“Does the rent include utilities?” is a common question you will hear if you’re a landlord. All tenants are interested in the cost of monthly rent and utilities. As a landlord or property owner, you can decide on what utilities are the tenant’s responsibility. Some landlords can charge a premium rental rate by including all utilities. However, many landlords require tenants to pay for basic utility costs themselves.
There are pros and cons to leasing an apartment with utilities included. For example, by including all utilities, you resolve the issue of what happens when a tenant doesn’t pay utility bills. But this requires listing your rental for a seemingly higher monthly cost. On the other hand, tenants could take advantage of seemingly “free” utilities and run up huge bills.
Ultimately, the decision to include utilities in rent comes down to you as a landlord. This article looks at the various considerations when deciding on who pays the utility costs.
Does Rent Include Utilities?
A tenant’s monthly rent usually includes utility bills for electricity, gas, internet, and cable. Typically, individual meters make calculating these utility costs easy. However, landlords often include rent utility costs such as garbage, water, and sewer in the rent price. This is because it can be tricky to calculate individual utility usage for these services.
When it comes to including utilities in the rent, there are four basic categories:
- No utilities: A rental agreement could require tenants to pay for all utilities. However, this type of lease is rare because it’s difficult to divide certain utility costs among tenants. But in single-family condos, this type of agreement could be possible.
- Some utilities included: Most rental agreements require tenants to pay for apartment utility bills such as electricity, gas, and internet. It is also inexpensive to install individual water meters. So some landlords require tenants to pay water utility bills. The landlord then pays for trash collection, maintenance of communal areas, and sewer.
- All utilities included with a cap: Some landlords offer all utilities in rent price but limit how much a tenant can use. This way, a tenant can plan their monthly expenses. But at the same time, it gives landlords peace of mind on tenant utility usage. For example, suppose a tenant knows they will pay extra for cranking up the heating. In that case, they may reconsider what a comfortable temperature is.
- All bills paid: Rent including all utilities is the best solution in some types of rentals. For example, maybe there is a four-unit apartment block that has a single electric meter. Or, in student accommodation, roommates on individual leases may have all utilities included in one rental payment.
Here are the six categories of utilities that may or may not be included in a rental agreement:
- Heating and cooling
- Electricity and gas
- Trash collection
- Landline phone
- Internet and cable connections
Related reading: The ultimate guide to rental applications.
Advantages and Disadvantages of Renting When Utilities Are Included
There are benefits and disadvantages for both landlord and tenant of renting with utilities included. Tenants prefer the simplicity that an all-inclusive rental payment provides. They also save money on moving-in fees, such as connection charges, deposits, and other fees.
What are the pros and cons to landlords of including all utility payments in the lease agreement?
Advantages of Renting When Utilities Are Included
Here are five pros of leasing a rental unit with all utility payments included.
1. Charge more for the actual rent price
One of the most significant advantages is that you can charge more for rent. Because you are taking on some of the tenant’s responsibilities, the rent can be higher. Not only do you charge to cover basic utilities, but you are also providing an extra service for your tenants. However, before offering an all-inclusive bill-paid rental lease, know precisely what your utility costs are likely to be.
2. Rent including utilities has tax benefits
If you pay all the utilities, you can deduct the utility bills from your tax returns. This is because utilities are considered a business expense associated with running a property rental business.
3. Attract more tenants by offering an all-inclusive lease
Many tenants prefer apartments where all the utilities are included in the lease agreement. This is because it’s easier to budget housing costs from month to month. Also, tenants may prefer not having their name on utility bills or dealing with the hassle of setting up utility payments. So, landlords may find it’s possible to reduce vacancy time by offering rent with utilities included.
4. Avoid tenants defaulting on utility payments
By including utility costs in the rent, you avoid having to ask the question: “what to do if a tenant doesn’t pay utilities?” Because all-inclusive rental agreements are typically higher, tenants must prove their ability to make monthly rental payments. During the screening process, you can check for proof of income, their credit score, and get their employer’s reference.
5. Credit card rewards
If you can pay utilities by credit card, you could benefit from many rewards at zero cost. However, it’s worth looking for credit cards that don’t charge a payment fee before doing this.
Disadvantages of Renting When Utilities Are Included
What are the disadvantages of rental agreements that include utilities?
1. Tenants can take advantage of all-inclusive rents
If the tenant isn’t paying the cost of their utility usage, they lose the incentive to conserve energy. Here are a few examples:
- Leaving the air conditioning on when they are out of the apartment
- Running the shower before they get in the tub
- Turning the central heating up to tropical-like conditions
If you decide to offer rent inclusive of utilities, it makes sense to have a cap on energy usage. So, for example, say there’s a $100 cap on electricity usage. But suppose that one month, the electricity bill comes in at $50 more than the amount on the lease. In that case, the tenant will have to pay the difference as unpaid rent.
Of course, it’s vital to take into account seasonal differences in energy usage.
2. You become liable for tenant’s arrears
While you avoid the situation where a tenant fails to pay actual utility costs, you face another problem—what if the tenant defaults on their monthly rent payments? In that case, you still have to keep paying utility bills while losing income.
Suppose the tenant is liable to the utility company and doesn’t pay their bills. In that case, the utility provider can shut off their water, gas, or electricity. However, you can’t do that in a utilities-included apartment. Therefore, turning off utilities for unpaid rent is a costly mistake because it is a self-help eviction.
Related reading: Costly eviction mistakes.
3. Utility increases can cut profit margins
Another consideration is that any hike in utility costs will affect your bottom line—profit. You can only increase the rent when the lease is up for renewal. So, until the end of the lease, you will have to cover the increased costs.
But there’s another thing to consider. Some states have a cap on rent increases. This means that it may be impossible to increase rent enough to pay the actual cost of utility bills. So, in the end, you may find it challenging to cover all your rental costs.
4. Rent appears higher than average
You may find it difficult to attract potential renters because your rent price appears too high in rental listings. Remember, tenants will be comparing your rental listing to similar rental properties in the neighborhood. If the tenant uses a price filter, your rental listing may never show up. Furthermore, even if they see your listing, they may not realize that the lease includes utilities.
What’s the Average Price of Utilities?
The average price of utilities depends on several factors. The size of your living space, energy usage, and home appliances all affect how much you must spend on electricity and gas. Additionally, the climate has a significant impact on utility bills. If you must spend a lot on cooling costs or electrical heating, you will find that utility bills soar in winter or summer.
In addition to paying for utilities and monthly rent, tenants must also pay a security deposit, including the first and last month’s rent upfront.
What Are the Best Ways to Pay for Utilities?
The best way to pay utility bills is to set up automatic payments on the due date. The easiest way to do this is through internet banking. This way, you never forget to pay your bills and don’t risk harming your credit history. Alternatively, you can make one-time payments online.
Another popular way to make utility payments is by credit card. Many vendors offer rewards such as special offers or cash-back for making credit card payments. If you are a landlord offering rent that includes utilities, you could quickly stack up a lot of great offers.
Of course, you can still send a paper check to your utility provider. However, using checks to pay bills is becoming outdated. Just like it’s best to collect rent online, it’s best to pay for utilities online.
How Do I Split the Cost of Utilities with Roommates?
Rental agreements that include the utilities are common in student accommodation. Each person living permanently in a rental unit should be named on the lease. So, as a landlord, you may have to decide how each roommate splits the cost of utilities.
Here are a few guidelines that people living in shared accommodation can use to pay utility bills:
- Establish ground rules: Encourage all tenants to decide on who is responsible for paying what amount. It’s vital to know how bills are split, when they should be paid, and who collects the money. Individuals can use apps such as Venmo to make personal payments. However, it’s never a good idea for landlords to use peer-to-peer payments apps.
- Divide rent fairly: Roommates will have to decide on how they plan to divide rent. This could be by using the total square footage of each bedroom to calculate the rent split. For example, a tenant with an en suite bathroom should pay a little more than one with a small bedroom.
- Keep some purchases separate: It makes sense for roommates to buy some items separately. For example, large items such as furniture and electronic items are best purchased separately. Then groceries are also best kept separate to avoid any arguments.
- Put everything in writing: Like any agreement, roommates should put everything down in writing. A written agreement will save any confusion or misunderstandings later on.
Rent That Includes Utilities — In Conclusion
The decision to offer rent that includes utilities is up to each landlord or property owner. Typically, it’s best not to include essential utilities in the rent price if the rental units are in a multi-family building. However, a rental agreement including all utility costs could benefit you and your tenant leasing single-family units.