Hybrid water billing method

I have an idea for a new method of dealing with water billing. I have a park that is on one meter with City water. 36 lots. I have always just included water in the lot rent, and had no issues. The average water/sewer bill is about $900. Recently i have had a couple larger bills from $1600 to $2200 because of a couple tenant’s water leaks. So instead of the expense and hassle of installing water meters, then having to deal with water billing each month, im thinking of setting a threshold amount, and if the City water bill exceeds that threshold, the overage is divided by 36 and billed to the tenants. That way normally i wont have to do any water billing, and the water will just be included in the Lot Rent like normal. But in the case of abuse or leaks, then the tenants have to pay the overage. So if the threshold was at $1200, and i got a $2000 bill, the $800 would be billed to tenants at $22.22 each. Anyone see any issues with this idea?

It might not be legal, so check out your Utility Commission, or other regulating body to see what is.

A more common method legal in lots of states is allocated billing. Here is info for Texas, your state should have something equivalent: https://www.puc.texas.gov/industry/water/watersystems/submeter.aspx#bill

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You are describing a RUBS system where the ratio is based on the number of units and you are providing a credit to each tenant for the amount below the threshold. By doing this you are leaving $1200 per month on the table. At an 8% cap rate, this equals a loss in value to your park of ($1200*12)/(0.08) = $180,000 not including the cost to meter and bill.

Im familiar with the RUBS (Ratio Utility Billing System). Thats why i call this a hybrid. Its part RUBS and partly including the water in the rent. In order to determine that im leaving money on the table, you first have to decide what market rent is, because i dont think you can always just automatically bill back water regardless of the rent. I have already raised rents to make up for the water being included in the rent. Im trying to avoid a complete RUBS because i dont want the hassle of preparing and sending water bills each month. I also dont want the hassle of trying to collect the water bill payments, because in court cases for eviction, they get thrown out if water is included, because you cant legally evict for unpaid water bills. At least thats how the judges view it in Iowa.

I am not sure if a “conservation threshold” is your best option:

  • Billing the whole community due to the wastes of a couple of residents is basically collective punishment, and an opportunity to create Bad Will among your residents. You’re the “Bad Guy”.
  • The couple of extra bucks being billed probably will not entice the guilty parties wasting water to correct the plumbing problem.

I have seen this with many condominiums, HOA fees increase each year as w/s expenses continue to escalate. Human nature dictates the economics, a plumber costs a lot more then a resident’s fractional increase in the community’s water/sewer expense.

Sub-metering to bill residents (provides ongoing *"conscious conservation") or sub-meter just to find the leaks is a better option.

Basic meters can de found for @ $75 , third party billing companies can take 100% of hassle of reading, billing, and collections: In most cases the resident pays for the service.

Again, be the Good Guy, keep your W/S expense and in turn your resident’s rent manageable.

"We’re here to answer your sub-metering questions"
Dan@SouthernWaterManagement.com

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OK, so if you have already maximized revenues and are only trying to avoid billing efforts, then there is nothing stopping you from doing what you describe. Despite calling it “hybrid RUBS”, fact is it is simply RUBS. Yes, you are applying a courtesy discount but from a legal standpoint you are doing RUBS.

We do that all the time. In one city, our price per 1,000 may be 15.8 one month, 15.3 the next and 16.3 after that. To avoid accidentally charging a premium and getting in trouble with the Public Utility Commission, we may opt to bill for the lowest price we were charged in the past 12 month (e.g. 15.0) and lose the extra few pennies to ensure we are not charging more than we are billed. You are doing the same thing except instead of shaving a penny or two per 1000 gallons, you are giving away the first few thousand gallons for free. This is your pricing decision and you are welcome to do this within a RUBS system.

However, your plan can be perceived as unfair to most tenants in some cases (like the one you described) and unfair to all tenants in other cases. You are charging all tenants for the problem caused by 1 or 2. The widow who showers once per week to keep her water usage below 800 gallons per month is going to become very upset with you when she gets the $15 bill but did not take the extra shower to warrant it. Also, your system pushes the cost of infrastructure issues to the tenants. If you spring an underground leak, the excess will be billed to tenants, when in fact, the landlord should cover the expense until the issue is fixed.

A more fair solution may be to install the meters. Give away a few 1,000 gallons for free if you want, and bill those who exceed the threshold. You can outsource this if you don’t want to do it. If you were to take this action, and if your revenues are truly maximized, I would consider dropping the rent a little bit and charging for 100% water usage. In an outsourced solution, this would take no extra effort on your part.

Regarding the court issue, it does not make sense to me. Perhaps that state has legal differences that I have not experienced. I would be sure to run this by your attorney or if you don’t have one, it may be time to get one (or a new one). Yes, judges say you cannot evict for the water bill on the monthly statement, but there are simple workarounds to this depending on how your separate charges for each sub account and the order in which you apply payments to the subaccounts. For example if the lot rent is $250 and the tenant is past due $200 on lot rent and $50 in water, you may have trouble evicting. If the tenant is $350 past due ($50 water, $50 late fee, and $250 lot rent), then I have never met a judge who would not order the eviction. Also, you can put clauses in your lease that say all unpaid charges become “additional rent” thus the $350 past due in my example is simply “rent” and not separated into sub accounts. Evictions are very simple and almost any lawyer can figure out how to remove your tenant even if you charge for water.

I include in my lease that ALL FEES, UTILITIES, LATE FEES, ETC ARE INCLUDED AS ADDITIONAL RENT. This is from a real estate attorney in NJ. ATTORNEY FEES AND COURT COSTS are also INCLUDED AS ADDITIONAL RENT if we prevail in court. FYI NJ is very tenant oriented so this is working there; that’s success.

Also, if your billing is based on chronological due dates, if a tenant owes $600, regardless of whether its part water or not, I don’t understand how they get away with staying an eviction.

You can consider creating a second company for WATER. If its a separate entity that entity may be able to shut off service. I would fight the eviction rather than shut off water. things get nasty/disgusting if people don’t have water. My NJ lease does state that homes without utilities are considered un=inhabitable and are not to be lived in until service is intact. You don’t want people living without electricity, fire hazard. You don’t want people living without water, unsanitary conditions. FYI… In NJ, you cannot rent out a property that does not have hot water. Although I am in Oklahoma with mobile home park, I abide by the housing code of new jersey since to the letter of the law, they are safety related.