes supplying water to a single unit. It is cost prohibitive to install several water meters to measure total water usage for each residence. In these cases, RUBS presents an excellent alternative for the owner or association to recover appropriate utility costs and increase cash flow at the property. When landlords use their property management company or a utility management company to manage the process for them, the property managers and/or utility management companies will tack on an extra processing charge to the bill, which typically has to be paid by the landlord. Laws in every state are different regarding the costs of utility bill backs.
Water sub-meters can be installed when a building is constructed or a sub-meter can be installed on the hot water side of the hot water heater within an existing structure when each unit has its own hot water heater. Meters can be read electronically or via a meter reader (by either a meter reading company, an on-site manager, or an on-site maintenance tech).
If the meters are read electronically, they are downloaded to a system in the manager’s office. From there, the information is transferred via phone line transmitters and receivers back to the multifamily utility company headquarters.
Individual meter readings are then imported into a billing system which creates and sends individual utility bills to the tenants. A monthly utility reimbursement check is then sent to the owner, manager, association manager or whoever is in charge of receiving payments. If the tenants don’t pay the utility billings it is up to the property manager to make sure the water bills are collected.
To implement this system, the landlord needs to be prepared to advance the capital expenses to install the system. This system offers more accuracy on about amount of water and sewer that is being used.
Usually, garbage bills can be billed back to tenants via RUBS as well. If each tenant has an individual garbage can, you can usually bill back by the can. The key is to bill back a fair amount.
Utility bill back systems give landlords the ability to improve their bottom line. Using RUBS, landlords can install a utility bill back system without advancing any capital expenses. On the other hand, the amounts billed back are only close estimates. The electronic bill back system is more accurate. Billing back for a proportionate share of garbage also makes sense for landlords. The bottom line is that it is definitely worth it for a landlord to bill back utilities. Not only is the bill passed on to the tenants, but more importantly, the tenants will pay more attention to the utility use which reduces costs and helps the environment.
Clifford A. Hockley is President of Bluestone & Hockley Real Estate Services, greater Portland’s full service real estate brokerage and property management company. He is a Certified Property Manager and has achieved his Certified Commercial Investment Member designation (CCIM). Bluestone & Hockley Real Estate Services is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM).