Knowledge For Tenants and Investors
Sign up for Property Reports from Monster Commericial!

Is suite metering in multi-residential property worth the investment? Part 1

By Christopher Seepe

Part 1

Suite metering, sometimes called sub-metering, is where the energy consumption, rated in kilowatt-hours (KwHr), of each tenant is monitored by a separate meter. In most cases, a sub-metered tenant is responsible for paying their own utility costs, and is empowered with energy use feedback so that they can manage their energy consumption.

How many property owners have ever driven past their investment property in the mind-numbing cold days of February and seen tenants with their windows and/or a balcony door wide open and the heat in their apartment cranked up to the max?

Energy costs continue to increase, sometimes exponentially, and especially electricity. I can only speak for a few others who have the same experience as me that time-of-use pricing has added to the energy consumption costs of the building. The 13% HST levied on energy services, which cannot be passed on to the tenant, had a huge impact on landlords, often causing landlords to compromise on the quality of service that was previously provided to the tenants as well as to the general maintenance of the property. The coup de grace blow was delivered in 2011 with the government’s 0.7% maximum rent increase. Landlords have been reeling from the devastating impact of these green movement and economic/social policies and reforms.

Before the scares of energy shortages in the early 1980s, many apartment buildings were designed with a single meter, generally called a bulk meter. The landlord either factored the utility costs into the rent, or prorated the single bill among all the tenants.

In the former case, landlords wound up absorbing rising energy costs since rent controls and the Residential Tenancies Act (RTA) in Ontario prevented, and still prevents, landlord/owners from passing on increased utility expenses to tenants, except in an extreme situation. In the latter case, a single retiree could be paying the same utility as a five-member family. In all cases, there was inequity.

However, the escalating costs of utilities, especially electricity, combined with the rapid growth in energy conservation awareness, have fueled all kinds of incentive programs and cost-cutting measures. Unfortunately, like many new initiatives from government authorities, there are some implementation challenges and pains that have arisen between government agencies like the Ontario Energy Board and conservation authorities, who are driven by certain mandates and ideologies that do not always take into consideration the practical business costs of implementing such programs, versus the utility companies that manage the end-user relationships, provide the actual service of energy delivering, and carry the mandate of finding practical business approaches to implementing a government’s mandates and policies.

Consider an average 11-plex that is converted from one bulk meter to twelve individual meters (11 suites + 1 house meter). Instead of one bill to the landlord, who is a very low-risk client that always pays their bill, and most likely always pays on time. Individual metering now requires the utility company to install twelve new meters (but not the infrastructure, to be discussed further below), create twelve separate business accounts, check credit references, sometimes collect and be accountable for deposits, bill each person separately every month or two, collect and process twelve separate payments, provide individual support and maintenance for each new account, and an take on a notable relative increase in the risk of payment delays and defaults.

Until utility companies are legislated to take on this extra administrative and operational burden, there is little incentive for them to incur these additional costs for virtually no directly-correlated profit. Nevertheless, in Ontario, these issues are being worked out and progress is being made. It took me about six months to have the issues addressed with my utility provider, but once the challenges were resolved, the utility company was ready to do the conversion with a couple of days’ notice and a one-to-two page application form that was completed by the meter installer/electrician. Not all utility companies and certainly not all situations would have the same types of challenges. You may be pleasantly surprised by the quick response and painless process of suite meter conversion.

Now, having provided caveats regarding cooperation of the utility companies, there remains the issue of “converting” tenants. If a landlord installs a suite meter, a tenant does not have to start paying their own utility costs. An existing tenant must be empowered by the landlord to make an informed decision about how they are charged for electricity. The process is arduous—no surprise there—and, if the tenant consents, the landlord must lower the rent according to a prescribed formula.

Currently, my tenants are not permitted the creature comfort of an air conditioner or freezer. I tried to entice them that they could now add these amenities. None of my eleven tenants took the offer and frankly, if I was a tenant, I probably wouldn’t either. There’s little upside for the tenant. If they’re already frugal energy users, the rent decrease is hardly compelling. If they’re little piggies, all the more reason to not convert.

Also, make certain you notify tenants in writing about the conversion. Prepare them for a full day’s power outage. Keep refrigerator/freezer doors closed and don’t buy food on that day. Let them know that the landlord will not be responsible for food spoilage.

After installation, likely, the best time for you to make the billing conversion is when an existing tenant moves out. The Residential Tenancies Act (RTA) is structured such that you can negotiate any new terms you like in your new rental agreement, provided it does not “contract out” existing legislation, for example, no pets allowed.

This is one of those rare conflict-of-interest situations where you kind of hope that your tenants will move out so that you can start billing electricity separately and recover some of the lost profit from the financial hammering the government has been doling out to landlords.

While I was waiting to sort out the municipal issues regarding the installation of suite meters, I changed my monthly (I never do one-year) rental agreement to indicate that the unit would eventually have a separate utility meter, and that when the installation took place, the tenant agrees to immediately contact the utility company to pay their own utility bill. Between the time I made that contract change and the time the meters first became operational, I had three tenants move out, who were replaced by three tenants who now pay their own electricity bill.

We will continue the discussion of the business case for suite metering in Part 2 next week.

Christopher Seepe is a commercial realtor, and maintains www.multiresidentialexpert.com, a website dedicated to providing expert advice and sharing his personal investment and ownership experiences to those investing, or looking to invest, in multi-unit residential, income generating properties in southern Ontario, Canada. You can contact him directly at cseepe@multiresidentialexpert.com

2 Responses to “Is suite metering in multi-residential property worth the investment? Part 1”

  1. Excellent article. I hadn’t considered the utility company’s point of view before; I guess it makes sense they would drag their feet in hopes of a landlord going away.
    In the end, with competitive forces being what they are, landlord profit increases will probably be slim if any at all but at least less energy will be consumed.

  2. Thank you, Gerald.

    The utility company was at odds with the Ontario Energy Board because of the overhead issues that the OEB did not address. Once that was resolved, in fairness, the utility company was proactive and very responsive.

    It did take another 6 weeks after approval, however, to order the parts and get the electrician and his 2-person team to complete the installation.

    Your point regarding eroding profit margins is a key point. I wrote an article that will be published in a print magazine about the how the LTB spends most of its time and what landlords can do to minimize their exposure to government and political party machinations, legislation, and the painful and costly processes of the LTB.

Leave a Reply

Follow Monster Commercial TwitterLinkedinYouTube