Tenant Arbitrarily Paying Reduced Rent Per Claims of Excessive Electric Bills

[Bill Bell]

I have an up/down rental where the upstairs tenant is responsible for the electric bill.    Over the past two months, the electric usage has been high and they have been arbitrarily deducting from the rent payment what they felt was necessary to offset the high bill.  I let it slide the last month ($60 deduction) as there were some contractors at the property to fix some minor issues; however, the latest bill for Sept was $50 higher than Aug causing them to shave $100 off the rent they paid.  

Additionally, in review of the elec bill:

July:  798 kWh

Aug:  1814 kWh

Sept:  2244 kWh

They occupied the property full term though those three months, yet a three-fold increase seems negligence to me.  Note, the upstairs host the central HVAC unit which is the core power draw, along with a 7 person hot tub.  

Note, I have had past issues with them, as they have been unhappy at the property for issues ranging problems with the neighbors, to claims of mold in the HVAC.  The female in the couple is a definite "alpha" personality type who thinks she "is always right."  Additionally, she resides at the property 24 hrs per day with a home based business.

All in all, not sure how to handle this one.  Should I hold their rent check (which is short $100), and contact them informing they are short and require full rent payment on/before due date, or should I allow the $100 deduction and more closely eye the property over the next month to look for signs of negligence such as leaving windows open while HVAC is running, or leaving exterior flood lights on 24 hrs per day?  Note, the property is only a few minutes from my house.

[Dawn Anastasi]

I would not let the tenants just deduct whatever they see fit.  If a judge were to see that, you're setting a precedent.  What if they decide to just not pay rent some month? Will you allow that?

[Clay Smith]

Tell me about both tenant lease terms? Month to month? How long are you locked in?

[Bill Bell]

Decide not to pay... they actually tried that two months back.  I called them out on it with a threat of summary ejectment proceedings once the window was met, and they paid, including late fee.

As for lease terms, both are annual.  Though, the upstairs tenants did give a 30 day notice to vacate early; however, they backed out claiming difficulty in finding new residence.  Thus, their current annual remains active.

Though, has anyone had renters do something similar to this?  Specifically, pay majority of their rental amount, but "choose" to shave something off given they feel a utility bill was "too high" and it was not their fault?

[Elizabeth Colegrove]

I have never had this happen. That being said I am a very "strict" landlord. Per the lease, advertisements they are responsible for all utilities. I send them a polite but strong letter saying they only partial paid. That they are responsible for all utilities and if I don't receive the rest of the money by x, I will proceed to eviction. If they are worried about their bill they are welcome to call the electricity company. I would never had let this or any other shanagains fly. I personally find when I give an centimeter they take 2 miles. You need to "train" them on acceptable behavior and this isn't one!

[Steve Babiak]

I'm not sure about how "foreign load" utilities are handled in the state where this property is, but if it were in PA, you would be in for a surprise - you would get to pay the entire electric bill.  See this thread for further reading about that; you might want to read it since it would not surprise me that other states do likewise:

http://www.biggerpockets.com/forums/52/topics/1073...

[Nathan Brooks]

@Bill Bell you have to put this to bed ... and not deal with their crap.  If there is a legit issue with the HVAC then you need to fix it.  Otherwise, tell them to deal with it or get out.  Period.

[Bob E.]

Short term I would tell them no, you are not paying.  And I would schedule a walkthrough to see what is pulling that much electricity.  You don't want to find out they started an indoor grow house or that they are running some industrial equipment for the home business.  I would also stop by every day and check the meter usage to see what the daily run rate is and if it suddenly drops off they day of your inspection (Like they unplugged and hid something.

A few other thoughts":

If the temp has dropped the hot tub can be a big draw, especially if it is not covered.

I would check on the law per @Steve Babiak suggestion but this is not an acceptable situation to be in.  

[Michael Herr]

Originally posted by @Bill Bell:

"I have an up/down rental where the upstairs tenant is responsible for the electric bill."    

"Note, the upstairs host the central HVAC unit"

Two things in your original post jumped out at me.  Does this imply that there is only one HVAC unit for the duplex or that the electric isn't split and metered separately?

[Kathleen Leary]

Good lord . . . if they had a big dinner party, would you let them knock $100 off the rent because their grocery bill was too high that week? Utilities are one expense that tenants have some control over. That thermostat doesn't set itself. 

They are stomping hard on your bank account - if you're okay with that, fine. Otherwise, get this under control immediately!

[Pat Marco]

You need to have your lease reviewed by an attorney who can draft a letter to them demanding the rent differences and notifying them that they are in default. This will not cost you some money but it will save you from potentially bigger headaches and costs down the road. 

Based on rental demand in your area, you need to make a decision on whether you want to keep Tenants who think they are in control. It will only get worse with the Alpha lady! 

[Jon Holdman]

I'm with @Michael Herr about the hot tub and AC and your comment "the upstairs tenant is responsible for the electric bill".  Are you saying the AC for both units of this duplex is wired into the upstairs unit only and paid for by the upstairs tenant?  And the hot tub, which is available for both?  And, for that matter, the upstairs tenant pays the electric bill that covers them and the downstairs tenant? 

If so, that's messed up and you should fix that.  Split the utilities and you pay the common part for the AC and hot tub and have each tenant pay their own bill.  Personally, I'd NEVER have a hot tub in a rental.  I used to have one.  They require so much maintenance and ongoing expense that I got rid of it.  I cannot imagine a tenant would take proper care of it.

That said, if you lease says they pay the electric, and it was made clear to them they are responsible for the entire building (hopefully in writing) you need to push back.  You should have done that last month and definitely need to do that this month.  Tell them you are willing to have a look downstairs and make sure there's nothing funny going on down there.   But that their lease states they're required to pay and you expect payment immediately to avoid starting an eviction.

[Wayne Brooks]

Agree with @Jon Holdman  Common utilities, one tenant paying for another tenant's usage has problem written all over it.  Throw in a hot tub, how would you expect it to go smooth?

[Lisa Doud]

I am not sure what the law is there in Nags Head, but Here right across the boarder in VA It is illegal for a tenant to pay utilities for another unit. What I mean by that is that I have a duplex that has one water meter, I can not make the tenant in Apt A pay the bill for both apt a and Apt B. If I have a statement in the lease that the water bill is paid to me and spliced by both units that is fine, but the bill would have to remain in the name of the owner. Same with other utilities.

So what you need to do is get your electrical to find out what is on each panel and then you can decide from there.  As someone said earlier, I would definitely find figure out which electrical panel (if you have one for each unit) pays for the hot tub and compensate them accordingly.  

[John Thedford]

I agree with Jon. Split Rewire the place and have each tenant pay accordingly. That might cost some money up front but will solve the problem. Recently had a tenant short my rent check for repairs. I returned it, sent a certified letter demanding full payment, and posted a 3 day notice to vacate. They then paid in full and I just received the Oct rent...paid in full without difficulties. Sometimes being a nice guy is great but you are running a business. You cannot let the tenants decide how much to pay. If you let that continue let me know when you have a vacancy..I like free living!

[Bill Bell]

hello all,

thanks for the feedback.  Of note, the HVAC and hot-tub are only available to the upstairs tenant.  Indeed, the hot tub ultimately is a rental "perk" but landlord "liability" for multiple reasons.  However, its a sunken deck tub and adds value to the property.  Thus it will remain, though if it is an issue with rental, I could have a raised deck platform built above it to seal it off for rental, but keep active for possible sale down the road.  

The downstairs apt includes a ductless mini-split only.  No other draws in that space other than standard lighting and appliances (no stove).

The note regarding "Foreign Load" is something I will have to check out (anyone know if this is applicable in NC, or where/how I can verify?).  I have not heard of that until now, though see how it makes sense.  If I have to bring utilities back into my name, that could be ok, and as I have seen others post.  Its simply a little extra legwork to document/notify tenants of the usage split, and include those amounts in notification of rent due each month.  Also as noted in previous posts, may be wise to have a local real estate attorney review my lease and help plan something that fits my requirements.

All in all, good stuff here and sound advice.  Indeed, this is one of those difficult tenants (mainly the alpha female), who you simply do not want to do business with.  From a home upkeep POV the place is immaculate as they are very clean/neat; however, very "high maintenance" and with the alpha mentality of the female, she wants to be in control rather than a partner in the landlord/tenant relationship.  Interestingly, a few months back when they did not pay rent (reason - rent due was intended, in their mind, for costs associated with moving expenses and solidifying a new place ) and we entered the time window for summary ejectment.  I gave final notice and she accused me of taking advantage of them.  Basically stating that I did not need the money.  That speaks volumes to the mindset of someone who feels "entitled" to something that they feel others do not need.  Fortunately, I let that comment slide with no reaction and simply reiterated need to pay rent in full plus late fee, or I was heading to courthouse next day.  She paid in full plus late fee promptly that evening.

[John Thedford]

p.s.---some utility companies will do a survey and let you know what appears to  be the major useage of your electric bill.

[Bill Bell]

Indeed, I spoke with DOM power and the main usage is the HVAC and second being the hot water heater for most residential properties.  Of course this place also has the hot tub which is a solid draw, but as noted is intended for sole use of the "upstairs" tenant. 

[Tanya F.]

Split up the wiring and meter the apartments separately. It's worth it.

We've been much happier since we got rid of our tenants like your alpha.

[Corey Demuth]

Is either tenant an IT person? If they suddenly decided to set up a few extra computers and/or servers, that could explain the spike in electricity usage. Some IT people build extra computers to mine bitcoin and other cryptocurrencies, or set up small labs (consisting of a few computers, servers, and some networking equipment that would normally be found in a business) to practice for IT certification exams.

I agree that shared utilities with one tenant paying is a recipe for disaster.

[Sean Kuhn]

In the future don't tell future tenants that their electric bill is carrying both units.

[Michael Herr]

Originally posted by @Sean Kuhn:

In the future don't tell future tenants that their electric bill is carrying both units.

Or do the opposite of that. 

If you are going to have some sort of wierd utility split disclose it upfront. 

[Steve Babiak]

Originally posted by @Michael Herr:

Originally posted by @Sean Kuhn:

In the future don't tell future tenants that their electric bill is carrying both units.

Or do the opposite of that. 

If you are going to have some sort of wierd utility split disclose it upfront. 

Gosh, whatever happened to "do the right thing"? (Spike Lee would be happy I used that)

Split the shared utilities so each unit only has to pay for their own consumption, and have a house meter service set up for anything that has common usage. Otherwise, the landlord gets the full bill, and if sub metering is allowed then use that. But these other ideas are not "in the public interest" ...

[Dmitriy P.]

Hey @Bill Bell - I work for a utility company in the north east and I actually investigate high bill complaints. There is no way your tenant can tell how much kWh were actually consumed by the other floor. I've come out to people's homes/apts who claimed their usage was too high b/c they suspected someone was plugged into their meter. One time I came out to a gentlmans home who stated he had no a/c's. During my investigation, I found 2 a/c units sitting in his bath tub. I never trusted most high bill claims from that moment. Based on the months and kWh you posted the increase in consumption seems legit in a normal summer year.  Most people's consuption peaks out in aug/sept. I wouldn't let them choose a random number to deduct from the rent. They have no basis or way to measure it. Hope this helps

[Bill Bell]

My current lease does explicitly state that the tenant is responsible for electric at the property (each page is initialled by tenants).  Best to keep that open and signed in agreement to adhere with that lease requirement.  

Note, I do offset the rental rates between the upstairs and downstairs by the paid utility factor for the upstairs tenant.  Basically, I charge below market rate for the upstairs given SF and amenities for the space, while I charge above market rate for the downstairs given that "utilities are included."  This has worked well in the past, and this current situation is the only instance where I have tenants taking rental amount payment into their own hands for a utility compensation they feel they should not pay.

I have sent them an addendum for the current lease requiring notification of a perceived high elec bill within two days of receipt.  Typically, elec bills are received within the first week of the month for the previous month's usage.  The bill allows for about 20 days forward payment window.  By requiring the tenant to provide me with the bill early, I have time to review, investigate if there is negligent misuse from downstairs tenant, and/or adjust of warranted (basically set rent reduction for upstairs and rent increase for downstairs for given month).

Though, in 95% of cases no action is necessary and the upstairs would simply be responsible for the bill as there is no evidence of misuse downstairs, along with full rent due.

All in all, as noted above, the increase is most likely due to natural increases due to hot summer months usage.  Also a trending pattern will show where usage naturally is higher for the property given what draws power there (HVAC, Hot tub, etc...).  The tenants simply pay more for this property compared to previous simply because the property has more electrical usage.  

For all I know, their previous house may have been gas or oil heat and wall AC rather than HVAC, and smaller SF.  And I am near 100% sure there was not hot tub at their previous rental.

All in all, the model for having the upstairs tenant cover utilities works, its simply a matter of setting an initial rental rate which fixes "typical/average" usage at the property, and holding to it.  If a tenant feels electric is too costly at the property, the should shut the perks down, or plan to move as the place is too expensive for this comfort.