New law gives apartment owners much needed structure for better utility management
Over 80 percent of California apartment residents don’t directly pay for the water they consume in their home. Without an idea of how much water they use, it’s impossible for residents to have any real understanding of how to best scale back consumption. That, however, is about to change.
As legislators and supporters see it, solving for the state’s water shortage begins with submetering. The majority of California apartments don’t have individual water meters—or what’s called submeters—meaning that 1.3 million residents have no measured idea of how much water they actually use in any given month. And the fact that residents’ water use is wrapped up in their rent payment not only mentally disassociates their actual water consumption from its cost, but removed any financial incentive to conserve.
What begins as one easy and aggregated water bill from the utility company to the apartment owner, adds a layer of billing complexity for apartment operations across the Golden State now enduring its fifth straight year of drought. Lack of apartment submeters has long presented little upside, but big risk since multifamily owners are responsible for recovering the cost of its community’s water bill (including related fines for exceeding state and local-mandated targets) while residents consume the water without any concept of how it affects the State’s limited resources.
Such inconsistencies have hindered the state’s ability to promote conservation.
Over 86 percent of Los Angeles apartment owners in 2015 revealed that total water use remained unchanged—and even increased—despite the governor’s order to reduce urban water use by 25 percent. The survey was conducted by the Apartment Association of Greater Los Angeles, and experts say the results suggest that apartments need water meters that can break down usage by unit.
A 2004 study, funded by the U.S. Environmental Protection Agency (EPA), found that submetering cut water use by 15 percent on average—simply by giving residents information about their water consumption.
Nine states have had submetering for years, including Arizona and Texas, and now California will join them. On September 26, Gov. Jerry Brown signed Senate Bill 7 (SB-7), a law drafted by Sen. Lois Wolk, (D-Davis). The culmination of over a decade of legislative work, it requires new apartment buildings constructed after Jan. 1, 2018, to include submeters for every rental unit and to bill residents accordingly.
Although such laws have been proposed repeatedly over the years without results, this one saw no organized opposition and received broad support from the Sierra Club, Friends of the River, California Rural Legal Assistance Foundation and the California Apartment Association, a group that represents thousands of landlords.
“Back in the 1970s, we created a law saying that an owner could install a submeter and they would not be considered a utility,” Debra Carlton, senior vice president of public affairs at the California Apartment Association said. “Then came all these questions about billing and disclosure. Legal questions were raised about making sure tenants had appropriate notice and weren’t misled. That’s really why we came to the table, to clear up those questions, and also to clarify inconsistencies in the law.”
Carlton estimates the added cost to new construction for purchasing and installing new meters at approximately $150 per meter, per unit. In the past, some local municipalities would charge fees to allow the installation of the submeters, even though the municipality was not involved in the installation. SB-7 prohibits this practice.
“Tenants will pay their submetered water bill to the landlord. Then the landlord turns around and pays the master water bill for the total property to the municipality or the water agency,” Carlton said. “The water agency has no direct role in billing the tenants. Everything has to be justified through the master bill. That’s why there are disclosure requirements in the statute.”
Submeters and more
In addition to installing submeters, SB-7 requires owners of multi-unit rental properties constructed after Jan. 1, 2018, to provide residents with accurate information about the volume and cost of their water use through their own individual submeters. Residents’ water and sewer bills will be solely based on usage.
Above all, the law provides clarity for multifamily owners, operators and residents. Previously, the practice of billing residents for water and sewer charges was not comprehensively regulated on the state level but only on the local level and only in few jurisdictions. It is now guided solely by the state.
“Submeter and RUBs are the two big take aways of the bill,” said Micheal Semko, vice president of legal for RealPage. “But it’s also important to pay attention the smaller language requirements. The good news is that we now have clarity on what’s required inside our utility billing language. Now we simply need to focus on compliance.”
RealPage Utility Management was very involved in the effort to bring SB-7 into law, particularly regarding existing properties that utilize an allocated or RUBS billing methodology, and on submeter installation issues.
Certainly SB-7 clarifies many of the previous unknowns in utility billing and management. That can only provide relief to owners and operators who won’t face unanticipated exposure for how their billing is implemented. Now it simply comes down to compliance.
What about existing properties?
While SB-7 primarily applies to new apartments built after Jan. 1, 2018, there remains the question of existing apartments and how they will be affected. Those properties planning to install submeters, or that already have, must also follow the requirements outlined in SB-7, mostly related to disclosures and the required wording of utility bills.
“If an owner was previously including water in the rent and residents weren’t doing anything to conserve, they’re certainly going to see a savings,” said Carlton.
Many cities have devised fairly steep penalties for water consumption over and above certain set standards. Until now, there was little that could be done to encourage conservation, and adjusting rent to compensate for higher water costs only places the landlord in an undesireable place between the law and the resident.
“I think it’s going to make things a little more fixed and understood,” said Carlton.
The clock is ticking
One of the key provisions of SB-7 is its effect on properties that have not yet instituted a ratio-allocation (RUBS) utility billing system. RUBS is a utility billing method that allocates a property’s utility bill to the residents based on an occupant factor, square footage or a combination of both, less a predetermined percentage (determined by the owner) of a common area allowance.
“The clock is ticking for properties in California to institute a RUBS program,” said Semko. “Any owner or operator that implements a RUBS program for pre-existing utility connections after January 1, 2018 faces the potential risk of resident challenges that the practice is “unfair” under the wide-ranging and murky California consumer protection statutes.”
Implementing a RUBS program is not an instant process. Semko’s concern is that the window on this was fast approaching and many owners are still unaware how this will affect their operation.
“Owners should consider their options in light of this new legislation, certainly submeters and RUBS, said Semko. “But there’s also smaller language requirement that also need attention. This is a lesser, but just as important for legal compliance.”
“Given the extent of the drought and the need for greater water conservation in California,” said Senator Wolk. “All of the state’s residents should be armed with the knowledge of how much water they’re using to help them reduce their water waste.”
Contributors: Matt Weiser of Water Deeply; NAHB 2015 Residential Demographics report; California Apartment Assn. 2015 L.A. Utility Usage Survey.
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46 Responses to New law gives apartment owners much needed structure for better utility management
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