Reserve Reimbursement Right if You Pay Resident's Utility Charges

You may have some assisted residents who don't pay their utility bills for electricity, gas, or water. This can create a dangerous situation at your site. If the utility company shuts off service to the resident's unit, the resident may try to make do with candles, use the oven for heat, or cobble together some other quick remedy that could cause a fire.

Also, utility shutoffs can lead to frozen pipes that burst in the winter, expensive repair bills, and unsanitary living conditions. To prevent a shutoff, some owners pay a resident's unpaid utility charges themselves. But the HUD lease and Handbook don't specifically give you the right to get reimbursed by residents for utility payments you make relating to their units.

To deal with this problem, get HUD's approval to charge your utility payments plus an administrative fee to a resident each time you pay utilities covering the resident's unit. We'll tell you how to set up a policy like this and put it into effect at your site. We've also put together a Model Notice: Demand Reimbursement from Resident for Utility Payment, that you can adapt and use for notifying residents of their obligation to reimburse you for paying their utility charges.

Benefits of Setting Policy

Although a resident gives you grounds for eviction just by failing to pay utility bills, going straight to court isn't always the best course of action. Courts may be reluctant to evict assisted residents unless you can show that a resident refused to deal reasonably with the problem that resulted in your eviction suit. If you seek to evict a resident for not reimbursing you, having a reimbursement policy can help you show a court that the resident had a fair chance to deal with the problem and didn't take advantage of it. Also, even good residents sometimes don't pay their bills on time. A reimbursement policy lets you give these residents the chance to correct their mistake without resorting to eviction.

In one case, an owner of a New York City assisted site filed a nonpayment proceeding based on the resident's failure to pay utility charges. The trial court was able to award the owner the unpaid balance because HUD had approved a policy requiring the resident to pay utility charges. The policy stated that the utility charges “shall be considered as additional rent.” The resident argued that the utility charges weren't appropriate for a nonpayment proceeding, but because the policy defined utility charges as “additional rent under the lease,” the court concluded that they were a proper matter for resolution in a nonpayment proceeding [Roosevelt Island Assocs. v. Donald, October 2007].

Get HUD Approval for Charges

You must get HUD's approval to collect a utility payment you've made on a resident's behalf together with an administrative fee. That's because the Handbook's list of permitted charges in addition to rent doesn't include such payments and fees [HUD Handbook 4350.3, par. 6-25]. If you don't get HUD's approval, residents could claim that you don't have the right to demand reimbursement from them.

To request approval, call or write your local HUD office. Here's what your request should cover:

Purpose of policy. Make it clear to HUD that the policy's purpose is to protect residents and property at the site. Point out the increased risk of fire, frozen pipes, and unsanitary conditions created by a utility shutoff. Also point out that these dangerous conditions can cause your property insurance premiums to rise.

Policy details. Give HUD the basic details of your reimbursement policy. Tell HUD:

• The amount of the administrative fee you're proposing to charge; and

• The number of days residents will have to reimburse you.

Write a House Rule

Once HUD approves your policy, give residents advance notice of the policy by putting it in a house rule. Here's an example of what the rule should say:

Model House Rule

If the management company pays utility charges to avoid a utility shutoff in a resident's unit, the resident must reimburse the management company for any amounts it paid to the utility company. The resident must also pay a $10 fee to the management company to cover administrative costs each time the management company pays utility charges to avoid a shutoff. The resident must pay the total amount due within 10 days of getting notice from the management company.

Make Sure You Get Shutoff Notice

Some utility companies will automatically notify the site manager in addition to the resident if they're about to shut off service to a unit—and they'll specify the amount of unpaid bills. Other companies won't do this unless the resident has named the site manager in a “third party” notice form.

Check with each utility company that serves your site to see how it handles shutoff notification and if it has a standard third-party notice form that you must get residents to sign.

Pay Utility Company if You Get Shutoff Notice

Suppose, once your reimbursement policy is in place, a utility company notifies you that it's about to shut off service to a resident's unit. Ask the utility company to transfer service to your company's name. Then pay the charges promptly to avoid a potentially dangerous situation at the site.

Seek Eviction, if Necessary

If after sending notice to the resident, the resident doesn't reimburse you or if the resident's failure to pay utility bills persists, seek to evict him. Obviously, your company can't indefinitely afford the money and hassles required to pay utility charges for his unit. And for safety reasons, you can't let a resident stay in a unit with no utility service.

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