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What is "Sub Metering" a Property?

 

Tenants and new landlords often ask: What is “Sub Metering” a property?

The answer involves re-wording the phrase “Sub Metering”. Utility sub-metering allows landlords to separate individual utility usage from the landlord’s common areas and other tenants.

It applies to gas meters, water meters, sewer meters, and electricity meters. Sub-metering establishes separate meters for every tenant and the landlord’s common areas. This way each tenant only pays for actual usage. It seems like a fair system.

This protects tenants from overcharging or getting billed for other tenants’ uses. Common areas remain the landlord’s expense and not the tenants’.

 

Sub-Metering Overview

 

What is “sub-metering” a property? Here’s an overview.

A typical multi-tenant dwelling starts with one meter for all to share. If one family uses electricity or water excessively the other tenants pay for one party’s excess usage. A very unfair system.

Sub-metering lets landlords measure every tenant’s usage. That way every tenant only pays for their individual usage. This promotes conservation while enabling fair billing.

Each state may maintain its own rules and regulations about the legality, installation, and usage of sub-metered utilities. Local municipalities may also enact their own specific ordinances.

Sub-metering often appears in:

  • Apartment communities;
  • Mobile home parks;
  • Condominium communities;
  • Commercial plazas;
  • Student housing communities;
  • Shopping malls; and
  • Townhouse communities.

Private sub-metering occurs when local utility companies do not provide this service.

One reason centers on the transient tenants who come and go leaving unpaid bills. Billing only the property owner makes it easier for local utilities to collect payments for total usage.

Also, many municipal utilities operate under a land use easement dictating usage within specific property boundaries. In addition, private locked meters become difficult for public meter readers to access.

 

Sub-Metering History

 

Sub-metering invented in the early 1920s but didn’t become popular until the late 1980s.

Before sub-metering:

  • Landlords had to include the total utility costs into the lease or rent; or
  • Divide the total usage between the tenants either equally; or
  • By square footage; or
  • Some other allocating methods.

Many tenants complained about excess billing or placed the blame on overuse to one or more tenants.

Thus, sub-metering solved the problem of unfair billing. It also created an awareness of energy and water conservation.

 

Sub-Metering Benefits

 

Landlords enjoy sub-metering by avoiding large utility bills associated with common area usage mixed in with tenants’ usage. Rising electricity costs forced landlords into finding ways to cut costs.

Sub-metering provided a solution.

Energy Management became a growing industry for owners of large apartment buildings and commercial plazas over the past few years. Reducing energy costs amongst rising electrical usage expenses and other utilities now becomes vital for owners of large complexes.

Building sustainability to control increasing energy costs helps to maintain profitability. Sub-metering helps to meet these goals.

Installing power meters to provide sub-metering of electrical use keeps energy costs down by fairly distributing the expenses of electrical use between landlords and their tenants.

The benefits of electrical sub-metering includes:

  • Real-time energy consumption with accurate energy monitoring;
  • Optimization of energy performance by reviewing energy data;
  • Eliminating estimates of energy usage;
  • Ability to record actual energy use;
  • Identifying and eliminating wasted energy; and
  • Early knowledge of maintenance problems to make repairs before devastating equipment failures.

Besides monitoring electricity, gas consumption costs also need sub-metering. Carbon Trust, an independent consultancy advocating carbon reduction strategies, recommends sub-metering for gas and electrical utilities.

In fact, sub-metering electrical, gas, and water usage help to keep costs down while conserving essential energy utilities.

 

Tenant Sub-Metering Benefits

 

As mentioned above, non-sub metered residential and commercial buildings typically billed tenants on the rented space square footage. After the landlord gets an electricity bill for the entire building, each tenant gets billed on the space they rent.

Tenants not billed for actual electrical usage often complain about other tenants’ high consumption.

Why should the small consumption user pay higher electrical bills because of the other excessive users?

Tenant sub-metering allows tenants to pay only for their energy usage within their rented space. Making tenants responsible for their personal consumption leads them to conserve energy to save money.

 

Dealing with Peak Demand Management

 

Many utility providers create “peak demand” charges. This occurs when the demand becomes greater than normal.

To prevent a crash of the electrical supply, electricity providers raise the Kwh price to prevent maximum consumption by customers during troubling peak times.

Their rationale based on higher prices reduces usage saves the entire system from overload. This forces consumers to use their electricity during “off-peak” times to avoid an overload of the grid.

 

Allocating Energy Costs

 

When energy costs rise energy efficiency gains greater importance.

Sub-metering allows users to monitor individual equipment to determine which affect energy consumption and costs.

For example, buying a new energy-efficient refrigerator, freezer, or A/V system should show decreased energy usage.

 

The Ratio Utility Billing System (RUBS)

 

A Ratio Utility Billing System (RUBS) means a system calculating utility consumption based on:

  • Unity square footage;
  • Number of bedrooms; and
  • Occupancy.

It’s a calculated usage system where tenants pay monthly.

RUBS provides a system for fast utility payments by tenants allowing landlords greater cash flow.

Instead of waiting to receive a utility bill and then billing the tenants on their next monthly payment, landlords enjoy faster payments.

Advocates of RUBS point out that it encourages residents to conserve utility usage. It also encourages tenants to report utility problems like leaking toilets and faucets. They also claim 5% to 40% less utility usage using RUBS.

Is RUBS better than sub-metering? No, because sub-metering guarantees payment based on usage rather than estimates.

 

California Laws about Submetering

 

On January 1, 2018, California began enforcing new regulations for multi-family construction. These regulations required:

  • After January 1, 2018, all new multi-family construction must install sub-meters; and
  • The option to use the Ratio Utility Billing System (RUBS) on existing multi-family buildings built before this date.

The San Diego City Council passed an ordinance requiring water sub-meters on every new multi-family residential and mixed usage properties with at least three units in 2010. The ordinance also included existing buildings when replacing interior water plumbing.

 

Conclusion

 

The question: What is “Sub Metering” a property? The answer to this question involves looking at electrical, gas, sewer, and water consumption and costs.

Especially important for landlords and tenants in apartment buildings, other multi-tenant premises, office parks, shopping malls, and commercial buildings.

Sub-metering of utilities benefits landlords and their tenants by assuring tenants only pay for their own consumption while landlords only pay for the usage of their common areas.

Landlords avoid getting stuck with paying utility bills for tenants who skip out on their rental obligations.

Sub-metering also makes it easier to pinpoint equipment energy gushers and locate early maintenance needs and repairs.

Energy conservation enhances the use of sub-meters.

Every state and many local municipalities maintain their own laws, ordinances, rules, and regulations about sub-metering utilities.

Consult with a property management company about these legal nuances.

Contact Us to learn about utilities sub-metering compliance in California and the greater San Diego region. We also provide you with professional property management services.

Steven Rich, MBA – Guest Blogger

 

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