Happy Tuesday, everyone, and welcome to today's Tuesday tip. Today we're going to be talking about utility reimbursements. To give you just a quick review of utility allowances and how you end up with utility reimbursements, we all know that some properties include utilities in rent while others do not. Where these utilities are not included in rent, HUD grants a utility allowance.

This is designed to offset necessary utility costs, and that's detailed on your rent schedule. It's periodically assessed for any increases or decreases needed based on the cost of utilities, and it sort of functions like a rent credit or discount. When the tenant payment that you calculate is larger than this utility allowance, that's when it's kind of going to function as a rent discount.

So if the tenant payment is $200 and the utility allowance is $120, you take tenant payment minus utility allowance, and that means that the tenant is only going to need to hand over as rent $80. Now that means that the tenant is expected to have $120 in utility costs. So it's designed to just offset and make things fair for the tenants that have rent included.

When utility allowance is larger than the tenant payment, this is when you see a utility reimbursement. We have to give the tenants every single dollar of that utility allowance. So what happens is that when we take tenant payment and we subtract the utility allowance, we end up with a negative number. That means tenant rent is zero. And then you just kind of flip it.

If the utility allowance number is bigger, you take utility allowance minus tenant payment. And that means that the tenant is getting a utility reimbursement of $120. That means that every month, instead of the tenant handing you a check for the rent, you are handing a tenant a check to offset their utility cost.

So they are getting a utility reimbursement because we have to give them that entire utility allowance. So one of the big questions, especially new managers, have is wait a minute here, is the tenant getting paid to live here? Not really. It looks that way, but that's not really what's happening. HUD is making things fair. In the cases where the rent is included, those $200 worth of utilities.

Are included in the rent that the tenant pays. So where utilities aren't included, HUD gives this utility allowance to, in essence, get the same result. It's designed to offset the cost of utilities. It's just whether they're doing it by saying, we're gonna pay it and you don't have to deal with it, or you're gonna have to pay them, but we'll give you the money to pay the utilities.

So it looks like the tenant's getting paid to live there, but they're really not. They're just getting the same allowance that, in essence, people with the rent covering utilities get with that situation. So there are some key responsibilities that go along with these utility reimbursements. The tenant must ensure that the utilities are paid because we are giving them the money to pay it. Where the utilities are included, we know they're being paid because we're getting the bill.

Where there's a utility allowance, the tenant is getting the bill. So it's important that if we find out somebody is not paying their utility bills, that we address that. It's a condition of their lease to ensure that there are utilities in their apartment. A big responsibility for the owner is making sure that checks are distributed to all tenants who get these reimbursement checks within five days of receiving your subsidy, your hack payment.

So those checks need to be in your tenant's hands within five days of you receiving that hat payment. Failure to do so can be very significant. If the tenants call and complain that you're not giving them their utility checks, HUD is going to have some questions that they want answered. Document providing the checks. There are some times where the tenants don't pick them up. Make sure that you are documenting, notifying the tenant that the check was there.


And consider making a different arrangement to get the checks to them if you have people who repeatedly fail to pick them up. Because that way you can ensure that it was mailed on such and such a date, or you know, you may want to consider some form of delivery confirmation, although that can get expensive, to make sure you can document that you provided the checks when you were supposed to.

This is a section of the MOR form, the 9834. And there is a question there, it's at the bottom that asks if those checks are being distributed in accordance with HUD requirements. So it is something that is going to be looked at on the review if you have a utility allowance and utility reimbursements. So, what do we do when the tenants don't pick them up? You may not keep the funds as the owner agent.

Remember, this is the tenant's money. So what happens is document any notification to the tenant and your efforts to get those checks into the tenant's hands, document failure to cash if you know they've been distributed. And then you follow state law with regard to what happens to unclaimed funds.

One other thing to keep in mind with these is if there is a decrease in the utility allowance or reimbursement, that is in essence an increase in the tenant's responsibility. So treat that like an increase in rent and give your tenants adequate notice.


So, some key reminders on these utility allowances and reimbursements. Remember, your software is going to do most of these calculations for you. Keep it updated with any rent changes and changes in utility allowance. Make sure that you understand what a utility allowance and a utility reimbursement are when you're doing handwritten calculations. Make sure you're distributing your checks promptly. Make sure that you

Document distribution of the checks and any failure to cash them. And you're going to keep an eye on your owner agent policy, your HUD guidelines, and state law regarding unclaimed utility reimbursement checks. Resources, HUD covers this in the 4350.3 in several different areas. There's chapter 5, paragraph 5-25b, paragraph 5-26A, and 5-26C.

And you can always reach out to us with any questions as well. We would love to hear from you as far as what you would like to see on the next Tuesday tip. So please don't forget to let Mary or me know what you'd like to see. You can email us, our email addresses are on your screen right now, or you can go through the Navigate website contact us page and let us know what you'd like to see us cover. That's going to do it for today, and we look forward to seeing you on the next Tuesday tip.