If you’re renting out your property for the first time, you may be wondering who is responsible for the utilities. Should you or your tenant pay for it? Should utilities be bundled with rent in the first place?
In this article, we’ll tackle everything you need to know about utility payments in rental properties, from the pros and cons to the best practices.
What are utilities?
Utilities are essential in every rental property as they make the home habitable. These include water, electricity, gas, trash collection, and so on. These do not, however, include cable, internet, and security systems.
Are landlords required to provide utilities?
The short answer is yes. Landlords are legally required to provide their tenants with a safe and habitable home. This is also commonly called the “implied warranty of habitability”. In general, the rental property must meet basic living standards.
Are landlords required to pay for utilities?
Landlords should provide access to utilities, but they don’t have to pay for utilities. Typically, the landlord or property owner has the “power” to determine who should pay for gas, electricity, water, and so on. The lease agreement should also specify whether the landlord or tenant is responsible for utility payments.
If the lease agreement does not state who should pay for utilities, the landlord cannot force the tenant to cover the cost. That’s why we advise working with a property management company to help avoid costly mistakes in the rental agreement.
What are the pros of including utilities in rent?
There are several reasons why landlords include utilities in their rent. These include:
#1 Higher rent
If utilities are inclusive, it makes sense to charge more. How else will you be able to cover your tenant’s utilities? Plus, paying for utilities is an additional task, so you should at least be compensated for it. Ask your property manager to determine the average utility cost for your unit, as you don’t want to make the mistake of charging an amount that barely covers your tenant’s bills.
#2 Responsible renters
Tenants that don’t have to pay separately for utilities are more likely to be on time with their rent payments. This is because they know exactly how much they have to pay each month. They won’t have to worry about whether or not they have enough money to pay for rent and utilities.
Bundling utilities with rent is an excellent way to offer convenience to your tenant. By doing so, your tenant doesn’t have to take the time to transfer accounts upon move-in and move-out. This will also help speed up the turnover process.
#4 Credit card rewards
If you’re planning on paying with credit cards, you’ll be able to accumulate credit card points in no time. You can use these points to travel, pay off your balance, get discounts, and so on. It’s your reward for working hard!
#5 Tax deductions
Utilities are deductible from your taxes because they’re considered a business expense. So, if you’re looking to lower your taxes, consider including utilities in the rent.
What are the cons of including utilities in rent?
There’s a reason why some landlords choose not to include utilities in the rent. Here are a few cons to consider:
#1 Landlord’s liability
If the utilities are under the tenant’s name, the utility company will come after them. However, if the utilities are under your name, you’re not off the hook. If your tenant stops paying rent, you’re still obliged to pay for their utilities out-of-pocket. Even if you initiate the eviction process, you’ll still have to cover the cost.
#2 Wasteful lifestyle
If you’re planning on paying for utilities, be prepared for wasteful tenants. Tenants who don’t have to worry about paying for their water, electricity, etc. are less likely to conserve. For instance, they’ll keep the lights on during the day or run the air conditioner even when they’re not home.
#3 Unexpected costs
It’s difficult to predict your tenant’s monthly consumption of water, gas, electricity, etc. With that said, your costs will constantly change. That’s why it’s important to work with a property management company that can help estimate the average cost as accurately as possible.
Can a landlord shut the tenant’s utilities?
No. You cannot shut off your tenant’s utilities regardless of the situation. As the landlord, you are required to provide access to basic utilities such as water, electricity, heat, and gas. Hence, even if your tenant defaults on their rent, you cannot shut off their utilities to coerce them to pay up.
What if the tenant refuses to pay for utilities?
If the utilities are set up under your name, you will have to continue paying for your tenant’s utilities. However, if the utilities are set up under the tenant’s name, that’s their responsibility.
What’s the best way to pay for utilities?
Paying for utilities can be a problem, especially for multi-family property owners. Whether or not you choose to include utilities in the rent, it’s still inconvenient for both you and the tenant. You’ll have to access the utility company’s portal and pay for services separately.
That’s why many property managers use a third-party utility management platform. It collects utility bills and immediately invoices tenants, reducing the time that property managers and owners spend on managing their tenant’s payments. Plus, it provides tenants with their payment history and helps them reduce their consumption.
Have you considered hiring a property management company?
If you’re working with a property management company, they’re probably using a utility management platform. At Luxury Property Care, we use AppFolio to conveniently collect payments from tenants. That way, tenants don’t have to take the trouble to log in to the utility company’s portal. Electronic payments make it easier for them to pay on time.
As real estate experts, we understand that today’s tenants need technology. By showing your prospective tenants that we’ve thought about their convenience, they’re more likely to sign the lease and stay for the long term. With a reliable utility payment portal in place, we can provide your tenants with the positive experience that they’re looking for