Don't Let Unpaid Utility Bills from Your ADU Catch You by Surprise

As a landlord in Los Angeles, you’re probably aware of the unique opportunities—and challenges—that come with owning properties that include Accessory Dwelling Units (ADUs). With the rising popularity of ADUs, many property owners are turning their garages, basements, or even backyard spaces into rental units. But here's a crucial warning: unpaid utility bills from your tenants can lead to huge, unexpected costs— especially if you haven't properly separated the electrical and water bills.

The Risk of Master-Metered Bills

Many properties, particularly those with ADUs, are master-metered for water and sewer services. This means that all units on the property share a single utility meter for these services, with one bill covering both the main house and the ADU. In contrast, electricity is usually metered separately for each unit, so the tenants are responsible for paying their own electric bills.

Here's where the issue comes in: when water and sewer charges are combined on one master bill, landlords can end up being responsible for unpaid bills when tenants don’t pay their share, or worse, when tenants leave without settling the bill. You may be surprised to find a huge outstanding balance for these utilities, even though the electrical service is the responsibility of the tenants.

What Happens When Tenants Don’t Pay?

If your tenants in the ADU don't pay their water and sewer bills, you could be stuck with a huge outstanding balance. This situation typically arises when tenants leave and their unpaid bills are passed back to you, the property owner, without any clear warning. Here’s the catch: unpaid electrical bills will still be the tenant's responsibility, but the waterand sewer charges will be transferred to you as the landlord.

Many landlords are surprised to find out that they’re responsible for the unpaid water and sewer bills, even if those bills were originally the tenant’s responsibility. Unfortunately, this is because LADWP sees the property as a whole, not as separate units. The property owner is still on the hook for those utilities if they haven’t been properly separated.

Understanding the Code: Don't Get Stuck With the Bill

It’s important to understand how California Code Section 47.10 (c) applies to these situations. Specifically:

This section shall apply to all existing master-metered multiple-family dwellings when the nonpayment of utility bills has resulted in the service upon the landlord of a notice of termination for a master-metered multiple-family dwelling pursuant to this section.

In simpler terms, if there’s nonpayment of utility bills for properties with master-metered service, the landlord is ultimately responsible for the payment. When there’s a default on the utility payment, the landlord could receive a termination notice. This could lead to the utility service being cut off, which can disrupt the property’s rental business and cause serious inconvenience.

Another key regulation, Rule No. 3 (Application for Service), states:

In the event the application is for master-metered residential service, unpaid bills are deemed to be the responsibility of the property owner in that this service constitutes a special benefit to such property." This clearly states that if your ADU or other rental unit is part of a master-metered setup, you are held responsible for unpaid bills related to the water and sewer service.

How to Avoid This Pitfall: Separate the Utility Bills

Here’s the key takeaway: Separate your utility services. It’s essential to ensure that the water and sewer services are billed separately from the electrical service. Here’s how to do it:

1. Request Separate Metering from LADWP: You can contact LADWP to set up separate metering for your ADU. This ensures that the water and sewer charges are sent directly to the tenants, not the landlord. Since this can be very expensive, landlords should pay for the master-metered water and sewer charges and account for the costs in their rental contracts.
2. Make Sure Tenants Are Accountable for Their Utilities: Clearly state in the lease agreements that tenants are responsible for their utility bills (except for water and sewer, if you’re providing that).
3. Check with LADWP: Make sure that the bills are properly split in the system to avoid confusion when new tenants move in or out.

As a landlord in Los Angeles, it’s critical to separate utility services for your ADUs and other rental units. Failing to do so can result in significant, unexpected bills for water and sewer charges, which may come back to you if your tenants don’t pay their share. Take the time to separate the bills properly to protect your finances and avoid unnecessary headaches down the road.

If you haven’t already separated your water and sewer services, now is the time to act. Avoid the trap of being stuck with the unpaid bills of past tenants and ensure that you have clear, separate utility charges for your tenants.

Stay ahead of the game, and don’t let your ADU become a financial burden.

Max Fielding - Buildoptima Blog Team