At Clark Real Estate Property Management, we are often called upon to advise Landlords on water charging and water compliance. Here’s our comprehensive guide on how you and your investment property can be more Water Wise.
It is well recognised that, in the not too distant future, the world will no longer be fighting over oil, but Water! And where a commodity becomes more scarce, of course the cost of it rises. And as our bodies are made up of 90% water, of course domestically, this will be one resource which we are all going to need to secure.
As property investors, you too are impacted by the environmental and economic forces surrounding this political hot potato. Australia is one of the driest continents on earth. Water supply is already being fought over in our own backyard:
- the debate over climate change and its impact on our drought ridden country;
- between growing populations and agriculture seeking water security from major rivers and dams;
- with debate over public spending on much needed infrastructure projects for new dams, irrigation supply, desalination plants;
- the use of waste water and groundwater;
- the rising cost of living due to increased costs of essential services such as electricity and water; all lending to the noise around Water.
The last point is something that impacts on you, the landlord directly… now… in your back pocket. Your water rates bill comes to you directly and cannot be set up by your tenants, unlike gas or electricity. Therefore, it’s important to consider if you are doing everything to minimise and recoup this cost and of course do your bit for the environment and economy.
How you determine your rights in this regard requires consideration of the Residential Tenancies and Rooming Accommodation Act 2008 s166 Water service charges for premises other than moveable dwelling premises and following our step by step guide below.
Step 1. Work out whether or not your property is individually metered or not
Houses will be individually metered. However, many apartment blocks or other multi-dwelling complexes are built in a manner which means only one water meter services the block. In this case, you cannot simply determine how much water your individual tenants have consumed and therefore cannot on charge the usage. In this case you will see on your bill a reference to Boundary Meter and your percentage share. The below example property is not individually metered and therefore usage charges cannot be passed onto tenants directly.
This can be the cause of considerable frustration for unit holders who see rising usage charges with no ability to control these costs. And there may be no way of knowing if it’s your tenants or another or the body corporate gardener?
In one recent case, the owner of a block of units in Kedron saw her water bill on the significant rise but without individual meters, felt hamstrung. We recommended a plumber first assess the property for water efficiency. Following this he was also able to provide advice and quote on installing meters which would allow an individual reading to take place for each unit. We also connected her to a Compliance Service Company who, for a small fee would undertake the readings required to allow individual bills to be invoiced to the tenants.
Not every property is the same and your solution may not entail all of the above. In this case, we recommend doing what you can do at the most effective cost for you. At the very least, investigate making your property water wise which will reduce the usage to some extent. At the end of the day an upgrade to water wise is a tax effective cost that will be recouped over time. You should see a reduction in consumption and as water becomes more expensive your return on investment should increase.
You also need to ensure your rent reflects that water is included. We recommend that you regularly look at all the costs associated with your investment and ensure your rent is producing a yield that is covering all these costs and that it’s in line with market yield. We will regularly provide you with market trends on rents in your area to ensure your property is returning a yield in line with the market. If it’s not producing the yield you desire or could expect, let Clark Real Estate know and we will undergo a diagnostic investigation and recommend ways to ensure your investment is working best for you.
Step 2: My Property is Individually Metered – so what now? Calculate the Usage
If your water bill doesn’t show a ‘shared percentage of a boundary meter’ it means your property is Individually Metered. This makes things simpler. But what can be on-charged to a tenant?
Section 166 specifies that only water consumption charges can be passed on. This is the variable parts of your bill which are calculated on the volume of water supplied. Urban Utilities and other suppliers now make it easier by separating clearly the Water Usage charges on your bill. In the sample below, it is the top portion only under Water Usage that can be looked at. The landlord must still pay that portion for Water Services and Sewerage Services as these are fixed access charges.
Step 3: Why should I consider making my property water compliant?
Because if it is, then you can pass on the full water usage portion of your bill. In the above case the tenants would be invoiced $182.49. Whether its an economical choice depends on the age of your water fixtures and your property type. Our trusted plumber can undertake an assessment for $99 incl GST. If it just requires a small alteration you can authorise them to proceed up to a spend limit of your choice and they will do the work there and then and issue the Water Compliance Certificate on the spot. If more work is involved, they will provide a competitive quote to upgrade.
To give you an idea of the difference compliance can make, take the above example bill. A water compliant property means you recoup $182.49 of the total $371.07. If it wasn’t compliant you can only charge for Excess Water Usage which we discuss in more detail below. An industry norm is an allowance of 40kL per quarter. So the tenant would only pay for 10kL of the total 50kL used in this case or $36.83. That’s a difference of $145.66 for the quarter that you cannot recover. On average over the year this might add up to nearly $600. Over 5 years that’s around $3000. Is the cost of upgrading your property and a check up every couple of years seem worth it now? It might be worth investigating.
Step 4: If my property is not water compliant, can I still recover any cost at all?
Yes you can. We call this “Excess Water Usage”. As long as your property is individually metered you can negotiate with the tenant a “reasonable” supply you should provide to the property having regard to:
- average local usage;
- the number of occupants you’ve approved;
- the size of the property;
- any water saving devices already in place,
- any other relevant factors.
[Section 169(4)(a)-(g) Residential Tenancies and Rooming Accommodation Act 2008]
The tenants pay for any excess usage over and above that amount. This needs to be negotiated and clearly included in your lease agreement. We use an industry norm of 40kL each quarter in our standard lease depending on the circumstances. However, this is open to negotiation by the tenant.
Step 5: Make sure your lease allows for water charging
Our lease process ensures that the tenants are required to pay water and will include a term to ensure it covers your property’s circumstances. Even, if you decide part way through a tenancy to upgrade your property this is usually covered under the existing lease. We will of course keep the tenant informed of any upgrade and recommend they budget ahead for any change.
Common Issues Faced with Water Charging and How to Avoid Disputes
The most common disputes are:
- Proof the property is water compliant
- Delaying invoices / bulking invoices together
- Billing documentation
- Defining reasonable usage
- Maintenance and the impact on water usage
- Monitoring water usage and leaks
Our job as your Property Manager is to minimise disputes and ensure your relationship with your tenants is a pleasant one. This is best achieved by effective communication and information. Right from the time a prospective tenant inspects the property we need to be armed with the information required to answer a tenant’s query about what charges are applicable over and above the rent payable. So we will ask you about your property’s water status and how you would like to deal with water costs.
Here’s how you can ensure disputes are minimised.
- Keep your proof of water compliance up to date. If requested, evidence of compliance must be provided. It leaves it open to argument if the certificate we are relying upon is more than 2 years old without any evidence to show the fixtures have been checked over more recently. New builds must be water compliant, but this does not mean they don’t need to be checked as the years pass.
- Make sure the invoice to the tenant is forwarded promptly. Many landlords allow us to pay their rates from trust funds. Not only does this ensure your rates are paid on time but also allows us to promptly on-charge the tenants for usage. If you pay your bill yourself, make sure you pass it onto your property manager straight away so it can be dealt with. No tenant wants to be handed an invoice for hundreds of dollars months later. In fact, QCAT do not look kindly on tardy landlords and have been known to limit back-charging tenants only 6 months. If you have forgotten, consider on-charging still but offer the tenants an extension of time to pay.
- We always include a copy of the back page of the water rates notice with the tenant’s invoice as proof of how we calculated the charges. A detailed calculation is also included on Clark Real Estate’s invoice. Rates notices can be confusing to read unless you do it everyday. Different utility companies set out their bills in different ways. So a clear explanation goes a long way to assist understanding.
- What is actually “reasonable” usage when determining Excess Water Charges is actually not a set formula and takes into account a variety of factors which we stated above. If your tenant decides to negotiate we will work with you and the tenant to come up with an agreed figure. Often they will look at average consumption per person in the local area multiplied by the number of approved occupants in the property. But there are other factors too such as how often they need to water a garden or lawn and the size of it. Guidance is provided on your local utilities website when coming up with a figure.
- One of the most disputed areas can be when an increase in water usage is the result of a faulty fixture such as a leaking tap or toilet. If a tenant reports an issue such as this and it’s not acted upon they can also dispute payment of the water wasted as a result. Or, your property is not individually metered and what you saved in maintenance you ended up paying in higher water usage. Prompt action is recommended.
Likewise, a tenant is required to report maintenance in a timely manner. And it is not always something that is evident on a routine inspection. If a toilet or tap has been leaking for a lengthy period and they’ve failed to advise the property manager or landlord, they cannot then turn around and expect a reduction in the water on-charges because of a fault which remained unknown to the landlord.
- If you notice a spike in water usage, let the Clark Real Estate Property Management Team know. It may be that the tenant has left a tap running, has had visitors, or it may be something less evident such as a leak. In that case, we will make enquiries with the tenant to try and find the cause. If it appears to be a leak, we will also assist the tenant to undertake a simple test and report the findings. The matter can then be more thoroughly investigated by a plumber.
Being Water Wise – it’s certainly worth considering.
To ensure your Water Wisdom is put to good use contact your Property Management Team at Clark Real Estate on 07 3256 1600 to find out how we can help maximise your investment. Specialists in Inner North Brisbane including Clayfield, Wooloowin, Wavell Heights, Gordon Park, Lutwyche, Windsor to Geebung, Boondall, Banyo.