New owners of multifamily residential property are often surprised at the number of laws that affect their ability to do business. In addition to statewide landlord and tenant codes, an owner electing to pass through the cost of usage and ancillary services must consider the local utility tariffs, city or county ordinances, state utility law and any public service commission (PSC) regulations.

Sometimes, the PSC rules may conflict with other local or state laws. In many jurisdictions utility regulations are ambiguous with a dearth of appellate case law to define the vague rules. Penalties for noncompliance can be severe. Owners are often faced with difficult decisions when deciding what recovery methodologies to employ in light of the lack of legal clarity. Therefore, it is important to work with a provider that has a demonstrated understanding of the jurisprudence governing the billing activities.

When evaluating such a partner, owners should ask the following:

  1. What is the process when a billing methodology is not supported but not expressly prohibited by applicable law?
  2. What systems are in place to analyze the risk associated with a billing methodology that is not expressly allowed by law?
  3. What is the communications process between the management company and the billing vendor for regulation amendments that affect property operations, billing methodologies or recovery amounts?
  4. While the responsibility for employing a recovery methodology rests with the owner, does the billing vendor have a process to assist the owner in analyzing risk to help make an informed business decision?
  5. Can the billing provider produce a formal report that communicates the levels of risk associated with specific billing practices?

Complying with the statutes, rules and tariffs governing utility and services billing is only half of the battle. In order to compel the resident to pay for utility usage, the lease must require the tenant to do so. Some jurisdictions require specific language in the lease to enable the owner to pass through the cost of the utility. Lease forms with default fields for management or onsite staff to complete must be done so properly. Often a management company uses a rigid form-lease produced by a third party company or association that contains charge descriptions that do not match the line item labels on the billing statements. It is important for the owner to ensure that line item descriptions and fee amounts match the tenant’s lease language. Moreover, it is critical to put processes in place to notify and coordinate with the billing vendor when a lease is amended. A slight change in lease language can cause a line item to be unsupported by the contract.

Before contracting with a billing vendor here are important questions to ask to help ensure that lease language will support the recovery program:

  1. Do you have regulatory professionals involved in the implementations process of a new site?
  2. Do the regulatory professionals review the lease to determine if a billing line item is supported by the contract?
  3. What is the process for determining if a lease adequately requires a resident to pay for a service?
  4. What is the process when a management company changes lease language that may affect the resident billing statement?
  5. What is the process when charge amounts in the lease do not match the figures on the billing statement?

Utility and services billing is a critical tool for owners to enhance their recovery. Managers should put in place processes that identify and analyze the risks associated with specific billing practices so that owners can make informed business decisions on which services to pass through. Minimizing risk can be as important as maximizing recovery.

 

Michael Semko is vice president of legal for RealPage and advises the company on corporate and regulatory issues. Prior to that, he was VP and legal counsel to the National Apartment Association for nearly a decade.

 

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