Can I put a maximum cap on a tenants water usage?

Question

Hi,

I was wondering if any landlord has put a maximum cap on a tenants water usage? For example, if the water bill comes in at over $75/month the tenant is responsible for anything over the $75. So if the bill comes in at $90, the owner would be responsible for the $75 and the tenant would have to pay $15 extra. In a perfect world the tenant pays for all utilities, but in most of the small multi families here the owner covers water/sewage.

I feel this way it would be easier to predict the monthly utility bill, let alone saving you from excess usage... I'm just wondering if anybody has had an experience doing this... Thanks.

Account Closed · Answer

I've never done it as a landlord, but as tenant in So Cal in the past I've signed leases that put a cap on what the landlord would pay for water.  The bill for water/sewer/trash is combined in my city. LLs usually pay for trash.  Two of my landlords with landscaping requiring water for automatic irrigation wanted to make sure that amount got accounted for, and allowed for normal household use. They charged for anything above that, and it changed annually.  If you're talking units instead of SFH, I wouldn't try it without separate meters.  You'll get push back if the tenant thinks their water is combined with another unit or with the community sources (outdoor spigots, laundry room, etc.).

Uwe K. · Answer

I am thinking about this topic for years. While I do have wording about overages over a certain amount in my lease, I've never charged anything.

The problem I have with it is in a duplex: There will 100% be arguments about who used more, and upstairs they have 4 kids, and I only have my 20 "cousins" here, blahblah. The separate meter thing is just cost prohibitive. Additionally, my tenants know they have to pay x amount to me every month. Understanding a simple late fee is already rocket-science to them, so now they have to budget for a variable amount per month. I see myself explaining and arguing more than it's worth.

Although I kinda like Kyle's idea, that makes it fair and maybe more acceptable to the tenant. Like they can also gain, not just loose. Still, I think it would require separate meters.

Kyle Hipp · Answer

I am doing thiz right now. I habe a duplex and there are 3 people living upstairs and 3 downstairs. I just modified their lease this spring to segregate water, sewer, storm, and trash bill all of which comes on one bill from the city. At first I was gonna charge the tenants evenly by number of tenants per unit when the bill averaged over $80/m. After discussing with the tenants we decided to do a refund on any bill under $70/m and charge tenants on any bill over $90/m. This bill comes quarterly and I give both tenants a copy of the bill when I get it. I spelled this out in detail in the new lease. If there were 2 people living downstairs and 3 upstairs and the bill averaged $100/m, the unstairs would pay and extra $18 and downstairs $12.

As to your other question on spliting water. I have done that on another property. That was a pretty easy project as it just took adding a new meter from the utility and running new lines to the  old that went upstairs. The hot water was already splits for separate water heaters. Amd the splice into the upstairs cold was accessible from the basement. This one also had separate laundry in the basement and that had to be modified a bit. I have a plumber I work with regularly and that job ran about $800 total.

Taylor Green · Answer

Thanks Chris... That about sums it up for me right there!

Chris Martin · Answer

Taylor Green in my state/county, if it is spelled out explicitly in the lease it is acceptable. I've had electric usage billed to the tenant challenged in small claims court during an eviction. Judge P...d heard the case and added utility overage charges to the judgment. So that's about as definitive as it gets in my book. Your mileage may vary by state/county/judge based on lease wording and/or addenda.

Taylor Green · Answer

Joel, I agree with what your saying... Plan for the worst case scenario and if it works out better, then thats great. In theory, putting a cap and expecting them to pay the difference works, but in the real world it doesn't work out that smoothly. Great point.
Thanks again for the input.

Joel Owens · Answer

Taylor you can try it but know going in some will not pay the difference whether required to by the lease or not.

It's kind of like section 8 for the difference between the voucher and the rent that many tenants never pay the difference.

So if your analyzing a building where the landlord says for section 8 the difference is XX or for water the difference is XX you better go in and analyze line by line where it is paid and how it is noted.

If the landlord says they do not track that separately and it's mixed in then I throw it out. If I can't 100% account for something then it doesn't get counted as income on the buy side. This way if it happens great but if not my returns are not taking a hit.

I do have friends that have private meters put on by companies and they bill the tenants. Some of them pay on time, late, or you have to get collections on them. Just do not count on all tenants doing what they are supposed to do. I know it sounds great as a landlord to dump costs on tenants but DO NOT make the assumption you will; be successful with that and talk yourself into buying a property that way.

When investors say

1. If I can manage myself I save money
2. I can just offload utility costs onto tenants no problem
3. I can do these changes and improvements and up the rent to XX amount

You get into serious trouble as you are talking yourself into buying something based on potential you create. I still look at all of those things but the price is based on what it is doing today not the potential.

Taylor Green · Answer

Thanks for the responses! That is good to hear.... I agree with the separate meters, I'm sure you would get tenant push back if you split it all equally. Do you know how much it costs to put separate meters in per unit?

Karen Margrave · Answer

Taylor Green I don't see why you couldn't. That seems reasonable to me.