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When Tenants Leave with Unpaid Utilities

7249 views March 4, 2024 Karina Jugo 18

The relationship between landlords and tenants is a critical aspect of the rental property market. Landlords rely on tenants to fulfill their contractual obligations, including paying rent and utility bills. However, situations may arise where tenants vacate the property without settling their outstanding utility bills.

This predicament poses financial and legal challenges for landlords and is among the biggest concerns some landlords have to deal with when tenants end a lease. If your tenant doesn’t pay, you could be the one in trouble. An unpaid utility bill on a property can also cause issues for the next tenant when they attempt to get them in their name. Staying on top of these rental bills can save you from all the hassles that may arise in the future.

Utility Liens

Certain jurisdictions provide utility companies the authority to place a lien on a property for unpaid utility bills, regardless of whether the property is a rental or owner-occupied. This means that the lien would attach to the property itself, rather than the tenant. The purpose of the lien is to secure the debt and give the utility company the right to seek payment through legal means, such as a sale of the property or the collection of the debt when the property is sold.

A lien is a legal tool placed on a property by a certain party to ensure payment. So, a utility lien specifically is a lien placed by a utility company if the homeowner hasn’t paid their energy, water, gas, sewer, or garbage collection bills. A utility lien isn’t really a true lien in the first place. The only way they can really be enforced is in shutting off the particular unpaid service to that property until the debt is collected.

unpaid utilities in rentals

For some utility companies, the answer is as simple as keeping the landlord or owner on the utility bills. This is a good idea if you want to be sure that the bill is getting paid, but it also carries with it the risk of you potentially owing an unpaid balance if the tenant skips out. However, it can protect you from getting a lien on your property, so, it’s best to weigh those pros and cons. Of course, careful tenant screening can go a long way towards preventing this sort of issue, as well. Finding a tenant who isn’t likely to stick you with the utility bills can help.

What Can Happen

When a tenant leaves with unpaid utility bills, the specific consequences and procedures can vary depending on the jurisdiction and the terms of the lease agreement. However, here are some general scenarios that may occur.

  1. Landlord Responsibility: In some rental agreements, the landlord may have agreed to cover certain utilities during the tenancy, such as water, trash, or gas. If this is the case, the landlord would be responsible for paying any outstanding utility bills.
  2. Utility Shut-Off: If the utilities were in the tenant’s name, but they left without paying the bills, the utility companies might disconnect the services due to non-payment. This situation could affect future tenants or the landlord’s ability to sell or rent the property.
  3. Security Deposit Deduction: Landlords often collect a security deposit from tenants before they move in. If the tenant leaves unpaid utility bills, the landlord may use a portion or all of the security deposit to cover these outstanding expenses. The remaining deposit (if any) would then be returned to the tenant.
  4. Small Claims Court: In some cases, landlords may pursue legal action against the former tenant to recover the unpaid utility bills. This may involve taking the tenant to small claims court to seek compensation for the debt.
  5. Collections or Debt Collection Agency: If the landlord is unable to recover the unpaid utility bills through the security deposit or legal action, they might turn to a collections agency to try and collect the debt on their behalf. This could negatively impact the tenant’s credit score and financial history.
  6. Tenant’s Liability: The tenant could still be held responsible for the unpaid utility bills, even after vacating the property. If they are found liable in court, they may be required to pay the outstanding balance.

Landlord’s Options

The landlord may take several actions to recover the unpaid utility bills:

Option 1: Communication and Negotiation

The first step for landlords should be open communication with the departing tenants. It is possible that tenants may not be aware of their outstanding utility bills or may have experienced financial difficulties that led to non-payment. In such cases, landlords can try to negotiate a payment plan or request that tenants clear the dues before vacating the property. Diplomacy and understanding can lead to a mutually beneficial resolution, avoiding unnecessary legal complications.

Option 2: Using Security Deposit

Many rental agreements require tenants to provide a security deposit before moving in. Landlords can use the security deposit to cover unpaid utility bills, provided the lease explicitly allows for this. However, landlords must adhere to state and local laws regarding security deposit deductions, ensuring they follow proper procedures and provide an itemized list of deductions to the tenants.

Option 3: Small Claims Court

If communication and negotiation fail, and the security deposit does not cover the unpaid utility bills, landlords may consider filing a lawsuit in small claims court against the departing tenants. Small claims courts handle disputes involving relatively small amounts, making them a cost-effective and accessible option for landlords seeking to recover unpaid utility bills. Landlords should gather evidence of the outstanding bills and any communication attempts to present a strong case before the court.

Option 4: Collection Agencies

In cases where unpaid utility bills remain unresolved after legal proceedings, landlords can enlist the services of a collection agency. Collection agencies are experienced in pursuing debt collection and may be more successful in recovering outstanding amounts. However, landlords must ensure that they comply with federal and state debt collection laws to avoid potential legal issues.

Option 5: Reporting to Credit Bureaus

If all else fails, landlords can report the unpaid utility bills to credit bureaus. This action can negatively impact the tenants’ credit scores, making it difficult for them to obtain credit in the future. However, reporting to credit bureaus must be done in compliance with the Fair Credit Reporting Act (FCRA) to avoid violating the tenants’ rights.

Utility Provider’s Actions

In some instances, utility companies may hold the landlord responsible for unpaid bills if they were in the landlord’s name or if there is no clear agreement regarding utility payments. This can vary depending on local regulations and utility provider policies. If the landlord becomes responsible, they may need to pay the outstanding amount or negotiate with the utility company.

Preventative Measures

To reduce the likelihood of tenants leaving with unpaid utility bills, landlords can take certain preventive steps:

  1. Clear Lease Agreement: Ensure that the lease agreement clearly outlines the tenants’ responsibility for utility payments and non-payment consequences.
  2. Regular Inspections: Conduct periodic inspections to monitor the property’s condition and ensure that tenants are fulfilling their contractual obligations.
  3. Utility Transfers: Consider transferring utility accounts into the landlord’s name when tenants vacate to prevent outstanding bills.
  4. Utility Management Services: Employ utility management services that can monitor and manage utility payments on behalf of the landlord, minimizing the risk of non-payment.

Key Takeaway

Landlords face various challenges when tenants leave with unpaid utility bills. While the situation can be frustrating and financially burdensome, landlords have several options at their disposal to recover the outstanding amounts. Open communication and negotiation are the first steps, followed by legal actions such as small claims court or employing collection agencies.

Preventive measures, such as clear lease agreements and regular inspections, can also help landlords avoid such predicaments in the future. By understanding their options and taking proactive steps, landlords can protect their interests and maintain a healthy landlord-tenant relationship.

Authors

  • Karina Jugo

    Karina Jugo is a content administrator at RentPost who works directly with real estate and property management experts to create resources and guides for property managers. She has more than 15 years of experience in content research and writing for various industries.

  • Jacob Thomason

    Jacob Thomason is the CEO and co-founder of RentPost, software platform providing property managers, landlord or owners with the tools necessary for property management. Jacob is a software entrepreneur with with a vast array of expertise ranging from business concept design to software architecture and development. He is running RentPost for more than 14 years and helping property managers and property owners.

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