Utility Sub-Metering
Provisions governing whether tenants pay for utilities through direct metering, sub-metering, or as part of the operating expense pool, and how excess usage is allocated.
Model Lease Language Variations
“Tenant shall pay for all utilities consumed in the Premises as measured by the Building's sub-meters. Landlord shall charge Tenant at Landlord's actual cost plus a fifteen percent (15%) administrative fee. Common area utility costs shall be allocated to Tenant based on Tenant's Proportionate Share.”
Sub-metered with 15% administrative markup. Common area utilities still allocated pro rata. Landlord profits on the administrative fee.
“The Premises are sub-metered for electricity. Tenant shall pay for electricity consumed in the Premises at the utility company's published rate applicable to the Building. Tenant's share of common area electricity shall be allocated based on Tenant's Proportionate Share. HVAC during Building Operating Hours is included in Base Rent.”
Sub-metered at published utility rates (no markup). Standard-hours HVAC in base rent. Only after-hours and excess usage billed separately.
“Utilities for the Premises shall be directly metered. Tenant shall contract directly with the utility provider and pay the utility company directly. Tenant shall have no obligation to pay any portion of common area utility costs through Operating Expenses, as such costs are included in Base Rent.”
Direct metering with direct utility relationship. Common area utilities included in base rent. Complete separation from operating expense pool.
Calculation Methodology
1. Read sub-meter (or direct meter) for tenant's premises usage. 2. Determine the applicable utility rate (published tariff or landlord's blended rate). 3. Calculate premises utility cost: usage × rate (+ admin fee if applicable). 4. Calculate common area utility cost for the building. 5. Allocate common area cost to tenant per proportionate share. 6. Total tenant utility charge = premises usage + common area share.
Common Drafting Errors
Not specifying the utility rate — landlord charges retail rates while paying wholesale, pocketing the spread
Failing to define which utilities are sub-metered vs. allocated by pro rata share — inconsistent treatment creates audit issues
Not addressing utility rate increases — tenant may argue landlord should absorb rate increases as part of base rent
Omitting after-hours HVAC provisions — standard-hours HVAC is usually in base rent, but after-hours charges are separately billed
Relevant Case Law
High-density tenant consumed 3x average electricity per SF. Landlord's sub-meters showed $4.2M in excess usage. Court upheld sub-meter charges, finding WeWork's usage exceeded building design capacity.
Billing System Implications (Yardi / MRI)
In Yardi, sub-metered utilities can be billed through the Utility Billing module or as a recovery item. Common error: double-billing utilities — including sub-metered premises costs in both the direct utility billing and the operating expense pool. In MRI, utility billing is typically handled outside the Recovery Analysis module — verify that sub-metered utility charges are excluded from the operating expense recovery pool to prevent double-counting.
CapVeri Analysis
Utility billing errors are common in mixed-use and multi-tenant buildings. The most frequent error is double-counting: billing a tenant for sub-metered usage AND allocating their pro rata share of total building utilities through CAM. CapVeri flags buildings where sub-metered tenants are also allocated utility costs through the operating expense pool.
Related Resources
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