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Home · Property Management · Latest News : Multifamily Owners: Including Utilities May Be Killing Your Profits – Learn How to Protect Your NOI

By Todd A. Brehe

landlord helpIf your multifamily complex includes utilities in the rental fee, brace yourself. Utility cost increases are coming your way that may erode your hard-earned profits.

Even more concerning is that you’re responsible for a sizable expense that you have little or no control over.

The “utilities included” model puts you squarely at the financial mercy of tenants, their usage tendencies, and utility companies. “Utilities included” also means that you have to be an accurate budget forecaster to ensure that your rental rates cover the annual utility expenses. Miss the mark and it’s you who’ll pay.

The exciting news is that you can quickly and easily change this situation by separating utilities from the rent fee and billing tenants directly–at no cost to you. By doing this, you’ll make a positive and immediate impact on your net operating income (NOI) and the value of your property. From a price perspective, your complex will be more appealing to prospective tenants and you’ll have effectively removed yourself from the utility equation altogether. Billing residents means no more worrying about the effects of runaway tenant usage and it leads to higher profits.

The sooner you get started the better, especially given the trajectory of utility rates. They seem only to move in one directionup! Water rates for multifamily owners in Houston have increased by 30% this year alone. In New York City, water rates are up nearly 13% and in Milwaukee, they’re projected to rise 27%. In Jacksonville, utility rates will increase 9%. Owners who can’t adjust rents fast enough to cover the increased costs take a direct hit to their revenues.

Tenant utility abuse is another reason why apartment owners and property managers should look closely at resident utility billing. You’ve probably leased to the tenant who kicks his thermostat up to “high” during the winter and then opens a window so that he can have fresh air. Or you’ve rented to the tenant who leaves the air conditioning up all day long so that she can come home to a cool house in the evening.

Clearly, these are examples of costly and wasteful ways to use heating and cooling. The tenant, however, does not bear the cost of this elevated consumption. What’s also problematic is that tenants figure they can use utilities in any way they deem acceptable because “utilities are included.” In their minds, they’re already paying for these expenses.

Another intrinsic flaw of the “utilities included” model is that it offers no financial incentive for tenants to notify property management when maintenance problems occur. Water leaks are a perfect example. A broken toilet flapper can waste hundreds of gallons of water in a short amount of time. The owner relies on the tenant to inform the maintenance team when an issue like this arises. Tenants, however, aren’t paying directly for the water bill so there’s less incentive for them to respond quicklyif at all.

Are You An Expert Budget-er? If you include utilities at your multifamily complex, you’re already familiar with the never-ending budgeting game. To ensure that you cover utility costs, you’ll have to accurately answer questions like:

What percentage will utility rates increase this year?
Where should I set my rents to make sure I don’t lose money?
How much water, gas, and electricity will residents use?
How can I cover utility expenses and still keep my rents competitive?

Some owners choose to set their rents high enough so that, no matter what, utility costs get paid. This can have a negative effect on your occupancy rate, however, by putting your complex at the upper end of the price curve and making it less attractive to prospective renters. The flip side is that if you set your rents too low, you risk losing money.

Nervous About Changing?

Some property managers and owners have initial concerns about separating utilities from the rent and billing tenants directly. They worry that renters will leave or that it will make their apartments less appealing than their competitors who do include utilities. It’s worthwhile then to consider how a prospective tenant might evaluate two different apartments–one with utilities included and one with a resident utility billing program.

Assume you offer a two bedroom apartment for $750 per month (resident-paid utilities) and another complex down the road offers a two bedroom unit for $800 per month (utilities included). Your complex will naturally be more appealing from a rental price perspective, and everything else being equal, will see more traffic. But your property is also more advantageous from a total housing cost perspective too. Here’s why.

When residents are billed for utilities directly, whether through a Ratio Utility Billing System (RUBS) or via utility submeters, they can influence their own monthly housing costs. If they conserve utilities, their bills will be lower. And if residents quickly report maintenance issues and minimize wasteful usage, everyone’s utility bills will decrease.

The Financial Impact of Converting to Tenant-Paid UtilitiesAn analysis of the financial benefits of billing tenants for utilities is worthwhile. Assume you have a 150 unit complex and the monthly water bill is $6,300. If you can transition 80% of this bill back to tenants, you will realize:


Monthly savings: 80% x $6,300 = $5,040
Yearly savings: 12 mos. x $5,040 = $60,480

What do you have to invest to achieve these savings? Nothing more than your time. And if you use a third party utility billing provider, the time requirement is next to nothing.

It’s Easier Than You ThinkThe exciting news for owners is that you can quickly and easily separate utilities from the rent and bill tenants directly for water, gas, and/or electricity. You can even include trash, cable, Internet, rent or other recurring fees on the bill to make paying simpler for tenants.


The two most widely used methods for multifamily utility billing are:

RUBS billings
Submetered billings

RUBS or “Ratio Utility Billing System” is a method of allocating utility costs to tenants based on number of occupants, size of the apartment, or some other factor. Submetered billings require that a utility metering system be installed to directly measure tenant usage. This usage data is used to calculate resident bills.

RUBS is a Great Way to Start

The fastest, least expensive way to transition utility expenses back to residents is to implement a RUBS. Here are the steps:

#1 – Research utility billing regulations in your state, county, and city

While most states approach resident utility billing in a similar way, a few states have unique rules. For example, in Colorado, as long as an owner has a signed lease in place stating that residents can be billed for utilities, the entire amount of the master-metered bill can be allocated back. The owner does not have to take a common area deduction of any kind.

In Texas, however, not only do you need a lease agreement signed by the tenant permitting utility billing, the Texas Commission on Environmental Quality (TCEQ) specifies the way bills are to be calculated and the deductions owners must take.

Either research the regulatory laws where your complex is located, or rely on your third party billing provider to perform this task. If you conduct your own research, your local or state apartment association is a helpful place to start.

#2 – Have residents sign a new lease or lease addendum Each resident must sign a lease agreeing that the owner/property manager can bill for utilities. At a minimum, the lease addendum should include: how bills will be calculated, when payments are due, any common area deductions (CADs). A sample lease addendum from the TCEQ is listed at the end of this article.

#3 – Setup the billing process To initiate resident billing for water, for example, you’ll need mailing information, occupancy figures for each household, and copies of the master-meter water bills. Each month you will review updated move-in/move-out data to ensure that you are billing the proper tenants.

Use the information (above) to calculate tenant bills. Establish a billing schedule. For example:

Billing period – 5th to the 5th. You want these dates to coincide with the master-meter billing period.
Delivery date – Bills will be mailed on the 10th
Due date – Bills are due on the 25th
Past due notification date – Late letters will be sent on the 30th

#4 – Notify tenants We recommend notifying tenants in advance of sending the first bill and clearly describing how the process will be administered. Be sure to include accurate contact information and describe how the bills will be calculated. Some property managers host community Q&A sessions to provide a forum for residents to ask questions and encourage a smooth transition.

#5 – Send the first utility bills When you send the first bills, make sure resident support is available. We recommend offering different payment options so that tenants can pay by mail, telephone, or online via the Internet. Clearly define who payments should be made out to and where those payments should be delivered.

#6 – Process payments and manage past due accountsProcessing payments, keeping up with collections, and generating management reports is a labor and time intensive process. An accounting system or utility billing application will be useful to track your financial transactions. Be vigilant about notifying tenants when they are past due as this will improve collections.


Conclusion There’s a real opportunity for multifamily owners and property managers, who currently include utilities in their rental fees, to improve their profits. By separating utility costs and billing tenants directly, owners can increase the value of their properties, insulate themselves from rising utility prices, and benefit tenants. Third party billing providers can help you get started quickly, competently manage the process on your behalf, and enable your staff members to focus on other important duties.

To download a PDF copy of this article, click here.

Attachment #1 – TCEQ Sample Lease Addendum for Allocating Water/Wastewater Costs

1. Addendum. This is an addendum to the TAA Lease Contract for Apt. No. ___________________ in the _____________________________________ Apartments in _________________________________, Texas.

2. Reason for allocation. When water and wastewater bills are paid 100 percent by the property owner, residents have no incentive to conserve water. This results in a waste of our state’s natural resources and adds to the overhead of the property-and that usually means higher rents. Allocation of water bills saves money for residents because it encourages them to conserve water and wastewater. We as owners also have incentive to conserve because we are required by law to pay a portion of the total water bill(s) for the entire apartment community.

3. Your payment due date. Payment of your allocated water/wastewater bill is due 16 days after the date it is postmarked or hand delivered to your apartment. You agree to mail or deliver payment to the place indicated on your bill so that payment is received no later than the due date. You will pay a late charge of 5 percent of your water/wastewater bill if we don’t receive timely payment. If you are late in paying the water bill, we may not cut off your water; but we may immediately exercise all other lawful remedies, including eviction-just like late payment of rent.

4. Allocation procedures. Your monthly rent under the TAA Lease Contract does not include a charge for water and wastewater. We may include this item as a separate and distinct charge as part of a multi-item bill. Instead, you will be receiving a separate bill from us each month for such utilities. We will allocate the monthly mastermeter water/wastewater bill(s) for the apartment community, based on an allocation method approved by the Texas Commission on Environmental Quality (TCEQ) and described below. The allocation method that we will use in calculating your bill is noted below and described in the following subdivision of Section 291.124(e)(2)(A) of the TCEQ rules (check only one):

subdivision (i) actual occupancy;
subdivision (ii) ratio occupancy (TCEQ average for number of occupants in unit);
subdivision (iii) average occupancy (TCEQ ave. for no. of bedrooms in unit);
subdivision (iv) combination of occupancy and square feet of the apartment; or
subdivision (v) submetered hot/cold water, ratio to total.

The normal date on which the utility company sends its monthly bill to us for the water/wastewater mastermeter is about the ______ day of the month. Within 10 days thereafter, we will try to allocate that mastermeter bill among our residents by allocated billings.

5. Common area deduction. We will calculate your allocated share of the mastermetered water/wastewater bill according to TCEQ rules. Before calculating your portion of the bill, we will deduct for irrigation of landscaping and all other common area uses, as required by TCEQ rules. We will also deduct for any utility company base charges and customer service charges so that you won’t be paying any part of such charges for vacant units. No administrative or other fees will be added to the total mastermeter water/wastewater bill(s) to be allocated unless expressly allowed by TCEQ rules. No other amounts will be included in the bill except your unpaid balances and any late fees you incur. If we fail to pay our mastermeter bill to the utility company on time and incur penalties or interest, no portion of such amounts will be included in your bill.

6. Change of allocation formula. The above allocation formula for determining your share of the mastermetered water/wastewater bill cannot be changed except as follows:

(1) the new formula is one approved by the TCEQ;

(2) you receive notice of the new formula at least 35 days before it takes effect; and

(3) you agree to the change in a signed lease renewal or signed mutual agreement.

7. Previous average. As required under TCEQ rules, you are notified that the average monthly bill for all dwelling units in the previous calendar year was $_______ per unit, varying from $_______ to $_______ for the lowest to highest month’s bills for any unit in the apartment community for this period, if such information is available. The above amounts do not reflect future changes in utility company water rates, weather variations, total water consumption, residents’ water consumption habits, etc.

8. Right to examine records. During regular weekday office hours, you may examine:

(1) our water/wastewater bills from the utility company;

(2) our calculations of your monthly allocations; and

(3) any other information available to you under TCEQ rules. Please give us reasonable advance notice to gather the data. Any disputes relating to the computation of your bill will be between you and us.

9. TCEQ. Water allocation billing is regulated by the TCEQ, which has published a summary of the rules (called a tenant guide). A copy of this summary or a copy of the rules is attached. This addendum complies with those rules.

10. Conservation efforts. We agree to use our best efforts to repair any water leaks inside or outside your apartment no later than 7 days after learning of them. You agree to use your best efforts to conserve water and notify us of leaks.

ABOUT or call (877) 410-0167.Article Source:

American Conservation & Billing Solutions Inc. (AmCoBi) is the lowest-cost, highest-quality utility billing services provider in the multifamily industry. We also design, install and service water, electric, heat, and gas submetering systems. AmCoBi delivers exemplary service and takes complete responsibility for the entire billing processno excuses. We help multifamily owners and property management firms maximize profitability by improving cash flow and reducing operating expenses. Visit:


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  • lgwest

    My brother and I have charged utilities separately for the last 3 years for the reasons above and more. We inherited a house in Berkeley Ca., I occupy 4 bedroom house along with 3 tenants, (we are near the University).
    When you share a house with tenants, you become very aware of everyone’s utility usage. We had see how erratic utilities were with droughts and so forth the last few years.
    While It’s fairly common in a college town for people to rent out a bedroom or 2, (having the added benefit of avoiding rent control laws) whats less common is our mom having installed mini kitchens in 3 (mostly large) bedrooms.
    Charging utilities separately has also part of being a “green” household-we are all stake holders together, (everyone pays a share plus a share for common areas)
    Because everyone recycles, we have just been able to reduce the size trash and save $100 per year.

  • Eddie

    This is completely illegal in New York State for residential properties. New York has a Shared Meter Law, which outlaws the use of one utility meter for two households, unless the landlord foots the utility bill. Penalties are oppressive and include paying the tenant triple the charges as well as tens of thousands in fines.

    Reselling utilities is also illegal.

    On two family homes, if the landlord has any “jointly used utilities” like an outside light or on oil boiler that serves two units, a third electric meter must be added, so tenants are not paying for any electric enjoyed by others.

    With minimal electric charges for a single account approaching $100 monthly, this gets expensive.

    A complaint by a tenant requires you to provide access to the utility’s workers to check each outlet and light to determine if a shared meter exists.

    What we must do here is buy permits and have licensed people split the utilities with separate meters and separate accounts. With permits easily costing $3000 per unit — it’s costly.

    I hate New York.

  • Joe

    Illegal in Los Angeles. Tried it and got a call from the Housing Authority threatening to file a complaint on behalf of tenants. I’m drowning in utility cost increasing. Can’t debt service my building of 22 years due to rental increases (3%), not keeping pace to utility costs (8%).

  • Cheryl

    Eddie, I find it outrageous that the cost for splitting utilities in New York is so much…something like Washington. I have the same problem here. I don’t know what the laws are on charging tenants for utilities. Who do I ask? Where do I find out these laws?


  • Ron in Colorao

    Try this on for size.

    I have several rentals in Aurora, Colo. (A suburb of Denver) The houses, have their own water meter. My lease states the tenant is responsible to pay for all utilities. If the tenant decides to move out, they can stop paying the water bill for several months. The city won’t shut the water off if the tenant pays a minimum payment every 60 days. They rack up a huge water bill and then moves out (or evicted). The city will not place the water bill into the new tenant’s name until the landlord pays the outstanding balance. In August 2009 I had to pay a $427 bill. Then (get this) the city then gives the tenant who left the bill for the landlord to pay, a clean payment record.

    The city states the water bill stays with the property. What does that mean? The gas/electric, telephone, cable, internet, etc. company’s can’t do this!! Only the people who work for the govt. Gee go figure!!

    Eddie, you hate New York?. I loathe Aurora.

  • Cheryl

    Okay, this is it. Can’t we do something about this-as Landlords? I have started to check utilities on one of my houses where the tenant is responsible for all utilities because she doesn’t always pay the water bill. I have to keep up with her just to make sure that she is current and that I won’t have to pay, incase she skips out…
    Stand up Landlords! Are any of you Landlords attorneys, politicians, or sympathetic to this wrong? It’s always “the poor tenants”. But who pays their way and cleans up their mess.

  • Ron in Colorao

    Here’s another story about the arrogance of politicians/govt. I had a tenant storing personal items on the outside of the house. Not trash, just stuff. The City of Aurora told me if I didn’t confiscate these items and get rid of them, I would could face fine of $1000!!! I’m flabbergasted that I (a private citizen) can confiscate the personal property of another private citizen!! I was taught that only a govt agency WITH the blessing of a judge could do that! I tried to discuss these two issues with my city council person and she just point her finger at me and stated it was ultimately my responsibility.

    When you said ‘Stand up Landlords!’ I agree 10,000%. However I feel helpless because everyone I talked to about these issues don’t care because it not happening to them. But they get a ticket for jaywalking and they get mad because no one will help them!!

    I’m stocking up on Shellac for the 2012 elections. What else can I(we) do?

  • utilitybillexperience

    @ Ron in Colorado –

    Water is a lienable utility in Colorado. That means if the bill goes unpaid, they can put a lien against the property so that the amount must be paid through the property taxes (usually as a special assessment, depends on state regulations).

    Where utilities are lienable, the billing companies like to keep the bill in the property owner’s name, as the property owner is ultimately responsible (because of the lien process). There are municipalities in Michigan that require an upfront $300 or more fee before they will put sewer in a tenant’s name, because Sewer is a lienable utility and they would prefer not to have to track the property owner separately. (And that is a FEE – not a Deposit – it is not refundable.)

    One way to deal with this is to leave the water bill in your own name – and collect for the bill at the same time you collect the rent. Collect it as a separate amount (separate receipt!) and furnish your tenant with a copy of the bill (check local and state regulations first to make sure this is legal and how it affects the ability to evict). If allowed, I would add a clause to the lease that an unpaid utility bill is grounds for eviction. With the bill coming to you first, you know how much it is and if you collect for the bill you know whether it is paid. This will also help you keep track of usage and be aware of possible leaks or problems with the fixtures (running toilets).

  • Ron in Colorao

    @ – utilitybillexperience

    Thanks for making my point about how the only utility that is lienable is a utility run by a govt agency. Too bad landlords can’t go to politicians and say “Your constituent moved out owing me rent. Pay it! It’s your responsibility!” Both scenarios are absurd!

    A city council ‘jerk’ recommend the same idea you did about collecting the utility bill directly from the tenant. OK, let take a closer look at that! If the tenant decides to move out, they stop paying rent a month in advance. Subsequently, therefore and absolutely the tenant will stop paying the utility reimbursement to the landlord. The landlord can not turn off the water. If the tenant knows how to use the legal system, an eviction can take up to 3 months. That’s 3 months of lost rent, and now utilities, and now the tenants will be teaching the landlord a lesson for having the audacity to actually ask for rent money. They will sell appliances, ripping out carpet and knocking holes in the walls, etc,etc,etc.

    Let me guess. You work for the government don’t you!! You have the same mind set. ‘IT’S NOT MY FAULT. WHO IN THE PRIVATE SECTOR CAN WE BLAME FOR MY INCOMPETENCE !!!!’

  • Carole Glickstein

    I need help in finding a oganization that protects landlords from getting a CO to rent an apartment, for no apparent reason (personal, potical< or somekind of bias not pretaining to condition of apartment.
    Thank you

  • Pat in New York

    To Eddie, Ron, and All of You: I am Pat from New York. I just ran across this site by accident. I owned several properties in New York that are in distress. My adult children resides in 2 of the properties and are fullly aware of the situation. There purpose for being there was because of the situation and to pay rent that would cover the monthly mortgage payment that the mortgage company/bank agreed to accept. Needless to say it didn’t turn out that way. In one house where they are and have used the utilities, refused to pay toward the utilities without the bill. They were given the bill and still haven’t paid the utilities used and still no RENT either. My daughter said she could only afford a certain amount for rent and said she rather pay me for a room in my house that it would help her and me at the same time. Well needless to say thought is was a good idea but her renting a room rent to the utilizing of the entire house as though she could afford to rent a house. In addition every riff raff you could think of began coming around. I asked her, if these people were such friends or acquaintances that cared for her, where were they all the time she was out there without a roof over her head and not a dime in her pocket. She don’t see anything wrong with this picture. By the way, there is a son that resides in this house with her. I issued a 7 day notice that stirred up (a hidden hornets nest). As her mother she believes I’m doing her wrong because I don’t agree with her method of how and when she plans on paying rent. In the meantime the lights were cut off for non-payment and now she feels she shouldn’t pay for staying in a place without electricity (YET SHE STAYS THERE EVEN WITHOUT ELECTRICITY). She left a long message that narrows down to “We’ll go through the LEGAL process.) The son(STAYS THERE TOO, BUT EASES IN AND OUT).

    At the other house is another daughter with an 8 year old son. She with her son and boyfriend came asking to stay in the house and being able to only afford so much and they would cover their utilities. I notified the mortgage company as to the amount I would be getting from them & as to the amount I would be able to send. They were willing to work with me. Well I may have gotten a month of rent from them, maybe. It’s a single family house and has 2 electric meters. This is how it was when I purchased the house. The main floor (1st floor) that they’re on and a finished basement that the town says is a cellar (where a few items are stored but nothing requiring electric use). I have an oil fired boiler heating system & an electric hot water tank that’s been there since I’ve owned the house since about 1992 maybe 94. I received a bill for over $800 for the basement meter around March of this year (2011). I contacted the utility company and they initiated an investigation. My utility company tells me that I have something called a shared meter; that both the meters/the utilities have to be put in my name; that they have to go back 12 months and calculate what I owe the tenant; and that I will have 120 days to correct the matter unless I could prove financial hardship. I asked them how could there be what’s called a shared meter when there separate meters for each floor and more importantly why all of a sudden after all these years I’m just hearing of this “shared meter” situation. Could it be ’cause I disputed this bill. The house hasn’t changed, the structure hasn’t changed and the same dawn to dusk sensored light hasn’t changed that my fire department says to keep lit to ward off undesirables. So why should there be an $800 bill and the same circuit breakers that’s been on to service the outdoor lighting is also the same. My daughter and her boyfriend haven’t paid rent in over 8 months; they don’t work; she was fired after about a month at the job her sister helped her get. And my utility company is trying to tell me I have to pay her. Their lights were disconnected and somehow she got them turned back on. She broke my window leading to the basement and turned the breakers back on. Do you believe such a thing. And forget about help from politicians or anyone. Like you all say, if they’re not having the problem it’s monkey don’t see, monkey don’t hear and monkey sure don’t care. Would love to hear from you all.

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