Tuesday Tip
Utility reimbursements can confuse property managers. That is especially true for those new to HUD-assisted housing. Why would a property give a tenant a check instead of collecting rent?
The answer starts with the utility allowance.
When tenants pay for certain utilities, HUD provides a utility allowance to help offset those costs. The allowance may reduce the tenant’s rent. In some cases, however, it results in a utility reimbursement.
Getting the calculation right is only the beginning. Owners and agents must also distribute reimbursements promptly. In addition, they need to document those payments and track changes in utility allowances.
How Utility Reimbursements Work
A utility allowance helps offset utilities that the tenant pays directly.
For example, suppose a tenant’s calculated payment is $200. The utility allowance is $120. Subtract the allowance, and the tenant owes $80 in rent.
But what happens when the utility allowance exceeds the tenant payment?
In that case, the tenant owes no rent. Instead, the difference becomes a utility reimbursement.
That does not mean the property is paying the tenant to live there. The reimbursement helps cover utilities the tenant must pay.
The tenant must then keep those utilities paid as required by the lease.
Distribute Utility Reimbursements Promptly
Once a tenant qualifies, timing matters.
Owners and agents must distribute reimbursement checks within five days of receiving the applicable subsidy, or HAP payment.
HUD also reviews this process during a Management and Occupancy Review (MOR). The HUD-9834 asks whether the property distributes utility reimbursement checks according to HUD requirements.
Therefore, owners and agents need a consistent process. That process should get checks to tenants promptly.
Document the Distribution
Don’t stop once you distribute the check. Document it.
Keep records showing when you provided reimbursement checks to tenants. Also, document your efforts when a tenant does not pick up a check.
Some tenants may repeatedly fail to pick up their checks. In those cases, consider another delivery method. Choose an option that allows you to document when you sent the payment.
Most importantly, owners and agents cannot keep an unclaimed reimbursement.
If a tenant does not claim or cash a check, document your efforts. Keep records of tenant notifications as well. Then, follow applicable state law for handling unclaimed funds.
Pay Attention When a Utility Allowance Decreases
Owners and agents also need to watch for changes in utility allowances.
A decrease in the utility allowance or reimbursement increases the tenant’s financial responsibility. As a result, treat the change like a rent increase. Give the tenant adequate notice.
Also, keep your property management software current. Update rent and utility allowance amounts when they change.
Software will handle many of the calculations.
Still, staff should understand how utility allowances and reimbursements work. That knowledge becomes especially important when staff review or complete calculations by hand.
Calculate. Distribute. Document.
The math behind reimbursements may be simple, but managing them takes a few more steps.
Owners and agents should:
- Keep rent and utility allowance information current.
- Know the difference between an allowance and a reimbursement.
- Distribute reimbursement checks promptly.
- Document when you distribute checks.
- Document attempts to deliver unclaimed checks.
- Track uncashed checks when that information is available.
- Follow applicable requirements for unclaimed funds.
- Give tenants adequate notice when their financial responsibility increases.
For additional guidance, review HUD Handbook 4350.3. The Tuesday Tip points to Chapter 5, paragraphs 5-25(B), 5-26(A), and 5-26(C).
Frequently Asked Questions About Utility Reimbursements
What is a utility reimbursement?
A utility reimbursement occurs when a tenant’s utility allowance exceeds the tenant’s calculated payment. The tenant receives the difference to help offset utility costs.
What is the difference between a utility allowance and a utility reimbursement?
A utility allowance helps offset utilities the tenant pays directly. If the allowance exceeds the tenant’s calculated payment, the difference becomes a utility reimbursement.
How quickly should owners and agents distribute utility reimbursement checks?
Owners and agents must distribute the checks within five days of receiving the applicable subsidy or HAP payment.
What happens if a tenant does not claim a utility reimbursement check?
Document your efforts to notify the tenant and provide the check. Do not keep the funds. Instead, follow applicable state law for handling unclaimed funds.
Does HUD review utility reimbursements during an MOR?
Yes. The HUD-9834 addresses whether the property distributes utility reimbursement checks according to HUD requirements.
