Your lease requires the tenant to create their own utility accounts and pay their bills. Most of us assume if the tenant does not pay their bills, the utility will turn off services. While true in many cases, there are a number of exceptions.
When the tenant leaves with an unpaid utility bill, landlords may be surprised to learn that they (as the owner) end up being responsible. In those cases a plan needs to be in place as to how to keep the utility active while recovering funds from your former tenant.
The Security Deposit
When a tenant moves out one of the first actions is to transfer utilities into the landlord’s account. In doing this you may learn quickly if the tenant has an outstanding balance. Many utilities will refuse to activate the service until the unpaid balance is settled.
When the owner learns there is a balance owing, there are two areas of recourse to the tenant:
- Their security deposit- assuming there is a balance available after unpaid rent and any damages.
- Filing a damages suit and obtaining a judgement against the former tenant for unpaid rent, damages, utilities and court costs.
The utility company will likely not be much help. The owner will need to pay the balance in order to obtain service.
Just Because the Account Transfers Does Not Mean You Are in the Clear!
Some utilities offer a service where if the tenant stops paying the account is transferred to the owner. This is done in order to keep the service active. This makes sense in climates where a lack of heat or air conditioning could damage the interior of a home. It also protects an owner from a tenant losing water service and becoming creative in handling functions that require water. Something you don’t want to stumble into!
Utility companies are famous for not being prompt in their billing. There are many stories of landlords who received an unpaid bill from several months previous that their tenant owed. The utility company did try to collect but they were unsuccessful. The utility company does not just stop there. They will look to the property owner as the obligor for this past due balance.
Unless you can receive a statement from the utilities that the former tenant has paid all their bills current.
Another reason to not be in a hurry to return a security deposit.
Maybe the Utility Will Let You Off the Hook
If you are hit with an unpaid utility bill there are two best case options.
- the utility company not pursuing you as the owner
- the utility company not placing a lien on the property where service was rendered
Make sure your lease is very clear on the tenant being responsible for their utilities and accounts. Present that lease to the utility and offer to assist in providing information on the tenant that could aid in tracking them down for further collection.
Know Your State’s Utility Laws
As stated above in some locations unpaid utilities may become a lien on a property! So, your property can not be sold until the lien is paid. That lien will likely include late fees.
It is less costly to pay the outstanding bill now and then pursue the former tenant. If the security deposit is not enough, go to court and obtain a damages judgement.
Utilities are handled many different ways based upon your local laws. Become familiar with those laws in your area in order to create the best plan for handling your rentals utilities.