Multifamily Owners in California – RUBS Discontinued

A recent article written by Michael Semeko, The Clock is Ticking for California Owners located in UNITS, National Apartment Association Newsletter shed important light on California’s new law starting as of January 1, 2018, discontinuing the RUBS program for the billing or resident’s water usage.

As of January 1, 2018, RUBS will no longer be legal to implement. For those who may not know what RUBS is, here is a little background. RUBS, aka Ratio Utility Billing System is a popular method used by multifamily owners to “bill back” the cost of utilities to residents. This occurs in properties that only have a master meter per building resulting in the owner to be responsible for the utilities. The RUBS program allows the owner to bill back the cost of utilities to the resident based on several different variables such as occupancy and square footage determined by state and local regulations. RUBS can be used for electric, water, trash, etc. I have seen it used most widely for water usage.

Investors use RUBS for several different reasons:

  • Low to no capital investment – RUBS can be implemented by owners at no charge or they can hire a company for a fee to set it up. If you do plan on implementing it yourself be sure to contact your state and local district to ensure you are billing in compliance.
  • Increase NOI – RUBS allows the owner to recoup a large amount of their expense for the utility bills by back-charging tenants for the bills.
  • Quick Implementation – unlike other value-adds, RUBS can be implemented fairly quickly into a property with little hassle.

However, due to a recent ruling on September 29, 2016, California has passed a law as of January 1, 2018 that requires all new apartment buildings to be sub-metered for the billing of residents’ water usage with the exception of student housing and if at least 90 percent of an apartment community is low-income housing. Implementation of the RUBS program will no longer be permitted as of January 1, 2018.

However, there is good news for owners currently operating on the RUBS Program. If a property had an existing RUBS system prior to the January 2018, the law allows the owner to continue the program, however, an owner may not begin a RUBS program after January. If an owner builds additional units to an existing property built before January 2018, the owner will not be required to “retrofit” meters to the property.

Nevertheless, continue to check with state and local regulations because changes could be implemented within the next couple of years that could modify this rule.

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