When it comes to utilities, choosing what to cover and what to have your tenants pay is based on several factors ranging from the type of property you are managing (single, detached house? Multi-unit apartment complex?) to the age of your property and whether it has individual meters for every unit. For those utilities you’d like placed in your tenant’s name, you want to have an air-tight plan in place for ensuring that they accomplish that transfer in a timely fashion. And of course, for those that fail to make the transfer, you’ll want a backup plan.
The Importance of Your Lease Agreement
Utility assignment should be addressed in your lease agreement, whether you’re signing a commercial, residential, or some other property. Heck, even if you’re renting a lot of land with no active utilities, stipulate who is in charge. You never know what will change!
You want to make sure your agreement specifies not just how the utilities will be managed and who will pay for them, but the date by which you expect tenants to have transferred the utilities into their names and what will happen in the event that they fail to make the transfer on-time. Being specific here underscores the importance of these matters to your tenants. It also provides you protection if your tenants try to dispute additional charges you may send their way if they fail to transfer (more on that in a moment).
The Importance of Strong Communication
Your lease may be air-tight, but if your tenants don’t understand the document they signed, it’s still a headache waiting to happen. We’ve said before that you don’t want to let the lease speak for itself, and miscommunication over utilities is a good example of why not. It’s possible that your tenants haven’t switched utilities to their name because they don’t realize it’s their responsibility. There could also be extenuating circumstances from tenants who, if not for some personal crisis, logistical snafu with the utilities company or some other situation, would have taken care of it within the expected window.
And, if the tenants don’t realize it’s their responsibility, they may not expect additional charges to cover the period when they should have switched the utilities to their own name. Follow-up correspondence reminding the tenants of their responsibility before move-in can go a long way. Being warm, friendly and helpful in your communication also makes your tenants feel welcome and supported. You don’t need to be friends with your tenants (in fact, sometimes it’s best not to be), but if they like and respect you, they’ll do the same to your property.
No Transfer, No Keys
One way to prevent this situation from happening altogether is to implement a “no transfer, no keys” modus operandi in which you inform tenants upfront that they can’t move in until they prove that they have transferred the utilities into their name. This prevents a problem before it even begins. In this situation it’s even more critical that you remind the tenant of your policy leading up to move-in. A tenant with a truck full of their belongings that finds out by surprise that they can’t move into their new unit is not a happy tenant. And as always, if this is your chosen approach, it should be spelled out explicitly in your lease agreement.
What to Do If Your Tenants Haven’t Made the Switch
If you let your tenants move in and they fail to transfer the utilities into their name, you’ll need to decide what to do. You can stop service to the building, you can stop paying the bills, or you can continue to pay the bills and add the charges to your tenant’s rental amount. We recommend you keep the lights on.
Stopping Service to the Building
Stopping service to the building or unit can be a viable solution. If it’s the middle of the fall and temperatures are mild, your tenants aren’t going to suffer from heat stroke or hypothermia. You are probably safe to do so.
Keep Making the Payments on the Utilities Bills
While your lease agreement may specify in no uncertain terms that the utilities are the responsibility of the tenants while they live in the unit, state law may indicate that the property owner is ultimately responsible for outstanding dues on some types of utilities (whereas other utilities may ultimately be the responsibility of the tenant). And state law may prevent utility companies from discontinuing services for items like heat under certain weather circumstances. In this case, not paying won’t solve your problem. If you do stop paying and the utilities are shut off, you could cause damage to the building (frozen pipes, for example), and it won’t necessarily result in your tenant’s departure. Not paying the utility bills could also damage your credit score. And, if the bills remain unpaid, the city or even your utilities provider (if it is a subsidiary of the government) could put a lien on your property – never good for business.
It’s true that if you continue paying the utilities while you wait for your renters to make the transfer, you must pay for the utilities from your own funds, which means you have to have enough cash flow to be able to cover it. While you front the money, your tenants continue enjoying the benefits of utilities for which they have yet to pay. You also risk not getting the money back or resorting to a lawsuit if your tenants refuse to make the switch or refuse to pack back what they owe.
Still, it’s a good idea to keep paying the bills. If taking care of utilities is a matter of mitigating circumstances (your tenants are well-intentioned but are dealing with a sudden emergency), they are struggling to get the particulars sorted out with the utilities company, or they simply didn’t realize it was their responsibility, and then they make an effort to get it sorted out upon notice from you and pay any additional fees to cover past dues from their tenancy, you can skip all the potential problems that could pop up from discontinuing payments. Although discontinuing payments may feel just and may inspire the results you are seeking, shutting off utilities can be legally dicey, and all you are really doing is roping in the utilities company, making what could be a small snafu and guaranteeing that it becomes a much more stressful problem with more participants.
Collect Funds for the Utilities You Pay
Once you’ve made the utilities payment, you need to get in contact with your tenants and notify them that it is their responsibility to transfer the utilities in their names and then pay for those items themselves. When you get in touch with your tenants, you also want to provide them with a copy of the most recent month’s utilities charges and inform them that these charges will be added to what they owe for the next rent payment. You also need to remind them that this isn’t something on which they can stall indefinitely — that your lease agreement specifies that managing these utilities independently during their tenure is a condition of being permitted to continue living there. Remember, this isn’t personal. If your tenants didn’t transfer their names because of a misunderstanding or an emergency that has held them up, this won’t be an issue. If your tenants were hoping or expecting that they could dictate how utilities will be managed despite what they agreed to in the lease, this correspondence from you should remind them that the lease is legally binding, and they have an obligation to comply.
If your tenants plan to continue living in your unit, then ideally you would collect these funds as an addition to what they pay in rent. However, if your tenants are on their way out and have outstanding dues from items like utilities that they never paid, you could also recover those funds from the security deposit. The laws around what landlords can withhold in the security deposit varies state by state, but generally that is an option, and you can bill your tenants separately for any amount that the security deposit does not cover.
What to Do If Your Tenants Refuse to Pay
If you are in a spot with renters who refuse to transfer utilities in their names, refuse to pay what they owe on past utilities bills, or both, then you have the option of beginning eviction proceedings (assuming that this noncompliance is a violation of the lease agreement). You could also withhold funds in the security deposit, or possibly sue your tenants to recover that money in court.
Regardless of your situation, you’ll want to check the state and local laws that affect your situation and your options and consult an attorney if you encounter any uncertainties, need advice or need representation. An ironclad lease can go a long way in protecting you from any shady business. Again, one way to prevent any of this from happening is to initiate a “no transfer, no keys” protocol that is clearly outlined in your lease agreement, so you aren’t stuck with the bills.