With utility bills on the rise and submetering systems often cost prohibitive, many property owners are considering ratio utility billing systems (RUBS). Instituting RUBS is an inexpensive way to make tenants financially responsible for their usage and incentivize conservation.
Although RUBS have many benefits, owners are often concerned about how to legally institute the program in their buildings. The good news is that, barring a few municipalities, RUBS is legal throughout California, even in rent-controlled jurisdictions. It just has to be instituted on turnover.
For more answers to your frequently asked RUBS questions, we turned to landlord-tenant attorney John List with Pahl & McCay, who has offices in San Jose and Los Angeles.
Q: What are the biggest concerns landlords have about beginning a RUBS program and how do you respond to those concerns?
John List: One of the largest concerns we deal with is how to communicate with residents regarding the implementation of a RUBS program. We suggest having a clear communication strategy for residents that explains the goals of the program are to make residents aware of the costs of water – a precious resource in California – and providing incentive to conserve. Additionally, clarification should be made that the program passes through the costs of the utilities actually used by residents. It is not a profit center for a landlord.
Local controls on RUBS can vary widely from no restriction to the outright prohibition that we see in San Jose, Richmond and Santa Monica. Our office will ensure that there are no hidden regulations that could potentially derail a RUBS program or cause liability for the property owner, providing a risk analysis where the regulations are not necessarily clear.
After the passage of SB7, governing submeters, there have been many questions about using RUBS in a master-metered property with water submeters. We recommend that any property owner with submeters comply with SB7. If there is a desire to change billing methods, contact an attorney about potential options.
Q: How can RUBS be enforced in rent-controlled jurisdictions?
JL: Since there are no statewide definitions of RUBS, complying with local rent controls requires a careful reading of the laws governing the control. In a majority of rent-controlled jurisdictions, any money paid to a property owner by a resident is defined to be a part of “rent,” even if it is based on a resident’s actual use of a utility. As long as there is no outright prohibition of RUBS, the billing practice may be phased in upon turnover of units.
When RUBS is implemented, the fluctuation of costs must be capped to avoid violating any restriction on the number of rent increases in a 12-month period and any increases over the permitted amount. This cap should be reasonably related to the actual costs. It should be clearly communicated that the point of the cap is to benefit residents by passing on savings when costs are lower than the cap.
Q: What are some best- and worst-case scenarios you have seen when people institute a RUBS system?
JL: The best-case scenario begins when a property owner consults with vendors knowledgeable of the regulatory landscape of RUBS. When the owner has a clear goal and works with the vendor to put together a program and then properly document the mechanics of the program, there is less chance that costly mistakes are made. In the end, there is functional program specific to the property with an enforceable agreement to bind residents to participate.
The worst thing I’ve seen is when a property owner calls me after putting a RUBS billing system in place and is asking why they are getting push back and refusals to pay from residents. Upon reviewing the program, it is clear that the owner had taken generic forms from the internet and just had the residents sign them. The signed forms were missing pages or were not fully completed and omitted key terms that explained how residents were being charged. Residents were getting bills that were high and did not explain the basis of the costs. Further, there had been no communication with the residents about what was happening, so there was no goodwill with the residents to comply.
This owner had to recreate new documents based on the actual way residents’ share was being calculated, forgo unpaid amounts, and wait for lease terms to end before implementing the corrected documents.
Q: Any misconceptions you often hear about RUBS that you’d like to clear up?
JL: The use of RUBS does not cause a property owner to be regulated by the Public Utilities Commission (PUC). As long as a property owner is not making a profit from the pass-through of costs, the PUC has ruled that the pass through does not make the property owner a utility provider.
A common mistake is using RUBS to bill for gas used to heat central boilers when there is no method for isolating the use of the gas by the central boiler. Contact an attorney to discuss the ability to use RUBS for common central facilities.
A Final Disclaimer
The discussion above is general in nature and is not intended to be legal advice. It is intended to assist owners and operators in understanding this issue area, but it may not apply to specific circumstances or business situations. Owners may need to consult applicable federal, state and local laws and applicable regulatory agreements for any specific project or concern. For specific legal advice, consult an attorney.
Emily Landes is the content director for Livable, a Bay Area-based RUBS program dedicated to helping property owners recover utility costs and increase the value of their investments through conservation. For more information, check out livable.com.