How to write a lease with utilities included?

Question

I’m a first time landlord about to rent out 2 units in Oak Park, IL.

I was planning on using the lease agreement template available on Avail, but I have a custom amendment I need to add and I want to make sure it is written well...

Because of the layout of the utilities in the building, we have to include major utilities (gas & electric) in the cost of the rent.

When I was marketing the property, I updated the listing to show a lower rent, plus the clause about fixed utility cost. But now it’s a bit harder to draft the lease... Do I just let the tenant know that the total rent includes those utilities? Or go through the trouble of drafting a lease with specific addendums?

TIA for any tips!

Karen Yager · Answer

UTILITIES: Landlord pays for water, sewer, gas, garbage, recycling, and electricity.

Wireless/basic TV and Internet hook-up is available. Tenants are responsible for their monthly fee.

Eliott Elias · Answer

It should clearly state that the landlord pays and keeps utilities in their name.

Mark Ainley · Answer

@Tony Robledo let me know if you need a copy of a lease for Oak Park.  As @John Warren said Oak Park is unique.  Make sure you learn about their rental ordinance as it is similar to RTLO but Oak Lark is exempt to RTLO since they have their own.

Henry T. · Answer

Non payment of the tenants portion of the utility bill is considered non payment of rent and will subject the tenant to an eviction notice and all legal costs incurred.

Crystal Smith · Answer

Everything should be in writing.  Just add an addendum. In the addendum you check off what the tenant is responsible for.

Jonathan Klemm · Answer

Hey @Tony Robledo - Congrats on your first property brother, that's awesome!!!  Oak Park is an awesome area and I'd prefer being a landlord there over Chicago where I am at.

Why do you need to include gas & electricity?  If you just put it on a budget billing you could prorate out the utilities to each tenant evenly.

I'd check with an attorney if you are worried or a local realtor that can get access to the forms.

John Warren · Answer

@Nathan Gesner this is not in the city.... you would not use the CAR lease here ever. @Tony Robledo you can even get resources that are Oak Park specific, as Oak Park has their own realtor board and quite a bit of info for rental owners. I'm happy to get more specific on this if you need help. This is definitely not something you want to get general advice from on forums where you might have folks from other states who aren't familiar with Chicago like we are.

Katelin Burke · Answer

I would add it on to the monthly rent amount on the lease and clarify on first page of lease which utilities are included in the price. Just make sure the tenant knows what is going on. I just had a investor who did the same thing with gas and electric. She added $200 flat fee to the rent amount on the lease and checked box on lease that gas and electric were included.

Nathan Gesner · Answer

The "standard" lease form REALTORS use is copyrighted by the Chicago Assocation of REALTORS and should not be used by anyone but a member of CAR. Those REALTORS are breaking copyright law and probably violating their Code of Ethics by passing that out to the public. I wonder what happens if the Tenant, an attorney, or the judge discovers the Landlord used a lease they don't have legal access to?

@Tony Robledo a simple addendum explaining what the Landlord pays and what the Tenant pays will suffice. Plain language is fine as long as it is clear to both parties. You can both sign and attach it to the lease, or you can add a hand-written note at the end of the lease and both initial.

HOW TO SHARE UTILITIES 101

You have a property with two or more units and the utility meters are shared. There are a few options.

1. Pay to separately meter the utility. This can be very expensive and is usually the worst choice to make because you can't justify the cost.

2. Charge the tenants a higher rent rate and include utilities with their rent. This is the simplest method, but it also means your tenants are more likely to abuse the utilities by leaving windows open with the heat or A/C running, leaving lights on, ignoring the toilet that constantly flushes on its own, etc.

3. Pay the bill yourself, then reimburse yourself by charging the tenants based on a formula. This takes a little more work, but it's the most fair and reduces the likelihood of tenants that squander utilities.

If you choose #2 or #3, there are considerations:

Start with an average. Use varies throughout the year. Heating costs go up in winter, as does electric due to the reduced natural light and people being indoors more. Electric can also spike in the summer with A/C. Contact the utility provider and get an historical average based on the last year of use. It won't be 100% accurate, but it will be close enough. I recommend you do this each year to adjust for utility increases and other variables. If your average heating bill is $150, you may not collect enough in the winter months when the bill reaches $225 but you'll collect extra in the summer when it drops to $65. If you base your tenant charges on the historical average, you should come very close to collecting the entire amount over a one-year period.

Charge a higher rate. If the water bill is $100 a month, increase the price by 20% (or whatever you decide is fair) to compensate you for the time required to split and bill and to cover additional use when tenants squander the utility. If the bill is $100 a month split between four units, increase it to $120 and charge each tenant $30.

How to calculate charges. Don't make it harder than it has to be. If you have four 2bed/1bath units with the same appliances, split it four ways and call it a day. You can make minor adjustments based on the type of appliances (dishwasher, clothes washer and dryer, air conditioning, etc.) and the size of the rental. If Apartment A is a 2bed/1bath with washer/dryer and Apartment B is a 1bed/1bath with no washer/dryer, Apartment A should pay a higher rate. Another option is to split the cost based on the number of occupants in each unit but this also means you'll need to adjust the charges as tenants move in/out, so it requires more work and I wouldn't recommend it. I recommend a simple spreadsheet to check your math and it will make it simple to adjust each year.

End the complaints. Tenants may complain about your method of calculating how much each unit pays. They think it's unfair because they only shower once a week but they can hear the upstairs neighbor showering twice a day. You can put an end to this by showing them an actual utility bill. Why? Because a large percentage of the charges are base fees that do not change based on use!

I just looked at a utility bill and it has a total charge of $184.12 but $116.50 is from base fees! If I divide this bill by four units, each tenant would pay $46.03. If they were separately metered, each tenant would pay the $116.50 base fees and their individual use, which would be 3x higher than what they pay when sharing a meter.

There are a lot of options out there, but don't make it more complicated than it needs to be. Tenants actually save money when using a shared meter, so there's plenty of room for error when calculating how to distribute the charges.

John Warren · Answer

@Tony Robledo why not just use one of the standard lease forms that all realtors have access to from our realtor boards? If you use one of the suburban leases, they will be up to date on the new landlord tenant ordinance as well. All of the leases I have ever used have a section that breaks down utilities, and this is something that often can turn into a misunderstanding down the road.

How to write a lease with utilities included?

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