Many commercial landlords let their tenants decide on their utility providers with their own meters, telephone lines, and networks. When you’re in control and recharge these products as a service charge, then it’s up to you to get the best deals. Jason Smith from BusinessElectricityPrices.org.uk explains the best practices for both situations, so you can get the lowest prices for your business and avoid common pitfalls.
- For Landlords Recharging Utilities as Service Costs
In this scenario, it’s up to you to find the best deals in the market and recharge your clients accordingly. For gas, electricity, landlines and water, it’s prudent to use some form of comparison service. Either select one of the online companies or use the talents of a specialised broker.
Finding the lowest prices
Using a broker saves your time hunting down the best deals, as brokers know their markets inside out. They’ll also manage the administration process on your behalf so that your contracts are set up correctly and on time. Each year they’ll check that you’re on the best rates. All brokers receive commissions from the company they recommend, which is not directly charged to you. They should not favour one company over another as the commission rates are similar among all suppliers.
You could undertake the searching yourself, but you’ll never know if you’ve got the lowest price unless you have time on your side. Although there are five or six companies that supply landlines, there are more than 20 different energy and water companies from which you would have to get quotes. Prices also change each day, so a deal you got yesterday may not be available when you call back.
Recharging your tenants
You may believe that utility costs are an easy way to make additional profits for your tenanted properties, but be aware that many of your customers know what the average price should be recharged to them. You should also adhere to the RICS code of practice where applicable. The Institute of Chartered Accountants in England and Wales (ICAEW) has service charge accounting guidelines you can follow. In general, don’t hike the cost too much—or if you do, expect to receive complaints and be prepared to share your reasoning.
- For Landlords of Tenants Who Have Their Own Meters
Although this at first appears to be easier for the landlord, it can have some disadvantages. On the one hand, it’s entirely up to your tenant what they do. You don’t need to get involved as they select their utility supplier and pay the bill. There’s no recharging required. However, issues come around when you have separate meters for a currently vacant property.
Dealing with a vacant metered property
Once a tenant has vacated the property and settled their contract, the meter(s) are still supplied by the incumbent energy provider. Immediately after the existing tenant moved, you’ll most likely be charged with “out of contract” rates.
These rates can skyrocket by 100% or more, especially on fixed daily charges. So even if everything is switched off, you’ll be paying up to £3 per day depending on the meter type. There aren’t any contracts for smaller businesses without a standing charge.
Therefore, it’s best to have a new contract billed to your own company during the periods where your property is unoccupied with a standard daily standing charge. Alternatively, ask the current supplier if you’re able to take over the contract until you find a new tenant. In both cases, you’ll save money. Your broker can also handle this change for you.
Arranging change of tenancy notifications
In the same vein as setting up an Assured Shorthold Tenancy, when a new tenant moves into your premises, they need to send a change of tenancy notification to the existing supplier. This letter should be sent as soon as possible to ensure the rates applied are competitive, as energy companies tend to invoke higher charges for companies not under contract. You can find change of tenancy templates on each supplier’s website.
By Jason Smith
Jason Smith is an energy expert who has helped businesses increase their energy efficiency for more 10 years. He manages the website Business Electricity Prices, which advises small and medium-sized businesses on reducing their utility bills.©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law, always seek professional advice.