Inherited tenants say utilities were paid by previous owner

17 Replies

Hey all, I'm looking for advice on how to handle a situation with a newly purchased duplex in Colorado Springs. 

After purchasing the property just a few weeks ago I was on site to work on some needed repairs. I was talking with one of the tenants and she was complaining about the last property management (who had just taken over a few months ago) including how they never updated the lease to reflect that utilities were covered by the owner. Apparently the previous lease had that clause (according to the tenant). However, the current lease that came with the property when I purchased it and the MLS listing, both stated that all utilities are paid by tenants.

This tenant's lease is up the end of March and the other the end of January. There is a clause in the lease that a new buyer can terminate leases with a 60 day notice but that puts me in the dead of winter with vacant units.

Obviously I have no obligation to pay for utilities as it is not stated in the lease, and it would kill my cash flow. However, I want to handle this situation carefully and am looking for ideas. Thanks in advance.

I have almost never heard of a landlord that covers anything other than water & sewer, and usually that is because the building is master-metered. Electric is virtually always covered by the tenant, as is cable, natural gas, telephone. Occasionally heat is covered if there's only one furnace that heats all units. 

Question: who is paying the utilities right now? Someone must have paid last month for them to still be on. 

I guess my first call would be to the all the utility companies, water, power, gas, trash, and verify whose name the utility accounts  are in.

Notify the utility companies that you are the new owner of the property and if their is any change in status of service.. Like shutoffs due to non-payment you will be notified. so your property does not have interruption in services. 

I'd present the tenants with new leases with you listed as owner that match balance of term and make sure the service for utilities is clearly on the lease.  

Double check the current lease and with prior property management company to make sure you have all the paperwork you should regarding the leases and contracts management company may have made.

I am not clear of whether the tenants signed the lease that says that they are responsible for utilities. If they signed it, you are on fairly solid ground in getting them to pay for it though you should check with the new PM if there was any discussion regarding this issue.

Having said that, you also need to look at the local practices. If everyone else is charging the 'same' rent and covering utilities you may have to adjust your expectations. On the other hand, if for the current rent, other landlords are NOT paying utilities, then your current tenants would NOT have other options in the local market at the end of their leases.

Well this sucks. All a part of due diligence, but unfortunately you are beyond that. So now what...

When you say utilities are you referring to water, gas, electric? In most places the water bill sticks to the property even after they move so you might keep that in mind. Also important to note that tenants can be full of crap with a new owner. So they are responsible for the lease they signed, but you have to judge how this problem is going to become yours. I would push the tenants to pay the utilities as stated in the signed lease you have. If they don't pay the utilities that is really their problem. At the same time I wouldn't want them to take it out on your property. The good news is your exposure is somewhat limited in that your leases are coming up.

What is your plan when the leases come up? Increase rents, new leases that clearly state utilities are paid by tenant, repair units and rerent at market rent?

That would also play into how sensitive I would be to the situation - like consider paying a portion or being prepared to if I knew I would have them out and higher rent in a few months.

READ the papers from the transaction - - for a rental You should have an ESTOPPLE for each unit.  It declares:

  1. rent & deposits
  2. length of the lease
  3. who owns the appliances
  4. which parties pay what utilities

Part of real estate investing, especially if you're going to buy and hold a property, is the costs involved with vacancies. Sometimes it cannot be avoided, especially if there are structural or administrative issues that need tending to. In your case, you have a problem with the utility structure (not broken out separately), a problem with the administrative structure (tenants who agreed to pay utilities but don't, and a former owner that paid for them), and a problem with the unit structure (smoked-in apartments, torn up carpeting, etc).

You need to decide what's best for your long-term investment here. If paying the utilities makes the unit unprofitable, it was probably unprofitable from the beginning anyway. Outside of that, you may just need to allow the current tenants to move on, sink a little cash, fix things right - especially separating utilities - and then re-rent at market rates. You'll have to absorb some vacancy as the cost of doing business. Or just pay the utilities until each tenant leaves when their lease is up. 

Will utility companies let you know if billing is current? 

I'd still get my name as land lord listed as contact and in MN land lord has revert to land lord provision with utility companies to protect if bill's aren't collected from tenant for shut off's.

I'd check further.

I didn't understand when you said utilites aren't split between unit.

Separate meter then for both gas and electric. and water. 

Push thru and get the answers from the utility company. ask for a manager don't take NO 

@Canneton Howard so a couple of thoughts. 1) the clause stating that the landlord can terminate the contract with 60 days notice is unenforceable. Since the clause is not unilateral then any judge will throw it out. At the same time, most tenants don't know this so if you send them packing by pointing to the clause, they will likely move. 

2) I read your post that the duplex has common meters for each utility (ie 1 gas meter, 1 electric meter and 1 water meter) and the landlord was getting the bill. Does the lease spell out how the common bill will be split? If it does not then that is a chink in your armor. The landlord can obviously pay the bill and then bill the tenants. If they don't pay then you have a nasty situation on your hands. Split utilities with meters for each utility at each unit is the way to go. If you can't do that then you have to make up a means of assigning responsibility and put it in the lease. It really doesn't float to just say the tenant pays utilities when there is no way to determine exactly how much they use.

There is a saying that has some truth and you would be well served to remember it. It goes like this, "see tenants lips moving, see tenant lying" the bottom line is, take what the tenant says with a grain of salt. 

Now to the business of the mis-representation of the utilities. If in fact the landlord was paying utilities (which it sounds like was the case based on the discussion at the closing table) and it was stated otherwise in the listing, a call to your broker would be in line. Someone is lying between the owner and the listing agent. My guess is the listing agent was also the previous PM that swindled the tenants into signing a lease that said they were paying when in fact the owner was paying. A call with the listing agent's managing broker should get some relief on the purchase price that would be a credit to you from his commission. If the broker is a solo broker then the discussion could start with offering to call the real estate commission. 

@JD Martin

Thanks for your comments. Separating utilities seems like the way to go. I hadn't taken that cost into account in my original calculations but I think in the end it will save a lot of headache and make it much easier to appropriately bill the tenants. 

@Bill S.

All good thoughts. I think I might contact the listing agent/broker even though I know it is not the same company as either previous PM. It really sounds like the latest PM company was shady as none of the tenants could never get a hold of them and from the looks of the property, never set eyes on it once to take care of any repairs. 

To answer your question; no, the lease does not specify how the common bill is to be split. I will be adding more details to that section of the new lease.

Thanks again for your comments. 

@Canneton Howard thanks for the clarification about the relationship of the listing broker and the pm. Since my speculation was not true and they are not one and the same, then the picture changes. It's much harder to lean on any one party for culpability. The bottom line is that you, the buyer, relied on information presented by an agent (yours or theirs) that the tenant and previous owner have since stated is not true and it's likely going to cost you money.

On the positive side, in the grand scheme of things, it's probably not a huge amount of money as the terms of the leases are up in few months. You can make it crystal clear in your new lease who pays what and how it's determined.

@Canneton Howard Tenants are trying to pull a fast one.  If their utilities are currently on it means that the accounts are under their names.  So they put utilities in their name that they are not responsible to pay for?  Riiiiiiiight.

Just tell them you will be sticking to what the lease says and watch the problem go away.  Don't be scared of the vacant units either, do you really want to deal with people like this anyway?

Cool heads prevail every time...thanks @Canneton Howard . Keep in mind, and though I'm no apologist for and don't know much about the one in question, I know from current experience a property manager can only do what their (owner) client will allow.

@Bill S. - First it was that the PM and listing agent were one and the same. Forced to recant, to then state the buyer "relied on information presented by an agent (yours or theirs) that" "is not true" continues to imply there was some impropriety on either agent's part, when neither have any obligation to investigate further and, with no actual knowledge, nothing to disclose. To my knowledge, and I stand to be corrected, if the seller misrepresented or omitted facts, the agent is "off the hook". End of story. Besides, if I read the initial post correctly, it was a request for assistance on how to handle the tenants, not how to initiate a witch hunt. Inflammatory conjecture is never warranted and dangerous. Stay on point and stick to the facts, please.

@Michael Noto - You won the internet.

I wanted to post an update on this situation. 

After writing this post, my realtor read it and started looking into it further by contacting the seller's agent. Come to find out, the tenants were telling the truth and the latest PM had written the contract incorrectly and therefore the MLS listing was inaccurate stating that utilities were paid by the tenants. My realtor suggested we ask the seller to pay for the utilities through the end of the current tenant's leases. The seller agreed and wrote a check to me to cover utility expenses (estimated) and also an agreement that if that amount didn't cover it he would pay additional.

So, lessons learned: Tenants can be telling the truth, it never hurts to investigate and ask for something, and make sure you have an awesome realtor who continues to work for you even after the deal is done. Thanks Norberto!

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