Dear Piggy: Does a Chicago Landlord always have to pay for water?
I received the following question from a reader:
I am a Chicago landlord. The new tenants in one of my two-flats have two small children and one more on the way. I recently received my water bill and see that the water usage is much higher than it was with the prior tenants. I know that nearly every apartment in Chicago comes with water included in the rent. I'm wondering, am I allowed to bill my tenants for water and sewer usage?
My Sink Runneth Over
The short answer is yes, a landlord in Chicago can technically bill a tenant for water and sewer usage. However, they can only do so in very specific circumstances, and only if the rental unit is metered individually. It is not a good idea though, due to a combination of risk and market expectations.
The long answer is, as you would guess, far more complex.
Chicago's Water: A Public Resource
The control and billing for utilities in the United States varies greatly from state to state and city to city. In Chicago, utilities are all in the hands of private entities with the sole exception of the water & sewer systems. The Chicago Water Department handles the actual supply of water to the city's residents. The Metropolitan Water Reclamation District ensures that the supply (and by extension the Lake and local rivers) remains clean and abundant.
Because water is handled by the government, they are able to work far more closely with other government departments. It also means that water billing is handled much like any other government agency. It runs as smoothly as the DMV or the IRS, but with about as much regard for customer comfort.
Metering, Unpaid Water Bills and Property Values
Now that we've explained a little about the water system let's take a look at some of the laws that will challenge you in your attempts to bill your tenant for water. First and foremost, each property in Chicago gets its own water account, but only one account per lot. This means that multi-unit buildings will normally only have one account handling the entire complex, or at most one per city lot.
Penalties for unpaid water bills can hit home in ways far more gruesome than an unpaid gas bill or electric bill. People's Gas and ComEd can cut your power and ding your credit report if you don't pay your bill. The accounts can follow the tenant from location to location, as they're associated with the payer's social security number. The water account is associated with your property's tax ID number, and runs with the property itself, passing from owner to owner with the title. The water department requires proof that the building's account is paid in full before it can be sold to a new owner. An unpaid bill means that you cannot sell your property until you pay up. In a condo building, an unpaid common water bill means nobody in the building can sell!
In addition to all of this is the issue that was raised by a 2010 Chicago Sun-Times exposé on water billing. 71% of Chicago residences did not have water meters. (Source ) Instead, usage is billed using approximations. While residents can volunteer to have a meter installed through www.metersave.org so that they're only paying for the water that they use, the city does not have enough meters to give to every existing water account.
By the way, with water and sewer rates going up drastically in Chicago from 2012 to 2016 I highly recommend that you sign up for a meter if you don't already have one.
The State has its Say
So, how does all of this affect you and your tenants? Normally with questions like these I'd refer to the Chicago Landlord Tenant Ordinance, but in this case the issues start at the state level. The specific law in question is 765 ILCS 735/1.2, also known to us normal folk as the Illinois Rental Property Utility Service Act.
According to the act, a landlord cannot rent out an apartment where the tenant is responsible for common area utilities unless he/she takes the following steps before offering a lease:
- Lets the tenant know - in writing - what common utilities will be paid for by the tenant.
- Provides the past 12 months of utility bills for the common areas and indicates if the usage over that 12 months was normal.
- Puts in writing any offered rent deductions granted to offset the additional expense
- Makes sure the tenant isn't required to collect payments from neighbors to contribute towards the common bill.
Note: I'm paraphrasing above, and I'm not a lawyer. Go read the real thing if you're actually serious about following through on any of this. Regardless, it doesn't take a lawyer to understand that the common billing structure in Chicago multi-unit buildings will make it very difficult to stay within the bounds of this state law. If you had a single family home for rent where all water could assuredly be attributed to the tenant then you'd be on the safe side, but otherwise you're going to have to come up with a whole bunch of documentation.
Oh, and because I know some of you are thinking it - water and sewer usage are billed together. What goes for one goes for the other as well, and I wish you a lot of luck trying to untangle who's using what percentage of sewer facilities in a multi-unit building.
The City's stance on Water
Now normally if the Chicago Landlord Tenant Ordinance conflicts with a state law, the Chicago ordinance wins, provided that your apartment is within its scope. (In other words, larger than six units or smaller and not owner-occupied.) For the most part, the ordinance is silent about the issue of water billing. However, it says that if the landlord fails to provide running hot and cold water, the property is not reasonably fit and habitable and the tenant has the right to demand in writing that the landlord remedy the situation within 14 days.
You're also required to provide copies of any utility shut-off notices from the past 12 months to a new tenant before they sign the lease. This means you really want to be able to receive those notices as they arrive. In other words, the bill should probably be going where you can keep an eye on it.
As for the other city department with a say in the matter - the water department itself - here's a verbatim quote from their website:
19. Can a tenant have the water bill put in their name?
A property owner may request that water bills be sent in the name of a tenant, however, this does not relieve the owner of the subject property from liability for unpaid water and sewer charges. Please complete a Change of Owner Name/Mailing Address Form to include the tenant’s name in the mailing address. (Source)
Tenant Expectations and Experience
So you can bill tenants for water, provided you stay within the bounds of the state laws mentioned above. However, as is often the case with business decisions, just because you can do something does not mean you ethically should.
Now supposing you can clear all of these hurdles. You've got a single family, non-owner-occupied unit that happens to be one of the 29% of homes in the city that has a water meter, where all of the water usage is clearly attributable to the tenant, with the water bill set up in your name and billed as a pass-through to the tenant. After warning them about this before they sign the lease. And providing them with 12 months of bills. Well done, you're very clever... and your tenant is very very stupid.
If you're new here, please take a moment to go back and read my recent article Landlording: What are You in it for? and then come on back. Now, remember what I said about landlords who are focused primarily on the money? Water is the cheapest utility in Chicago, and Chicago's water when metered is some of the cheapest in the country. Tenants normally don't even know how to pay water bills. When dealing with first-time home buyers I have a special little speech that I use for explaining how water billing works in Chicago - it's so rare that renters have to pay it that I can almost guarantee they will need training on how to do it.
Unfortunately for thrifty landlords, even when the law does not specifically require you to pay for something, peer & market pressure can force the issue out of your hands.
Speaking from experience, if a Chicago tenant has to pay for heat, they will generally still rent the apartment, provided they get to control the temperature as well. If they have to pay for electricity they will normally consider it acceptable - it's pretty common. If a tenant has to pay for water in a city where the vast majority of rentals include it, they will think you're a slumlord, and treat your property accordingly. They expect water to be included. If they have to lower their expectations from day one, the situation can only go downhill from there.
If you have read through all of this and still want to bill your tenants for water usage, there are a couple of workarounds. The easiest option is to estimate the worst case scenario for a water bill and increase your rent asking price accordingly. Much like the pigs' house of sticks, this method will suffice for most scenarios unless your tenant likes to take multiple baths a day or does laundry for their whole extended family.
Another option, although far weaker, is available if you live in a condo building. Water will normally be folded into your assessments, and you can bill your tenant for the assessments. This is a "straw house" method - it solves the problem temporarily, but will fall apart at the slightest challenge. You will be bumping up against the market expectation issue again. Tenants renting in Chicago condo buildings generally expect the landlord to cover the assessments. You'll also have to fold into the lease a contingency in case the board increases assessments or imposes a special assessment midway through the lease. It's quite a lot of work for a very scant payoff.
The best option - we'll call it the "stone house" method - is to fold the water bill into your cash flow analysis before you purchase the building at all.
You can be very successful at the business of landlording provided you treat it like a business and plan accordingly. The laws that are in place are there to protect both you and your tenants. Observing them requires that both sides compromise to keep the majority reasonably content.
Do you know someone who's rented an apartment in Chicago - either as landlord or tenant - where water was not included in the rent? Share your story in the comments!
Piggybank image source unknown. Sorry.