Expert: Jim Avancena, CPM - 6/9/2010

Question
Hi Jim,
I lease a 3000 sq ft. warehouse.My lease states I am responsible for utilities.  From the first day we moved in, we have never received a bill from the landlord. (We figured we didn't need to pay. Then suddenly in May 2009, we get a shut off notice. He says he wants $250 per month for utilities. We say, "ok" and start paying every month from May to present. Today we get a letter asking for Past Due Utilities from Sept. 09-May 09. Can he collect this? Can he go back to 2008, 2007, 2006, 2005?  How far back can he go? Thank you.

Answer
Karen-

Don't you hate it when the landlord makes a mess of something and then you must clean it up?  My answer below addresses electricity consumption because electricity is commonly the primary portion of a tenant's "utilities" charges.

Does your lease say that you are to pay $250 per month for utilities or simply that the tenant must pay utilities?  Your question says: "He SAYS he wants $250 per month for utilities".  A lease will normally give some detail regarding how the tenant's "utilities" consumption fee is derived.  Does the landlord already have an electric meter for consumption of electricity in only your premises (i.e., isolated from others electrical consumption) and simply re-bill the charges on the utility bill to you or does the lease describe some other method the landlord will use for measuring your "utilities", including electrical consumption, that serves as the basis for your charges?  

In your warehouse space it is best to have your own direct utility meters with the utility companies.  Regarding electricity, it may be best to have a "submeter" wired into the main electric meter that is measuring a much larger area of consumption serving many tenant spaces.  The electrical submeter tells the landlord how much of the consumption for the larger area is being consumed by your smaller premises.   This submeter arrangement will work fine for billing purposes as long as three things are true:

1.) ONLY the electrical wiring to electrical equipment in your own premises is wired to your submeter so that you are not paying for some other tenant's consumption (or a portion of their consumption) as well as your own.  It is often costly to re-wire the wiring to a larger area so that ONLY your electric usage is measured.   If your 3,000 square feet space is in a larger area that was formerly occupied by a (for example) 6,000 square foot tenant that had a meter that measured the electric consumption for the whole 6,000 square foot area; re-wiring will be necessary if you want an accurate measurement method.   In this situation, a landlord will often avoid the cost of re-wiring all the electrical outlets, lighting, heating and air conditioning equipment, etc. to just your smaller area, and choose instead to use some vague - less than accurate - means of having you pay for your electrical consumption.   It is also possible for a tenant's wiring to include some other non-tenant electrical equipment - for example the exterior parking lot wiring - wired in with its' own.

2.) The landlord is reading your submeters' consumption correctly.  Many tenant's will ask to be present when the meter is read each time so that you can confirm an accurate reading and consequent bill.

3.) The submeter is working correctly.  Submeters have evolved over the last 20 years and many of the older, less accurate, non-tamper proof, ancient submeters are still being used in some places.  

You need to determine if your periodic electric bills from the landlord are based on the method of measurement defined in your lease.  If your lease does not describe specifically how the landlord will determine your share of the electricity consumed in the larger project, then your landlord can charge you for your own "reasonable" share of the larger project's consumption.  If you have reason to believe that your charges are excessive, you will need to arrange for a utility audit of your premises which can be easily arranged with a private contractor.  The auditor will be able to advise you quickly and completely regarding his/her findings and opinion.

Unfortunately, if your lease simply stipulates that your must pay "$250 per month" for electricity, you have to pay the $250 per month.   Also, your landlord can likely charge you for "utilities", including electrical charges it overlooked sending to you in the recent past, however, depending upon the specific Landlord/Tenant or Civil Court law in your jurisdiction, the landlord may be limited to how far in arrears he/she/it can legally charge your for consumption and still require you pay.   Some areas will allow all of the charges to be collected and some will not allow any.  Also, you may get a judge that will grill the landlord about the reason the bills were not sent in a timely fashion and insert their own opinion about the reasonableness of requiring you to pay back charges.  These judges can ride a sloppy landlord quite hard for their irresponsibility and their ruling can reflect the judges disgust.

You may want to either contact the local Landlord/Tenant Court or Civil Court to find out how your local law addresses this issue.  In fact, many areas now post their local Landlord/Tenant law code on the Internet and you can look up the code section that applies to COMMERCIAL LEASES (not residential) on this subject.  You could also contact the local bar association to see if an attorney there can advise you in this regard, or contact a private real estate attorney's office to seek their advice.  They may provide this information free of charge if they think you might hire them to handle your case if litigation follows.

Finally, who sent you a "Shut Off" notice?  Did it come from a local utility company or the landlord?  Usually those notices come directly from the utility company.  If the landlord has not been paying the utility companies because it has overlooked re-billing the charges to you, that would seem to be a basis for a legal defense and something you should review with legal counsel.  

The "Shut-off Notice" matter may involve what is referred to as "Self-Help" laws which are illegal in many areas and may impact your landlord's ability to actually "shut-off" your electricity.  Even if your lease states that your landlord can shut off the electricity, the actual law in your jurisdiction may not allow the landlord to do so.  This however, is a matter that you will need to discuss with legal counsel that is up to date and fully versed regarding related matters.  If a "shut-off notice" is involved, you should contact an attorney without delay.

There has been a long history of overlooked utility billings in property management for as long as humans have managed commercial property and your situation is not uncommon.  Be advised that there has also been a long history of landlords using utility billings as a way to create additional revenue by failing to disclose to tenants that they are inflating the charges they send to their tenants for utility consumption.

Send a follow-up question if I have not answered all of your concerns.

Do not be intimidated.  Good luck.

-Jim    


P.S.  Do not feel compelled to find the most influential, high powered real estate attorney in the area to handle your case and pay an excessive hourly fee for his/her services.  This is not a complicated case, and someone with a decent amount of landlord/tenant law experience should be able to handle this matter effectively.   The attorney will, however, need to act on your behalf right away.