The issue of splitting utility bills with tenants, if not dealt with in an absolutely specific manner, can become very contentious afterwards. And it can have a very damaging effect on the landlord’s relationship with the tenant.
Before we discuss different options for splitting utility bills with tenants, let’s see in what circumstance you have to deal with this issue –
1.If you have rented out a room or portion of your house to the tenant.
Because of urban living affordability issue, rent-out-a-room is a very popular option of creating an additional source of income in major cities. It has become even more appealing in the age of sharing economy. In this arrangement, you can’t apply for the utility companies to have an additional meter for the tenant portion of the house. In such a circumstance, there is no other recourse but to have an arrangement in place and written in the lease how you are going to split all the utility bills.
2.If you have a multi-unit rental with one meter each for different utilities.
All over North America, there are many regions, where you would still find multi-unit rental properties with a single utility meter for each type of utility. These properties are usually converted into multi-unit from single family home. The cost of converting the electrifications and installing separate meters can be too high. Which is why the landlord chooses to keep the single meter.
In many university towns, the municipality allows the tenancy of unrelated persons occupying a single home. Most of the time, the municipality does not have option or resources to provide accommodations to overflowing student communities. In which case the landlord has to put in place a system of splitting the utility bills with tenants.
3 options of ‘splitting utility bills with tenants’
All Inclusive Rent
Before you rent out, you would have a good idea of what would be the approximate cost of utility usage. If not, call the utility company. Most utility companies help the new owner to get a rough estimate of previous one year’s monthly bill. Or at the least, they would provide the information on the average bill of the similar house. Include that in the rent to make it a flat rent.
Pros and Cons: This is the most convenient and efficient way. Just one rent amount without any complications. The bad part of it is that the tenant is not motivated to the utility efficiently or may use it unreasonably leisurely. As especially in case if your relationship with the tenant turns sour, he or she can abuse the use. It’s prudent to specifically mention the limit of use or any other arrangement in the lease.
Split by the Number of Persons or Square Footage Area
This is also a simple option of ‘splitting utility bills with tenants’. Depending on what deal you stuck with the tenant, It would go into the lease. Whether it would be split per person or area is the matter of negotiation.
Pros and Cons: This option is about the fairness. However, it has more hassle and it’s time-consuming option. The tenant usually does not like more than one contact a month with the landlord. Which is for collecting the rent. When you have an arrangement of utility bills to be paid separately, you have to let the tenant know about the bill amount and collect it apart from the rent. Even if you have decent tenants, with this option, you are adding additional responsibility to your landlording.
Flat all Inclusive Amount with Periodical Review
I am for this option. It’s a fair arrangement. At the beginning of the tenancy, the landlord offers a flat amount of rent. The landlord also gives out the detail of the portion of utility in that flat rent, showing the past bills. There would be a condition in the lease to review the portion of the utility part of the rent periodically.
Pros and Cons: This is the fairest method. This arrangement frees the landlord from the hassle of collecting utility separately. It also keeps a check on the tenant not to use the utility abusively. It has an added advantage of creating the impression of honesty and fairness on your tenant at the very beginning of the tenancy.
Conclusion: Splitting utility bills with tenants is the arrangement you are going to have to decide at the beginning of the tenancy. Be fair and honest with the new tenant. Because you don’t have separate meters, there is always going to be some gray areas. So rather than to be on the miser side, be on a bit generous side. That would take you a long way towards a respectful and fair relationship with your tenants.
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