Phil Querin Q&A: Common Area Pass-Throughs

Want access to MHCO content?

For complete access to forms, conference presentations, community updates and MHCO columns, log in to your account or register.

November 15, 2018
Phil Querin
MHCO Legal Counsel

 

Question:  We have submeters to all of the resident spaces in our community for sewer and water. But common area sewer/water was not submetered. We would like to do so now. We are planning to look at the trailing 12 months’ numbers in each of these three categories, and dividing those numbers by 12 months, and then dividing those number by the number of sites in our community (175). So my question is: How much notice do we have to give our residents in order to pass this amount thru to them?

 

 

Answer:  Interestingly, the current submetering statutes do not have a protocol dealing solely with passing through utilities for common area, separately from that for spaces.  In other words, at the time of submetering the spaces, you could do it using the prorate method you describe, in which case it would be preceded by a 180-day notice. See, ORS 90.537. It provides:

 

A landlord that converts to a submeter billing method under this section from the rent billing method described in ORS 90.532 (Billing methods for utility or service charges) (1)(b)(C)(i) may unilaterally, and at the same time as the conversion to submeters, convert the billing for common areas to the pro rata billing method described in ORS 90.532 (1)(b)(C)(ii) (Billing methods for utility or service charges) by including the change in the notice required by subsection (1) of this section. 

 

However, the balance of this subsection provides that “(i)f the landlord continues to use the rent billing method for common areas, the landlord may offset against the rent reduction [that was a part of the pass-through conversion] an amount that reflects the cost of serving the common areas.”

 

If your utility or service provider cannot provide an accurate cost for the service to the common areas, this subsection allow you to “...assume the cost of serving the common areas to be 20 percent of the total cost billed. However, this offset is not available if you choose to bill for the common areas using the pro rata method.

 

Your question raises the issue whether you may now convert the common area costs from the base rent to submetering. Here are your choices as I see them, keeping in mind you should vet this issue with your own lawyer:

 

  • Convert to submetering solely for the common area, following the same protocol as you did at the time of converting the spaces.  However, this will require you to know with some certainty the actual cost of sewer and water to the common areas. However, this approach is not expressly described in the statutes.
  • Forego submetering – as you have done – and check with your utility provider to see if you can obtain an accurate cost for the common area service, and follow the same rent reduction and notice protocol under ORS 90.537, as if you were converting to submeters. If so, you could use the prorate apportionment as you propose. This would also require a “unilateral amendment” of the rental agreements. The only legal objection to this would be that it was not at the same time you converted the spaces to submetering.
  • If your provider cannot provide an accurate cost, you could make the 20% offset assumption against the rent reduction taken when you first converted to submetering the spaces. You would follow the same unilateral amendment, and 180-day notice as the alternative above.  I acknowledge that this offset is subject to distortion, since the 20% is against a rent reduction in the past. There may be an equitable way to arrive at a figure, but it would likely require some consensus of the residents.

 

Caveat:  All of these protocols are based upon following ORS 90.537(5) as if they were occurring at the time of submetering the spaces.  Since the statute does not expressly address common area conversion separate from the process when converting to submeters for the space, there is always the argument that it simply is not permitted. That is why I think you will need tenant buy-in. Or you could do it through a rule change, which would likely be safer than a “unilateral amendment”.  Again, be sure to address this with your own legal counsel. The above discussion should not be treated as legal advice.

Column Topics: 
Location Tags: