Legal implications of landlords covering utility bills for tenants
The surge in energy prices is something that every landlord is likely to have been impacted by - especially those with more extensive portfolios of property.
In most tenancy agreements with employed tenants that are not in education, utility bills are expected to be covered by the tenants directly, with only a set monthly rolling charge to be paid to you directly for rent.
But what about tenants who have an ‘all bills included’ clause in their contract? In such scenarios, what are the landlord's legal obligations? And what are the limits?
According to the Office for National Statistics, electricity prices in the UK rose by 66.7% and gas prices by 129.4% between January 2022 and 2023. They’re expected to further increase this April when the price-cap set by energy regulator Ofcom is re-negotiated.
If you’re a landlord who pays utility bills on behalf of your tenants, such as students at university or people living in a shared house of multiple occupation (HMO), this continuous increase in cost could threaten to eclipse any income you make from actively renting out your property. But how can you counter climbing costs?
Firstly, it’s important that you establish clear limits on what is considered ‘acceptable usage’ so that you don’t find yourself at the mercy of opportunistic tenants. You should clarify and clearly identify which utilities are included in their tenancy agreement and list all those applicable, such as water, electricity, gas, sewage, and broadband.
Next, set a definitive cap of the maximum cost per tenancy term in terms of monetary cost - rather than unit usage. For example, £500 per year for a single room in a shared HMO may seem reasonable, but this should be set as a cost incurred and not kWh used, as the price would then be variable.
You should stipulate in the contract that any additional costs that are accrued outside of this cap due to excessive usage must be covered by the tenant directly. This will mean that even if the cost of energy continues to rise, you won’t see a loss of income due to establishing immutable ground rules.
If your tenants decide to consistently crank up the thermostat, use energy excessively beyond normal usage and, should the worst happen, exceed their maximum allowance and refuse to pay any excess charges, you’ll be exempt from incurring any legal ramifications. You’ll have a watertight and fully enforceable writ that holds the tenants personally liable - and should begin proceedings to enact this as soon as possible to avoid conflict with utility providers or a lapse in service.
However, if you find that tenants are routinely exceeding their maximum usage, you should not under any circumstances attempt to increase the rent or other charges in an effort to help cover rising costs during an active tenancy. This would be a breach of contract and would leave you vulnerable to legal action from tenants.
As you pay the bills directly to the utility companies, you will be eligible for three distinct support schemes:
Energy Bills Support Scheme - this gives each household £400 towards your electricity bill
The Energy Price Guarantee - this puts a clear limit for most households on the rates your supplier can charge your landlord for gas and electricity
The Energy Bill Relief Scheme - this offers support to businesses (applicable only if you rent to commercial tenants in this scenario)
The above schemes are in place to ease concerns about climbing utility costs and should come directly to you as the primary bill-payer. In the short-term, these will help to ensure that you enjoy sustained profit from renting out your properties without incurring excessive charges.
For a long-term solution, get in touch with our specialist landlord services team today to ensure that your tenancy agreement is arranged to protect you and your interests.
Contact Siobahn to discuss this further.
