Utility bills – who’s responsible and how to manage them

The end of a tenancy is not the time to discover your tenant has not been paying the municipal bills or “rates” – property taxes and utility bills like electricity, water and sewerage, etc. At that stage you are faced with the difficult task of trying to recover the money. It is far better to ensure due process is in place from the outset of the occupancy to cover all bills that will accrue to the property. This is best done via a written lease agreement, which sets out the terms and conditions of the rental and can be as detailed as you like, clearly stating the responsibilities of tenant and landlord for every cost. For example, you may wish to differentiate between utilities like water and electricity and “add-ons” like WiFi and garden maintenance. 

Rental Housing Amendment Act

Remember that when the Rental Housing Amendment Act comes into force it will be a requirement to have a written lease. If you don’t have one now, it’s time to draw one up. You will only have six months from when the Act becomes law to comply. This is your chance to incorporate all these details into your rental agreement with your tenant. 

Prepaid electricity meters

One of the simplest ways to avoid disputes over electricity bills is to install a a prepaid electricity meter. This is becoming more and more common in rental properties. The landlord has the comfort of knowing the electricity is paid for, and the tenant has control over consumption and can make economies if necessary, an option not available if the rent is “all-in”, i.e. the landlord pays the bills and allows for the costs in the rent charged (see below). Many municipalities no longer allow electricity accounts to be in any name other than the registered property owner, so a prepaid meter is a good compromise. The landlord remains the responsible person, and the tenant has no choice but to pay for use. If the account is not in the owner’s name, perhaps because the tenant has been in situ for a long time, it is a good idea to have the account transferred, as the owner will be held liable regardless.

Other utility bills

If the municipal account is still in the tenant’s name and the tenant is responsible for payment, the landlord can ask the tenant for proof of payment each month. If this is not forthcoming or there is any suspicion of arrears, you as registered owner are entitled to ask the municipality for a copy of the account. If you exercise diligence in ensuring these accounts are up to date, you will avoid any nasty shocks at the end of the rental period. 

“All-in” rent

An option some landlords prefer is to take on the liability for all bills (sometimes with some exceptions as noted above). The rent is then adjusted to accommodate this. This is known as an “all-in rent”. There are pros and cons to this arrangement for both parties. For the tenant, it can be helpful, certainly in terms of budgeting, to have one monthly fee to pay. The cost of living in the property won’t vary summer to winter with changing consumption patterns. For those on a tight budget this can be a real boon. The downside, from the tenant’s perspective, is that there is no financial benefit to be gained from minimising consumption. (And this may lead to waste, a downside for the landlord.) The tenant also does not have any utility bills in their name, which can be a problem when address verification is needed for credit or other applications. However, the lease will usually suffice.

For the landlord, there are no concerns about unpaid bills. Everything is under their control. However, the adjusted rent is based on past average consumption. If the tenant is wasteful in their use of water, gas or electricity, the owner can be faced with a bill in excess of what has been included in the rent. The solution to this is a clause in the lease agreement stating that the landlord reserves the right to make a surcharge should consumption exceed reasonable amounts (“reasonable” can be difficult to define so the wording may refer to a figure or percentage). The landlord will also bear the burden of rate hikes, as they cannot increase the rent until the lease is due for renewal.

The alternative – charging utility bills to the tenant as they arise

A more transparent, albeit more labour-intensive, solution is to charge the utilities to the tenant as they arise. This means the landlord will always carry one month’s obligation for these costs and may still be left with unpaid bills at the end of the tenancy, but any liability will be limited and should be covered by the deposit. If this process is adopted, property owners should remember that tenants have a right to be treated fairly and equitably. It is good practice to:

• Provide the tenant with copies of bills and meter readings
• Give the tenant a formal invoice for their share of the costs as set out in the lease agreement
• Avoid charging the tenant an estimate if the meter reading has not been done for the period. Many Rental Housing Tribunals do not support this practice. It is usually possible to email a photo of the meter reading to the municipality and request an accurate bill
• Provide the tenant with a monthly statement and keep a record of all communications pertaining to utilities (this is particularly important for transparency where the rent is all-in)

It’s important to note that a property owner may not charge property taxes to the tenant. The cost can be factored into the rent, but may not be passed on to the tenant in a literal sense. 

Whether you opt for an all-in rent or charging the tenant on a PAYG basis, this can be a workable solution, particularly for a property owner who has been saddled with unpaid bills in the past. At the end of the lease, it is reasonable to deduct any amounts owing from the deposit, and this should not trigger a dispute, particularly if clearly stated in the lease.

Landlords may not…

Finally, if you hold control over power and water, it may be tempting to use this as leverage if your tenant fails to pay rent or breaches the lease conditions in any other way. Don’t do this! It is unlawful to disconnect your tenant’s electricity in the event of non-payment of rent. Disconnection without a court order is illegal. If your tenant is in arrears with rent, you must follow the correct eviction procedure as set out in the Rental Housing Act and Consumer Protection Act (CPA) and give them an opportunity to rectify the breach. 

Seek the guidance of an expert eviction lawyer

If you need help to draw up a lease agreement, screen tenants or negotiate utility bill arrangements with your tenant, contact Simon on 086 099 5146 or email simon@sdlaw.co.za to discuss your case in confidence. Eviction lawyers Johannesburg and Cape Town are experts in rental property and will help you select the best option for your circumstances. We will ensure your tenancies run smoothly, with no nasty shocks waiting in store for you.

Simon Dippenaar

http://www.sdlaw.co.za

Cape Town attorney Simon Dippenaar has a BBusSc LLB degree and Professional Diploma in Legal Practice from the University of Cape Town, and is an admitted attorney of the High Court of South Africa. He is the founder and director of private legal practice, Simon Dippenaar & Associates, with offices in Cape Town and Gauteng representing South African and international clients.

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