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Hold Occupants Liable and Reduce Property Management Costs

Hold Occupants Liable and Reduce Property Management Costs

In property management, it is often hard to cut costs without sacrificing the safety or quality of a building. This blog post suggests doing so by holding occupants liable for some responsibilities and costs with 2 specific techniques on how to do so.

Cutting unnecessary costs and saving money are common goals across all different industries and job types, and property management is no exception. However, due to the standards of safety and quality required by those responsible for building management, doing so in a way that doesn’t hurt the property manager’s business. Just because it is more difficult, however, does not mean that it is impossible. A common cost cutting strategy implemented by property managers that doesn’t sacrifice quality and safety is to hold their occupants liable for certain building responsibilities and/or costs. Two common techniques that follow this strategy include submetering and risk transfer.

Submetering

Instead of paying usage bills and then including the cost within occupants’ rent, many properties have begun to require that their occupants to pay these charges on their own. CCIM Institute recently cited a study that showed that when occupants paid water and sewer charges directly, overall usage decreased by almost 30 percent. As you can imagine, this could add up to significant savings for the property management company. Direct submetering may not always be easily implemented or even possible in some cases, so we will discuss this method along with two other variations of submetering as alternatives.

Direct submetering

Of course, direct submetering is the most accurate technique for billing occupants. Direct submetering involves the installation of meters in each unit in order to get a precise reading usage. Because of its initial costs and the labor and disruption involved with meter installation, many property managers opt for one of the following two methods despite submetering being the most accurate.

Ratio Utility Billing Systems (RUBS)

This variation of submetering is set in place in situations where installing a submetering system at the property is not possible, whether it be because of plumbing/electrical barriers or because initial costs are too highs. RUBS allocate the costs of the the property’s overall bill to occupants based on the square footage of the unit, the number of occupants within a unit or a combination of both of these considerations. This is a popularly used practice and considered a fair way for property managers to recover partial costs for their bills. It is also considered the easiest submetering option, as there are no major installation disruptions and no initial costs involved.

Hot Water Allocation

This variation requires a little more complexity than RUBS because allocation is based on an estimate of each unit’s actual usage. The State of Texas provides a step-by-step guide for water allocation here.

*Note: further research should be conducted on each of these techniques before a decision is reached for your specific property. Local ordinances should also be reviewed, as submetering is prohibited by some local laws.

Risk Transfer

Through risk transfer, an even more commonly practiced technique by property managers, building occupants are held responsible for certain justifiable maintenance areas within their control, such as broken windows, repairs to appliances and clogs in drains. Any instances of risk transfer should be included by property managers within their lease. If these fixtures, previously defined in the lease, suffer significant damage due to the occupant’s fault, the occupant, rather than the property management company, will be responsible for the repairs. This will reduce the costs that you must cover in the event of damages, but it will accomplish something even more important: it will hold your occupants accountable. An occupant that feels a sense of responsibility and ownership toward their unit less likely to cause wear and tear and is more likely to treat it with care.

These previously mentioned techniques are becoming more and more common in the property management as effective means to cutting unnecessary costs. For more property management-specific methods that help cut costs, see our free download, “The Top 5 Ways for Property Managers to Cut Costs.”

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