Q: Separating Out Utilities & Asking Tenants to Pay for Own Heat Bill

[LandlordinEastie]

Hi all,

I am new to the forum and was glad to hear that one existed in the Boston area. My question is this. I am interested in converting my heating system from oil to gas and separating out the utilities for each unit, so that each tenant will pay for their own heat and hot water. I really like my tenants and am asking for advice on how to fairly change the terms of a lease so that they are okay with paying for their own utilities. (e.g. How much would I need to lower the rent? How would I convince them to take on this "risk"?)

I bought a three-family house six months ago and have two tenants that have moved into in the 1st and 2nd floor units and have been living there for three months. Their leases will both expire on Aug 31st and a new one-year lease will be issued on Sept 1st. (This is because I wanted their leases to coincide with the Boston rental season and not be stuck finding tenants in early Spring). The expectation when they moved in was that the rent would not go up when the new lease would be signed in Sept.

Both units are 1-BRs (about 625 sq ft) and I estimate that during the colder 6-months of the year heat will cost $150/ month to heat each unit (or $75/ month on average for the year). Also, we plan on insulating their units with blow in insulation at the same time the new heating units are installed.

Do you think this is reasonable? Do you think it is too much to ask of them to change the lease after three-months? Do you think it would be offensive to them or would they be amenable to paying their own utilities if the rent was reduced?

Any advice would be appreciated.

LandlordinEastie

[Minuteman]

Congrats on the investment property purchase! I think this is a special situation that they should understand. If you lower the rent a token amount and let them take over the utilities, it should essentially be a wash. However, once they have control of the heat, they will have to monitor the use so it does not get out of control. You probably won't know what it will actually cost until after the first year however as the gas furnaces should be much more efficient then the oil. I personally wouldn't have a problem with this - you are the landlord, and things change - you are trying to improve the building - they have to understand this. If they have a problem with this and your honest effort to minimalize the cost to them based on your word, then you probably don't want them as tenants. The incentives NSTAR is offering today are worth taking advantage of. Do you live in the third unit? Because you may qualify for the energy credit from the IRS on your tax return this year. Good luck and keep us posted!