Facility Lease Contracts: Are You Over-Paying for Your Utilities?

When you’re leasing a property for use as a retail space, office, or other business purpose, you have selected the property for a strategic reason, such as the property being located in a hot market for sales opportunities, or being close to the workforce for a call center. Accordingly, your business’ property department is charged with finding a good location to meet your needs at a reasonable price. However, it is often possible that you and your property department fail to closely examine a variable expense that is part of the lease — your utility expenses and how you pay them. Essentially, closely monitoring your utility expenses should be a part of your energy management program. As such, this blog will discuss where to look for opportunities to reduce utility costs, thereby ensuring that you only pay for what you really use and at the right rate.

The Utility Section in the Lease Contract: Will the Landlord Supply the Utilities?

The utility section in the lease contract will identify how utilities attached to the building will be billed. After looking closely at the utility section of your lease contract, ask the following questions: Will the landlord supply the utilities?  Or is it the responsibility of the tenant to deal directly with the respective utilities serving the building? This is your first opportunity for savings. If you can directly deal with energy utilities, it may be possible to purchase your natural gas or electricity through a third party supplier at a lower price. Likewise, if the utility account is in your name, the account may qualify for an alternative rate which may reduce your utility costs.  In order for you to avoid being overly charged for utilities, you can have a lease audit conducted to ensure you pay the lowest cost possible for your utilities. 

Billing for the Utilities: At What Rate is the Landlord Charging?

Next, if the landlord is charging for the utilities, the next question that you should ask is, “At what rate?” Sometimes the landlord will simply pass on the charges for what they are charged by the utility and will include a copy of the invoice in your monthly rent bill. However, in other cases, the language in the lease contract identifies that you will be billed at the rate the local utility would charge. Circumstances such as these also require a rate audit in order for you to pinpoint what is being charged by the landlord versus the rate for an account billed by the local utility. Often, landlords prepare rental invoices based on older rates charged in error by the utility. These instances present opportunities for you to be charged a lower rate for utilities and must be pointed out to the landlord for consideration.

In addition to asking about the rate, if the landlord is billing the utilities, you should also ask how your utility usage is measured. Is the utility usage charged to you taken off of the local utility billing and simply passed on to you? Or is it measured by a landlord sub-meter? Take yourself back to the first time you talked to the landlord before signing the lease. On the date you took over responsibility for the property, try to remember if you met with the landlord to get a read on the meter that will become the starting meter read for your utility bills. If you didn’t, you may end up paying for someone else's usage. Likewise, you need to take another meter read on the date when you no longer have responsibility for the utility usage to ensure an accurate final billing.

When billed by a landlord sub-meter, compare the amount billed by the local utility across your similar locations. If one is substantially higher, then you need to take a read of the meter to verify it was not read and billed in error. If the readings were found to be correct, you can then request for the meter to be tested for accuracy. Commonly used sub-meters are typically older models and are not serviced on a regular basis.

Exiting a Property before the Lease Expires: What are the Responsibilities of a Tenant?

Finally, tenants have certain responsibilities with regard to utility billing if they vacate the premises prior to the lease expiration. If you exit a property much earlier than anticipated and the account usage is reduced substantially, you may conduct a rate audit to see if the lower usage account can be placed on a more advantageous rate.

Utility bills can be one of the largest sums that you have to settle to ensure your business’ continuous operations. It is only wise that you regularly check and audit your energy consumption and bills to ensure that you are only paying exactly for the energy that you’ve used. While close monitoring of energy consumption and charges are mostly motivated by cost savings, this can also serve as  an opportunity for you to initiate energy reduction and energy efficiency programs for your business—a move that is not only wise for your bottom line, but also for the environment.

FirstCarbon Solutions (FCS) has utility bill audits, management tools and platforms that will help you realize cost savings, reduce your energy footprint, and identify billing errors. Talk to our experts today to learn more about the FCS energy solutions.