Power Couple: Resident Billing and Invoice Processing

Utilities are among property managers’ top operating expenses, according to the NAA’s most recent survey of Operating Income and Expenses. Rising utility costs and unforeseen rate hikes coupled with increased utility billing regulations, as well as renter expectations of online payment options, have created a conundrum for multifamily owners who realize they must come up with an equitable way to pass those costs on to their residents. But many owners are afraid of either losing renters or running afoul of regulators by charging for utility usage. They continue to include utility costs in the rent or charge a low flat fee for utility consumption. Most industry experts recommend against the decades-old practice of including utility costs in the rent, since chances are high for either over- or undercharging for residents’ usage, the latter of which is illegal in some states. Including utilities in the rent also puts a community at a disadvantage in a competitive market and ensures that utility expenses will be much higher than if the residents paid their own utility bills. To recoup costs, experts suggest property management companies implement either a submetering program or a ratio utility billing system (RUBS)—an allocation formula that divides a community’s utility bills among its residents based on floor space, the number of occupants, or some other quantitative measure. Billing residents for utilities is not a new practice. It began in the late 1990s as a measure of sustainability when REITs noticed that renters reduced their overall consumption when they participated in the actual expenses of the property rather than paying an arbitrary flat fee to cover their consumption. Passing the cost of utilities on to the residents is a proven way to increase a property’s bottom line, but the labor, regulatory liability and time-intensive process of auditing bills, invoicing renters, processing payments, keeping up with collections and...