How to Charge Utilities for an Up/Down Duplex with One Meter

Question

I'm renewing the leases for a duplex that has 2 units: upstairs (3 bedroom, 3 people) and basement (2 bedroom, 2 people + 3 pets). There is one meter for both units. The strategy I have been using as recommended by my tenant placement service isn't working for me with the current higher utility costs (I won't clutter this question with an explanation of it but can do so if helpful). How do people in this position administrate utilities? Should I have the bill in my name, show to tenants when it arrives and have them pay me 2/3 and 1/3 of the bill? Have it in one of their names and get them to tackle it? I know there will be pros and cons to both but if anyone has a strategy that is really working for them, I'd love to know about it.

Nathan Gesner · Answer

HOW TO SHARE UTILITIES 101

You have a property with two or more units and the utility meters are shared. There are a few options.

1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice to make because you can't justify the cost.

2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.

3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the most fair and reduces the likelihood of tenants that squander utilities.

If you choose #2 or #3, there are considerations:

Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electric due to the reduced natural light and people being indoors more. Electric can also spike in the summer with A/C. Contact the utility provider and get an historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this each year to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.

Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.

How to calculate charges. Don't make it harder than it has to be. If you have four 2bed/1bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2bed/1bath with washer/dryer and Apartment B is a 1bed/1bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.

End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but they can hear the upstairs neighbor showering twice a day. You can put an end to this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!

I just looked at a utility bill and it has a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.

There are a lot of options out there, but don't make it more complicated than it needs to be. Tenants actually save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.

Calvin D. · Answer

Thanks Kevin. I appreciate the insight and will look into the laws around utilities. Has, electric and water are all under one company on one bill.

Kevin Sobilo · Answer

@Calvin D., You didn't state which utility.

You may wish to check your local laws on this. In the United States many states would not allow you to force a combined utility bill into a tenants name or to even split it on a prorated basis. I'm not sure what laws in Canada are like but they may be similar. There are some methods for utilities such as water to measure and split the usage but again doing so and billing tenants back may not be legal everywhere.

I would bake it into the rent. If the bills increase I would adjust the rent when the leases are up.

I might also consider leasing to new tenants based on a formula. For example $1000/month rent plus $20/month per person for occupancy exceeding 3 people. So, if you have 5 people in a unit, the rent would be $1040 to account for the additional utility usage.

The other option is to separate utilities so there are multiple meters.

Calvin D. · Answer

@Nathan G. Thank you so much for this. Greatly appreciated :)

How to Charge Utilities for an Up/Down Duplex with One Meter

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