Should Landlords or Tenants Pay for Utilities?
As you’re getting ready to rent your property, you may be wondering how to handle utilities. This article will help you decide who should pay for utilities, what laws you need to know, how to address utilities in your lease, and what to do if a tenant doesn’t pay for utilities.
Why are Utilities Important?
Utilities make your rental property habitable. Tenants need running water, heat, and trash collection. You are required by law to provide your tenants access to utilities.
Is it an Important Decision Whether or Not You Pay for Utilities?
Yes, because this decision will impact your rent price, how many bills you are paying, and ultimately how much profit you make from your rental property.
Here’s a complete list of utilities to consider:
- Natural gas
- Trash collection
- Water and sewer
- Internet, cable, and telephone
- Security or alarm system
How to Decide Which Utilities You’ll Pay For
Here are 5 factors to consider as you decide how to handle utilities:
Setting your rent price and deciding what’s included in rent go hand-in-hand. You’ll want to set a rent price that reflects what you are offering. You may be including:
If you’re including these perks, you should raise your rent price to reflect the value added. You’ll want to set your rent price so it makes sense given the time of year, rental demand, and what other properties in the area are listed for.
Interest in Your Rental Listing
Your rent price and what’s included will influence how many people are interested in your rental listing. The more that is included in the price, the more appealing the price is. Tenants feel like they’re getting a good deal when they see utilities are included. You’re also providing them the convenience of not having to set up utilities, and not having to pay additional bills each month.
Above all, you should make sure your price makes sense in your rental market, whether you’re including utilities or not.
Click here to learn our strategy for building an effective rental listing that maximizes tenant interest.
If You Want Control Over Utilities
Making tenants responsible for utilities can ease some responsibility for you; however, you may be concerned about heat going out in the winter or other inconveniences. Having functioning utilities is important to the maintenance of your property. For this reason, you may be inclined to have all the utilities in your name, increase your rent price, and let your tenants know that you’re handling it.
Convenience for Tenants
Some utilities add convenience or something ‘extra’ for tenants. These are utilities such as cable, internet, telephone, and alarm systems. It makes sense to have tenants be responsible for any utilities they want, but may not absolutely need.
That being said, you may want to consider including these as additional perks in your rent price. Adding additional things that are included can justify a higher rent price, and even make your rent price more appealing because it includes perks, added convenience, or an amenity.
How Most Landlords Handle Utilities
Best practice differs based on location and circumstance. Below we’ve listed what we commonly see at Rentalutions.
Utility Paid By Water and Sewer Landlord Trash Collection Landlord Internet and Cable Tenant Security and Alarm System Tenant Natural Gas Depends Electricity Depends
It’s common for landlords to include water and trash because these can be difficult to transfer from individual to individual. It’s also potentially risky to not have water flowing through your pipes, especially in the winter. You want to make sure everything consistently works.
We recommend checking other rental listings in your area to find out what landlords are doing. You should check what rent prices are for similar units near you and see if landlords are including utilities or not. You don’t have to do what other landlords are doing, but it helps to make sure your price and what’s included makes sense in your market. Tenants will be comparing your rental listing to similar listings in your area, and you want to make sure you’re generating interest.
What If You Want to Pay For All Utilities?
If you’re paying for all utilities, you have a few options:
- Increase your rent price and bundle utilities and rent.
- Charge a flat monthly fee for utilities (you’ll want this to be the average utility cost each month).
- Invoice your tenants for the utility bill each month so it perfectly matches how much they use.
There are pros and cons to each, but we recommend including it in the rent price. That way, you won’t need to collect additional money on top of rent, which is more difficult for you and your tenants.
It’s possible that your tenant will misuse the utilities if it’s included in rent, since they’re not paying for it. For example, they could make the unit cold in the summer, which would raise the cost of air conditioning. This is a risk of including utilities; however, it’s rare for tenants to misuse utilities. Ultimately, tenants want the unit to be comfortable. One good way to avoid high costs is to raise your rent price enough to cover expensive utility use.
Laws on Utilities
Landlord-tenant laws differ state-by-state. For complete information on handling utilities in your state, we recommend searching for your state and local laws online, or speaking with a landlord-tenant lawyer.
Below, you’ll find common laws on utilities:
Make Sure the Unit is Safe and Habitable
Overall, landlord-tenant laws want to make sure that the rental property is safe and habitable for tenants. This includes having proper heat in the winter and making sure that everything is up to code.
Keep the Unit at or Above 65 Degrees Fahrenheit
This is important because you want to provide a safe and comfortable temperature for your tenants, and you don’t want your pipes to freeze in the winter.
Don’t Shut Off Utilities
In the case of an eviction, or any situation, you cannot turn off the utilities in your rental property as a way to get tenants to leave. You need to follow the legal eviction process in your city. You can learn more about breaking a rental lease and grounds for eviction here.
How to Address Utilities in Your Rental Lease
Here are three clauses to include in your rental lease agreement.
In this clause, you should:
- List which utilities are the tenants’ responsibility
- State that these utilities should be in the tenants’ names
- State that these utilities need to be active for the duration of the lease
Heat and Hot Water Clause
This clauses says you agree to provide access to heat and hot water. Your clause on heat and hot water should also specify who will pay for heat. While you’re legally required to provide access to heat and hot water, it may be the tenant’s responsibility to set it up and pay for it.
The Lessee to Maintain Clause
Your lease should have a Lessee to Maintain clause, which says tenants cannot misuse or neglect water, gas, or other utilities on the premise. Check out more important clauses your rental lease should have.
What Should You Do if a Tenant Doesn’t Pay for Utilities?
Tenants should set up utilities in their names if they’re paying. If it’s set up in their names, then it’s not your responsibility to pay if they don’t pay. That being said, if it’s a utility like heat in the winter, then in the case of tenants not paying, you may want to set up your own account and start paying for heat. You can let your tenants know what amount they owe you.
To help your tenants set up utilities, we recommend sharing two helpful resources. The first is our Complete Guide to Setting Up Utilities.
We also recommend showing your tenants a helpful service called My Utilities. It’s a faster way for tenants to set up multiple utilities at once. It allows them to select which utilities they need, browse providers, and checkout.
And last, we suggest sending this information in a tenant welcome letter. This letter provides helpful information for your tenants as they prepare for the move. It’s also a friendly way to show you’re there to help.
At Rentalutions, our mission is to make renting easy for landlords like you. We help you find tenants, screen tenants, create and sign leases, collect rent, and manage maintenance.
The best part? It’s completely free for one unit.
Originally published at Rentalutions.