Charging for Utilities in California

[Marshall Rousseau]

I have a property where the adu and main house share utilities. adding separate meters isn't an option at this point in time.  In the past, I have rented them out with utilities included.  When rented out next, is there any advantage to lower the rent, and instead, charge a flat utility fee? Is there any legal way to guard against a disgruntled tenant doing something like running the water 24/7? Located in the peoples republic of California. Thank you!

[Edward Dean]

Hi Marshall,

If you can, it is usually better for you as the landlord to get the utilities off your books. It is a variable expense that you have no control over and most people are fine paying for what they use if that is common practice in your area. There are a few ways you can go about this. One way is to do RUBS (Ratio Utility Billing System), where you apportion the amounts based on how much of the property they occupy. So if both units are the same size, each tenant pays 50% of the bill and you determine how often and how that is paid. If its a 1 bed on one side a 2 bed on the other, then maybe tenant one pays 1/3, the other 2/3, etc. You can show them the bill and charge them accordingly.

Another option is to come up with a limit and charge an overage. Lets say you live in one side, and tenants rent the ADU on the other. You know how much water on average you use each month and the other side is smaller so you say ok tenant gets x amount of utility usage per month as part of their rent, but if they exceed that amount, ie, you get the water bill and see its way over because they left a toilet running, then there's is an overage amount charged on next month's rent.

How your lease is structured can help protect you from the disgruntled tenant aspect, ie, if it is the tenants fault then the tenants pays. For unintentional leaks, you can also install leak detectors so you are alerted right away if water usage spikes. Try to put them in an area where they cannot be tampered with.

Make sure to check with the local landlord tenant laws to ensure whatever methods you choose are in compliance with the laws and regulations of that specific area. Also, check around your area at other rentals to see what is common practice so you know what renters are likely to expect. If everyone else in your area is including utilities with the rent then that may be the better way to go.

Best of luck with it!