What Is Utility Recapture and How Does It Work?
Learn how landlords of master-metered properties can fairly distribute utility expenses from a single property bill to individual residents.
Utility recapture is a method for property owners to bill residents for their share of utility costs in buildings with a single, master meter, such as apartment complexes or manufactured housing communities. This practice is used when individual submeters for services like water, sewer, or gas are not installed. Instead of the landlord absorbing the entire utility expense, the total cost is distributed among the tenants. This process separates utility charges from the base rent, allowing property owners to recover these operational expenses.
Common Allocation Methods
The most prevalent method for allocating shared utility costs is the Ratio Utility Billing System (RUBS). This system uses a formula to distribute the property’s total utility bill among residents based on specific criteria rather than direct usage. RUBS serves as an alternative when installing individual meters is either physically impractical or financially prohibitive, especially in older buildings.
One RUBS formula allocates costs based on the square footage of each unit. The total utility bill is divided by the property’s total billable square footage to determine a cost per square foot. Each tenant’s bill is then calculated by multiplying this rate by their unit’s square footage, so larger units pay a proportionally higher share.
Another RUBS formula is based on the number of occupants in each apartment. This method assumes that utility consumption, particularly for water and sewer, correlates with the number of people in a unit. The total utility bill is divided by the total number of occupants on the property to establish a per-person cost, and a household with three occupants would be billed three times this amount.
Lease Agreement Requirements
For a utility recapture system to be enforceable, the terms must be clearly established within the tenant’s lease agreement. The lease must explicitly state that the tenant will be billed for their portion of specified utilities. This disclosure separates these costs from the base rent and makes them a recoverable expense for the landlord.
The agreement must detail the precise allocation method used to calculate the tenant’s share. For instance, if using a RUBS formula, the lease must specify whether the allocation is based on square footage, number of occupants, or another variable. Simply stating that utilities will be billed back is insufficient, as the methodology must be defined so the tenant understands how their bill is determined.
Landlords may use third-party companies to manage billing and pass an administrative fee to tenants. Any such fee must be disclosed in the lease, specifying the amount, which is often a flat fee of $3 to $5 per bill. The lease must also outline billing and payment procedures, including how the monthly statement will be delivered and its due date.
Calculating a Tenant’s Bill
Calculating a tenant’s bill begins with the master utility bill for the entire property. Before allocating this cost to residents, owners first deduct expenses for common areas like laundry facilities or pools. This Common Area Deduction (CAD) is absorbed by the owner, not passed on to tenants.
For example, a landlord might receive a water and sewer bill for $7,500. After subtracting a $500 CAD for common area usage, the remaining $7,000 is the total amount to be distributed among the tenants.
Next, the landlord applies the allocation formula. If the method is square footage, the landlord sums the square footage of all occupied units. For a 100-unit property with 80,000 total square feet, the $7,000 bill would be divided by 80,000 to get a cost of $0.0875 per square foot, which is the basis for each tenant’s charge.
To determine a specific tenant’s bill, this rate is multiplied by the size of their unit. If a tenant resides in an 800-square-foot apartment, their portion of the utility cost is calculated by multiplying 800 by $0.0875, resulting in a charge of $70.
Finally, any additional charges like administrative fees are added to the tenant’s utility share. If a monthly administrative fee of $4 is allowed, this amount is added to the calculated portion. In the ongoing example, the tenant’s final bill would be $74, which includes $70 for usage plus the $4 administrative fee.