Regardless of the size or location, everyone needs certain basic necessities in order to call a place home. When entering into a new lease, it's important that the landlord and tenant include terms in the lease that reflect payment of utilities. It's important to note here that the responsibility for utilities can vary from property to property or among leases. In some cases utilities may be included. When renting a place with utilities included, it's important to understand which utilities the landlord will be responsible for and which you will be.
If your lease does not specify who is responsible for payment of all utility bills - you might consider not signing or agreeing to that lease! If the lease is silent (without any written terms), the landlord may not be automatically responsible for the utility payments and you may end up bearing the responsibility. If you already signed a lease without written agreement about utility payments and yet feel that you should not be responsible, then you should consider consulting a local government agency or attorney for assistance.
Utilities Defined
As a starting point, all the parties should know how utilities are defined -- in order to have a clear written agreement about who will pay what. By definition, utilities are essential services necessary to make a dwelling livable.
In every property, utilities include payments for electricity, gas, water, and trash collection. For single families with a well, utilities may also include payments toward the septic system pumping and maintenance.
Generally speaking, basic utilities do not include cable TV, internet, or homeowners’ association (HOA) or condominium fees unless a utility, such as water or trash collection, is part of the lease agreement. In some cases, a rental property may also have a security system that is included as part of the rent, or optional.
At the start of the lease, the landlord and tenant should come to a shared understanding about who will pay what utilities. It is so important to have agreement from the beginning because some of the charges may fluctuate with seasonality. For example, electric may be higher in summer if the air conditioning is always running!. As the written agreement reflecting the agreement between the parties, the lease must include whether the landlord or tenant is responsible for paying for the utilities (and which ones).
Rather than pay bills directly, some landlords may charge tenants for the use of utilities. This type of situation may arise when there are multiple properties that share a master meter for electric, gas or water. These arrangements are typically covered by state and local laws so both the landlord and tenant should be informed about relevant laws and regulations.
For individuals living with roommates, it is also important to set up written agreements about how payments will be split fairly at the beginning of the lease. If one person is making the payments, then establish a set deadline for each roommate to contribute (and how) each month. Keep in mind that a new account under a tenant's name may require a deposit so these costs should also be shared among all roommates.
Landlords are allowed to charge late fees to tenants who do not pay utility bills on time! At the same time, a landlord is not allowed to turn off utilities even if there is a late payment - or even a late rent payment.
Tenants should check about state and local laws allowing the shut off of utilities in a situation where the parties have ended up and court and the landlord has received a final court order awarding possession of the property. In these situations, the tenant has failed their obligations under the lease and a judge has decided to give the landlord back the apartment.
In another extreme situation, the landlord can stop utilities with reasonable notice and the tenant has the opportunity to open a new account for the utility service in the tenant’s name. Based on my own interactions with landlords, it is a more serious situation if the lease does not contain a "lessee to maintain" clause. Without an explicit requirement that the tenant cannot misuse or neglect water, gas or other utilities -- a landlord may not have any recourse. For example, if the tenant does not maintain sufficient heat and the pipes burst during a freezing stretch, the landlord may be responsible for all the costs even if the damage could have been avoided through proper temperatures in the unit.
State and local laws may vary in this situations so it's important to contact local government authorities or an attorney for advice, especially if it is a time of year with extreme hot or cold temperatures.
If my experience, it is worth taking the time to reach out to the utility companies and negotiate a fixed amount for payment throughout the year. Otherwise, you can end up in a situation where the costs fluctuate significantly based on the time of year.
From the landlord's perspective, it is better to have the utilities in the tenant's name in order to encourage more thoughtful and economical use. For example, at our vacation property at the beach, a tenant may be less concerned about running the air conditioning nonstop if we are covering all of the electric bill. On the other hand, tenants may take some more time to shut off lights and reduce usage if they know that bill is coming directly to them!
At the same time, landlords should consult with a tax professional about whether payment of utilities is deductible as an expense. Landlords should also review whether state or local laws have penalties in cases if a landlord overcharges for utilities. Similarly, depending upon where the property is located, the landlord may be able to withhold funds from the security deposit for any unpaid utitility bills but this practice is not allowed in certain states and counties.
For all the parties involved, it is worth comparing how similar properties are approaching the situation. A quick search may reveal what is common in any particular market and help determine what would be a fair expectation - and price - for the utilities in a particular region.
If you have already signed the lease, talk to an attorney to evaluate your situation and figure out who must pay for the utilities. At the end of the day, my experience suggests that it is best to have these conversations right at the beginning before the lease is signed and then make sure that all the terms are included in the signed lease.
