PROPERTY MANAGEMENT 101: Should I Require My Tenants To Pay Water and Sewer Bills?

THERE'S GREAT RISK IN PASSING PUBLIC UTILITIES TO TENANTS

A question we'e getting more and more in recent months from incoming property owners is whether or not they can make life easy and just have the water and sewer bills paid by the tenants. In the current environment where the cost of everything continues to rise, we certainly understand where the question is coming from. However, it's risky to place these public utilities in anyone else's name because they're tied directly to your property and if the tenant doesn't pay that bill, the city/town will put a lien on your property. In fact, there are many municipalities that won't even allow this. In reality, your best bet is to try to work those anticipated costs into your base rent price.

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PUBLIC vs. PRIVATE

Let's first tease out that you should absolutely require tenants to cover private utilities whenever possible. Private utilities include heat, electricity, wifi, etc. Those contracts are with private companies and there's no need for a landlord to be involved, unless you have shared meters or some other circumstance that makes it difficult to parse these out accurately to each tenant. When we talk public utilities, we're talking about services provided by a government entity. To pass these on to someone else puts your property at risk. We've actually seen cases where owners required tenants to take on water and sewer and then when the owner called to inquire, the town wouldn't answer his questions...because his name was no longer on the account.

WHAT IF THEY USE A BUNCH OF WATER...IF THEY'RE NOT PAYING, THERE'S NO INCENTIVE TO CONSERVE???

At face value, that is true. It's simply part of the game that tenants are going to use water, and the idea that they have to pay so they'll turn water off in between brushing their teeth or take shorter showers, doesn't typically play out and that's not where expenses accrue anyway. But a strong relationship, fostered by a quality property manager, can help minimize extra usage or carelessness. There are also levers and language that can be added to leases to strengthen restrictions around usage. If usage does spike it's usually one of two things: 1) there's a leaking toilet...which is important information for you to be aware of first hand; or 2) they're filling pools in the summer, which again, should be addressed in lease language.

WHAT'S THE WORST THAT COULD HAPPEN?

Well...it certainly varies from municipality to municipality, but let's first start with that leaking toilet example from above. If the bills were under your purview, you'd notice the spike and address it by fixing the toilet. If it's under someone else's they may not be as attentive, and what starts out as a minor leak could develop into something much more serious. If the leak is internal there could be damage within your walls that goes unnoticed for months or years, until the fix is far more costly.

Much more commonly, unpaid bills that were in tenants' names will still be around after those tenants move on. Owed money typically accrues interest and you're not going to find out about it until the account comes back to you, whenever that might be.

CONCLUSION

In short, there's a reason why the industry standard is that owners hold onto the responsibility for paying water and sewer bills. Strong relationships and quality management will mitigate risks while incentive-driven thinking around this particular issue, just doesn't pan out.

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Jesse Mayo is the Owner and General Manager of Nexus' Worcester Office. He has been investing in local real estate for over a decade and has been managing property for just as long.

Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

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