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Rent and utilities: how to organize the payments?

06.10.2022

Rent and utilities: how to organize the payments?

On top of the rent for the landlord, the tenant must also cover administrative rent and other utility fees. But what is the best way to manage these payments? Choosing the right method depends on your preferences – there are several options to choose from, and we outline them below.

What apartment rental fees are there?

Such fees are all costs that the tenant must pay in addition to rent, which is the amount the landlord is entitled to for surrendering the right to use the property during the lease period.

They include:

  • administrative rent (commonly known as service charges in English-speaking countries),

  • utility bills,

  • parking space fee (optionally).

Apartment rental price vs. rental fees

Landlords and tenants often give opposite answers when asked if any additional fees should already be included in the rental price listed in the ad. Landlords obviously want to present the lowest possible cost so that more people will be interested in the property; potential tenants, on the other hand, may become frustrated when only after clicking on the ad do they see that the total rental cost exceeds their budget.

The most common method is to include the administrative rent in the price and only mention the need to cover utility bills, as their amount will depend on the tenant's consumption. However, this is not an ideal method, as the administrative rent can vary depending on how many people live in the apartment.

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What is administrative rent?

Administrative rent, also known as service charges, is a monthly payment to the organization that maintains the building. It usually consists of:

  • administrative expenses,

  • common area maintenance expenses,

  • renovation fund (sometimes called a sinking fund),

  • advance payment for central heating,

  • advance payment for cold water, hot water, and sewage disposal.

Of course, everything depends on the building. If, for example, there is no central heating in it, and water is heated by gas water heaters or boilers, the administrative rent will not include advance payments for central heating and hot water.

You might be wondering about the renovation fund – what can it be used for? These funds are invested in repairing and refreshing the common areas of the building, as well as their ongoing maintenance.

And how do you calculate the administrative rent? There should be no need to do so. This monthly fee is determined by the building administrator. It is good to know its amount because it affects how much it costs to rent an apartment, which is of interest to any candidate for a tenant.

Utility fees – what are these charges?

The most common bills paid by tenants in addition to administrative rent are:

  • electricity,

  • gas,

  • water,

  • heating,

  • internet and television.

Of course, not all of these will apply to every apartment. Some units do not have gas access at all, and in some cases, the landlord does not take care of providing the tenant with internet and television.

How much are average utility fees?

Recently, all sorts of apartment rental fees have been rising due to inflation, economic problems, and a tense geopolitical situation, among other factors.

Administrative rent usually costs 10-20 PLN for each square meter of the property, with a specific rate depending on the administrator and the number of people inhabiting the apartment.

According to data from the gratka.pl portal, average utility charges are 0.69 PLN to 0.82 PLN per 1 kWh for electricity, while gas costs about 0.31 PLN per 1 kWh. The final bills, of course, depend on the consumption recorded in a particular unit and have an impact on how much it costs to rent the apartment.

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How to organize administrative rent and utility payments with the tenant?

You already know what administrative rent is and what the price of renting an apartment consists of, so let's move on to practical ways to have a well-organized and safe rental experience. How do you organize the payments with your tenant? Here are the most popular methods and their advantages and disadvantages.

1. Tenant pays bills on their own

In this case, all utility contracts are signed in the landlord’s name, but it is the tenant who is contractually obligated to send money transfers to the suppliers.

This is a relatively convenient way to organize the payments, as it does not require the landlord to either transfer the utility contracts to the tenant or to have to deal with the bill payments on their own. It also allows flat-rate taxpayers to avoid having to pay tax on the artificially increased monthly rental fee.

Even so, this method does require a significant time investment because the landlord must regularly provide the tenant with bill scans or PDFs sent by the supplier. Moreover, the landlord has no ongoing control over whether the tenant is making payments on time.

2. Bills are included in the rental payment

Here, the landlord sets a flat fee for utilities, which is included in the total rent charged to the tenant each month. This method allows you to not have to think about bills and reduces the need to communicate with the tenant. It is also attractive to tenants, so it can make more candidates get interested in the rental ad.

However, it also has significant drawbacks. Firstly, the tenant may cause the landlord to have to cover bills that exceed the lump sum collected in flat fees – after all, the landlord will have no incentive to save money on utilities. Secondly, the landlord has to deal with transferring money to suppliers himself, which means a required time investment.

Thirdly, this method is very unprofitable for those who pay flat-rate taxes on their rental income. This is because it forces you to pay tax on money that does not represent real income for the landlord, as it is passed on as administrative rent or utility bills. This disadvantage does not apply to landlords who pay taxes according to general rules – they can deduct all service charges as expenses.

3. Landlord pays bills and settles them with the tenant

In this case, the owner retains full control over whether the utilities are paid correctly. They pay the bills on their own and then settle the real costs with the tenant based on the bills received from providers.

However, this solution requires a considerable amount of time: both to manage the payments and to send cost statements with the relevant documentation to the tenant.

On top of that, landlords have to consider that some bills arrive late – the final ones may appear after the end of the lease when the tenant is reluctant about further communication. To avoid problems with enforcing payments, we recommend charging an advance payment for the last billing period and settling it when the real bills become available.

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4. Tenant pays a deposit for fees and charges

This method is similar to including utility charges in the total monthly rent, but here, instead of a fixed payment, each month, the tenant pays a deposit designated by the landlord. At the end of the rental period, the sum of the deposits paid is compared with the real costs incurred for the payment of utilities, and then, the landlord settles it with the tenant.

This solution has many advantages: it protects the landlord from the tenant's wasteful use of utilities and, in most cases, saves time. Keep in mind, however, that if the service provider does not keep monthly records, it will be necessary to write down the meter readings every month.

Moreover, final billing may not be possible until some time after the end of the lease, as some bills arrive late. This can lead to difficulties in communicating and settling the payments with the former tenant.

5. Landlord transfers utilities to the tenant

This solution requires significant effort at the beginning of the lease but results in an increased sense of security for both parties. The landlord notifies the suppliers of the need to transfer the utilities to the tenant, and the tenant signs direct contracts with them. Ultimately, the tenant is therefore obliged to pay the bills, and the landlord, in legal terms, has nothing to do with them.

As a result, the landlord saves time and stress, and the tenant does not have to worry about being charged for more than their actual consumption. Landlords who pay flat-rate taxes don’t have their taxable income increase, and the tenant feels more connected to the apartment, which makes it more likely that they will decide to stay there for a longer period of time.

Transferring utilities to the tenant is very advantageous, but it only makes sense for a lease planned to be a long-term one. To use this method, the owner must go to the building administrator to arrange the administrative rent transfer and also contact the suppliers of all the services hooked up to the apartment – both at the beginning of the lease and after it ends. And then all over again with the next tenant. It's unlikely that anyone would want to repeat all these acrobatics very often.

Which method will work best for you?

To answer this question, consider your main priority. Is it control? Saving time? Tax optimization? Security? Once you've thought this through, you can easily decide how to organize administrative rent and utility payments with your tenant.

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