To prevent misunderstandings with tenants, your lease or rental agreement includes a detailed clause as to who’s responsible for various utilities, including:
Normally, landlords pay for garbage, and sometimes for water, particularly if there’s a yard, and tenants pay for everything else. The exception is single-family house rentals when tenants may pay for all utilities.
Prospective tenants will probably ask about the costs of utilities before they even sign a lease or rental agreement, because these services can add hundreds of dollars per month to the tenant’s budget.
Here are some utility-related issues to consider before setting your rental policies.
Having tenants pay for their water usage has become a popular way for landlords to recoup their water costs. The best method is to have the water company install meters for each unit, so that each household pays the utility directly. This is usually feasible in new construction, but not practical as a retrofit. As an alternative, some landlords contract with a submetering company to install submeters, which transmit a rental unit’s water usage directly to the company via digital signals; the company bills each household directly, and the landlord pays an administrative fee for the submetering service. Be sure to do your homework before arranging for water submetering, because some states disallow this altogether. Start by checking with the water company that serves your rental property. You can find a comprehensive list of water districts and agencies at utilityconnections.com.
Ideally, there should be separate gas and electric meters for each rental unit. If that’s not the case, or if a tenant’s meter measures gas or electricity used in areas outside of the tenant’s rental units (such as a water heater that serves several apartments or lighting in a common area), you should disclose this in your lease or rental agreement. This type of law is required by law in some states. For example, state law in California requires landlords to notify all prospective tenants, before they move in, if their gas or electric meter serves any area outside of their dwelling. (CC § 1940.9.) See your state disclosure laws for details, available in the Nolo articles, Required Landlord Disclosure Laws by State.
The best solution is to put in a separate meter for areas served outside a tenant’s rental unit. If you don’t do that, you should pay for utilities for the tenant’s meter yourself by placing that utility in your name.