Don’t Overcharge as Energy Bills Soar

Don’t over-charge ‘all inclusive’ tenants as energy bills soar, HMO landlords are warned.

Landlords of HMOs are being warned not to offset the cost of increasing energy bills by charging their tenants extra and to observe the ‘maximum resale value’ of their properties.

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The warning comes after energy regulator Ofgem announced it was raising the price cap by nearly £700 a year per household. 

All-inclusive tenancies are often offered to HMOs including:

  • Student house shares
  • Professional shared accommodation 
  • Build-to-rent properties that form part of larger developments.

Can all-inclusive utility bills be increased?

Labour MP Steve McCabe has called on the government to offer clarification on whether it had assessed the potential capacity for landlords or letting agents to increase utility bills part-way through assured short hold tenancy contracts.

The response from Housing Minister Eddie Hughes was that where a landlord was responsible for paying the energy supplier and billed the tenant separately to rent, they could only charge for the ‘maximum resale price.’ 

This includes the energy the tenant has used, the tenant’s share of the standing charge, and the VAT owed.

Landlords and agents who offer ‘all inclusive’ rent deals are governed by Ofgem rules and deemed ‘energy resellers.’ If you have an agent, make sure to check in with them to see what they are doing with regards to all-inclusive charges.

Guidance from Ofgem states that if the landlord (the reseller in this case) underestimates the cost of energy supplied:

He is obviously entitled to recover the amount undercharged from the customer.

But landlords who charge more than the maximum resale price could end up facing civil proceedings for the recovery of the amount overcharged, and might also wind-up paying interest, it warns. This wouldn’t be the first time that landlords have faced fines or court proceedings.

Should landlords be worried about their returns?

HMOs have traditionally generated higher returns than standard properties. According to consultancy BVA BDRC, between July and September last year:

  • Individual flats achieved average yields of 5.9%
  • HMO yields were a fifth higher, at 7.2% 

But rising interest rates have now started to erode such margins. More people working from home has already seen a hike in energy bills for many landlords and many will doubtless look to recoup this in other ways.

But how can you do this, without burdening your tenants?

  • Track everything. Make sure you are tracking your income and outgoings (you can use our free Expense Tracker to do this) so you can spot any areas where you might be overspending
  • Save where you can. Once you start tracking you can see where you can save. A platform like Mashroom offers so much for free and could really drive your costs down
  • Cover yourself. It may seem counterintuitive to spend on insurance when you are trying to save, but purchasing Rent Guarantee Insurance leaves you with the peace of mind that your rent is covered, no matter what 
  • Keep communication open. If charging more is really your only option, be sure to communicate that to your tenant as soon as possible. This rise might be out of their budget, so they will want to start looking for somewhere cheaper before the rise kicks in
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