Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Here’s a pro tip: No matter what kind of commercial property you own…your tenants should be paying for all of their utilities used. Electricity, gas, steam, water, sewer, etc. Do not include utilities in their rent.
Preferably, they should pay the actual cost of use directly to the utility provider. That said, many buildings are not set up for tenants to pay the utility provider directly. In that case, the landlord must pay the utility provider and then bill the tenant back for their usage.
Note: This is especially common for water and sewer.
The next best option is to sub-meter each tenant suite so you know exactly how much they’ve consumed. Then you’ll bill them back based on their actual usage.
The last option is to guesstimate each tenant’s usage and bill them based on the estimate. In an office building the tenant would likely be billed based on square footage. In an apartment building, the bill may be spread equally over all the units or by the SF method.
First, what is Master Metering? Master metering is simply having multiple tenants on one meter. The landlord then receives the bill…measured through the one meter…for all the tenants.
Note: Master metering may provide wholesale rates which are less costly.
For example, the landlord receives a single electric bill for the entire building and then assesses the tenants their individual share of the utility expenses based on the readings on each sub-meter or by estimate.
Sub-metering is a system that allows the landlord to bill the tenants individually based on their actual utility usage.
The utility sub-meters can be installed in any building including shopping malls, hospitals, multi-tenant mixed-use properties, office towers, institutional, multi-family, and schools.
Individual sub-meters for each suite are installed behind the master meter. The landlord owns, monitors and maintains the sub-meters.
For some systems, building management must manually read the individual sub-meters each month. In big buildings, the work of reading data on the sub-meters can be quite tedious and time-consuming.
A technology called power line carrier comes in handy since it can automatically send the meter information of each space over the existing power cables of the building. A computer on the ground floor of the building then collects the data which is then used for rebilling.
To the tenants, sub-metering offers them a chance to monitor their utility usage…and thus they get more control over their future usage and save money.
Sub-metering enables tenants and landlords to cross-check that they are being billed accurately.
Your tenants must pay for their own utilities. Every building is different. Find a way to accomplish this. Every time a lease comes up for renewal, insist that they begin to pay for all their utilities…even if that means making a simple calculation based on the usage of the entire building.
For example, we recently sold a very large office building that charged tenants a simple $1/SF for electricity use. It doesn’t have to be complicated…find a way to do it. You will be happy when the day comes to sell your property and it’s worth more for having done it.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com