How automating utility verification for new tenants can save landlords time and money and be sure tenants have signed up for utilities.
Apartment managers have a long checklist of responsibilities when preparing to welcome a new tenant.
This typically can include everything from cleaning the unit after the previous occupant moves out to making any necessary repairs to changing the locks and ensuring that all plumbing, heating and electrical systems are functioning properly. In most cases, the process also includes verifying that a new tenant has signed up for utilities; Chandan Economics has found that almost three-quarters of residents in large multifamily apartments and 90 percent of in small multifamily apartments pay for their own electricity usage.
However, this seemingly small step can result in real costs for property owners if not managed properly.
In most instances, property managers either do not do utility verification and utility billing properly, or they must ask each new resident to manually provide a utility account number. Even this check is generally passive, as property managers rarely verify that a new account number was established in the tenant’s name. While it’s a tedious and time-consuming process, if not carried out, the property can be liable for the cost of the utilities if accounts aren’t properly established and transferred.
At an apartment building with a few hundred units, this impact on operating expenses is significant if a landlord is on the hook for even a month or two of service. While these costs can potentially be recovered from the tenant after the fact, the process can take weeks – if not months – and create unnecessary headaches.
One approach that landlords use to manage this process is to set up “revert-to-owner agreements” with the local utility, which are sometimes also known as landlord-rollover agreements. These agreements ensure that service remains active during the period between one tenant moving out and a new one moving in.
This requires completing paperwork in advance with the utility to place all billing information – and responsibility – in the landlord’s, property manager’s, or owner’s name. Once the tenant signs up for service, the billing then switches over to their name and they become responsible for monthly bills. Avoiding a gap in electricity service is certainly a convenience for landlords; however, if a tenant stops paying the utility, then landlords could find themselves on the hook for any missed or overdue bills.
Vacant-unit cost recovery
In the event that an existing tenant stops paying their utility bill, landlords often turn to vacant-unit cost recovery (VUCR) to try and recoup those costs. Similarly, VUCR allows landlords to recoup costs incurred by new tenants who failed to sign up for utility service in their name upon moving in. As one might imagine, it’s a cumbersome process to recover these costs and it can take several weeks or even months to do so.
There are a number of service providers that specialize in VUCR on behalf of the landlord. Some are offered as a collections-style service that help recoup these costs after they are incurred by tenants. Other services monitor proactively for overlap between a landlord’s occupancy data and vacant-unit utility-service invoices. In other instances, VUCR is included as part of a suite of property-management software tools to help landlords reduce the amount of time they spend on utility management. In all of these scenarios, however, landlords pay a fee for someone else to administer the service on their behalf.
Lastly, there is a new method to manage and verify the proper establishment of utilities that relies on automation technology to handle the process. This new method streamlines utility verification by notifying landlords when a new tenant sets up an account with an electricity provider. This is typically accompanied by an administrative dashboard that allows the landlord to quickly confirm whether each of their tenants has established utility service in their respective name.
One benefit of automation is that it often includes a complementary service that allows residents to compare and select electricity plans from various providers in deregulated markets. Typically offered at no cost to landlords, an automated solution may also be accompanied by a revenue share that landlords receive from the electricity provider each time a resident establishes service. Generally, however, automated services are only available in the 13 states that currently have deregulated electricity markets.
Regardless of the method selected, the research from Chandan Economics points to an increasing number of residents in recent years paying for utilities separate from their rent. As such, the issues and challenges associated with utility verification to confirm that tenants properly establish and maintain utility service are likely only to continue to grow.
About the author:
Naman Trivedi is co-founder and CEO of energy intelligence service WattBuy and a 2020 Forbes “30 Under 30” honoree in the energy category. In addition to roles at Google and Box, Trivedi previously served in the White House Office of Science and Technology Policy, where he focused on federal renewable energy policy.