You have a buy to let mortgage, landlord insurance, a basic IKEA couch, and a set of willing and vetted tenants. But who’s responsible for selecting the energy tariff for your property and how do payments for it work? How do you as a landlord ensure you’re not being hit with the costs of your tenant’s 90 minute showers and habit of tumble drying each individual towel? How do you avoid being on the hook for utility bills if your tenants vanish?
As a landlord you have two basic options for managing the utilities at your property: either allowing the tenants to arrange and pay for their energy and water themselves or selecting and paying for the tariffs yourself and charging your tenants for them, either with a separate fee or by rolling the estimated cost of the utilities into their monthly rent. You should specify which option you’ve chosen in the tenancy agreement, to prevent disputes over bills later.
We’ll examine the pros and cons of each strategy and how you protect your property and yourself financially when dealing with utilities and tenants.
Leaving utilities up to your tenants
This is the simplest option for landlords and ones that will appease tenants who have their own preferences about gas and electricity tariffs—perhaps a preferred supplier or commitments to using renewable energy. (For water, they don’t have much option: the regional provider supplies all homes in the area). Additionally, it will allow your tenants to use energy comparison sites, shopping around for the cheapest option.
If you want to maintain some control over who supplies energy to the property, you can include a clause in the tenancy agreement requiring that your tenants notify you when they want to switch supplier. If you have a tie-in with a certain energy provider, you’re required to specify this in the tenancy agreement and give your tenant details of that arrangement. Generally, unless it’s written into the tenancy agreement, you can’t prevent tenants from switching energy provider. However, a recent survey from uSwitch found that 20% of landlords—and 14% of tenants—believe landlords can dictate providers, even when the tenant’s name is on the bills.
One exception: if the tenant wants to change to a pre-payment meter, they’ll need your written permission to do so. Without it, they’ll be responsible for restoring the original type of meter when they leave the property and if they fail to do so, the cost can be deducted from their deposit, if specified in the tenancy agreement.
When tenants move in, you should let them know the current energy provider of the property, urge them to take immediate meter readings, and inform them of their rights about switching.
Arranging and paying for the utilities yourself
If you want to exert more control over the utilities in your property, you can opt to arrange and pay for utilities yourself. This might be most practical option if you’re renting out rooms in a house in multiple occupation (HMO), especially to students, and don’t want to leave sorting out the utilities to them.
In this case, you set up the energy account in your own name and then charge your tenants for the bills, either by incorporating the cost into their rent or billing them separately. Remember that it’s illegal to charge your tenants any more than you’re paying to the supplier for the utilities. Additionally, if you have multiple occupants you’re legally bound to charge them fairly and proportionally for utilities and be able to present these calculations to them if they ask.
However, if you’re rolling the cost of utilities into rent, based on a tenant’s estimated use, you’ll want to ensure your tenants aren’t consuming excessive amounts of energy. Tenants have rights and are allowed to live as they like in the property, as long as they are doing so safely and legally and not causing damage. So you can’t place timers on their showers. But if you’re concerned they’re running up high utility bills, you might want to charge them separately for each bill you receive or move the responsibility for arranging the utilities and paying the bills to them.
Ultimately, because your name is on the bill you can be liable for charges, say if your tenants abscond with hundreds of pounds of unpaid gas use. But you can limit and possibility eliminate your liability by taking the following steps:
- Inform utility providers of any change of tenancy and supply them with meter readings at the end and start of any tenancy.
- Include a clause in your tenancy agreement specifying who’s responsible for the utility bills.
- Keep a signed copy of that tenancy agreement on file in case of any dispute.