You’re considering renting out your secondary suite, or tenanting an investment property, and you wonder, “Should I include utilities in the rent?” There are several possible lease arrangements for utility costs between landlords and tenants, such as:
- Tenants are responsible to pay for all utilities.
- Landlord is responsible to pay for all utilities.
- Landlord pays for some utilities and tenants pay for the rest.
The most common utilities include everything your tenants may need to live comfortably. Depending on the dwelling, these utilities may include:
- BC Hydro – Electricity. Electricity bills are very much lifestyle dependent and vary according to many factors such as tenant’s daily usage of appliances, lighting, electric heating systems, cooling systems, and any electronic devices.
- Fortic BC – Gas. Natural gas can be used to power a gas stove or run a furnace heating system. Daily usage is also lifestyle dependent.
- Water and Sewer System. Rates are determined by your local municipality and are monitored by a water meter for single-family homes.
- Solid Waste Disposal and Recycling. Controlled by your local municipality and billed either annually on your Property Tax notice or a separate annual utility bill.
- Internet and cable. These are also considered utilities and can be offered at a fixed rate contract but are almost always the tenant’s responsibility.
It’s best to weigh your advantages versus disadvantages of including utilities in rent. Several benefits of including utilities in the rent include:
- The potential for higher quality tenants. As much as landlords want a stress-free tenancy, so do tenants. Higher quality tenants may seek to pay a higher rent to have utilities included to provide peace of mind with just one monthly expense to worry about and budget for.
- Tax benefits. Most landlords cover the solid waste disposal and recycling fees and deduct those expenses from their taxes. But you can deduct any utilities you pay for, including electricity, water, and gas.
- Multi-tenant or roommate lease agreements simplified. Roommate relationships can get complicated, especially when discussing financial matters such as who’s responsible for which portion of the utility bill. When utilities are included in the monthly rent, no one roommate oversees payment collection towards common bills. Tenants can enjoy their peace and quiet knowing they will never have to confront a roommate for their share of the utility bills.
The advantages noted above are enticing for some landlords, and in tough markets including utilities in the rent may be your best option to lease-up a unit quickly and avoid loss of revenue.
However, there are several disadvantages worth mentioning:
- Rates may change. Utility rates can change from time-to-time. Having a cap on what dollar amount inclusive utilities cover in the rent will then require the tenant to pay the difference if their daily usage exceeds the covered amount.
- Predicting profits. With potential utility rate fluctuations, landlords may find it difficult calculating their profits consistently and accurately.
- Landlords are liable. Whether your tenant pays you on time or not, the liability with each utility company will fall on the landlord. You will be responsible for all the utility bills to be paid on time and in full.
- Less conservation. When utilities are included, and tenants don’t have direct impact from the cost of monthly bills, they are less likely to conserve resources. For example, if tenants crank up the heat in the winter and keep it on 24/7, it could result in significantly larger utility bills. Having a cap on what dollar amount inclusive utilities cover can help incentivize tenants to use utilities thoughtfully.
To help better understand current market trends and whether including utilities in the cost of rent is the right decision for your rental investment, give Alwynds Property Management a call. We can certainly help you make your investment property as profitable and stress-free as possible.