I am looking at purchasing some rental property. In New England, many of the properties heat with propane and/or oil and this presents a unique challenge to me. I only have experience with properties supplied with natural gas and any tenant would always get the utilities in his name. I would be responsible for utility charges until date the tenant assumed responsibility and it made it very easy to maintain responsibility over costs.
With oil and propane, the fuel is obviously paid for first and stored on site. My father had experience renting out a building with 5 commercial units in it, all heated by an oil boiler in the basement. He would ask the tenants to keep the heat down to a reasonable level during the day and set it lower at night. He told me many times he would have to enter a unit at night for maintenance reasons etc... and find the heat cranked up to 80 when the business was closed.
The oil tank was filled up multiple times each winter and it drove him crazy.
Eventually he converted the building to natural gas, gave each unit its own boiler and made the tenants responsible for their own utility costs. Dad added a heating addendum to the lease and made acceptance mandatory. The tenants tried to fight back but in the end they could not do anything about it. Now, at night time, the thermostats were set to 60! My dad even told me that the tenant who was the most forgetful about leaving the thermostat cranked way too high was at one time spotted wearing a hat and jacket INDOORS during one bout of really cold weather
Its for this reason that I would like the tenant to be responsible for their own utility, because when they pay for it is when it is used responsibly.
I have identified some issues that I don't know how to solve/handle:
1. When the unit is unoccupied, it still needs to be heated. Meaning I would have to have some fuel in the tank/cylinder. When a new tenant signs a lease, how is that fuel handled? I think the best way is to measure how much is remaining and charge the tenant accordingly. What is the best way to measure oil or propane levels? I visited a friend nearby who burns oil and his tank had a crude meter that just gave measurements in the Full, 3/4, 1/2, 1/4 marks. I'd need something more precise, preferably giving me the gallons remaining. Possible?
2. When a lease ends and tenants vacates the building, how is the remaining fuel (purchased by the tenant) handled? The tenant can't easily take the fuel with them (my girlfriend leased an apartment with a wood stove for heat, when her lease was up she took the cord of wood she had purchased with her) or do oil/propane companies offer a fuel removal service? I would again probably need a way to measure the remaining fuel and compensate the tenant for any left behind.
3. Assuming it were possible to meter the fuel, what price should I charge? Price I paid for it when purchased? Or should I charge the current price of the fuel? Meaning if the price has varied significantly since my purchase price, I may make/lose money. Could I mark it up?
I would love to hear some best practices from you guys please. How have you handled these issues?