Separating Utilities on an Older Claremont Duplex

Walk the side yard of an older two-unit building and count the meters. If there is one gas meter, one water meter and two electric meters, you have just learned more about the operating cost of that property than the listing will tell you.

SHARED UTILITIES ARE AN OWNER EXPENSE WEARING A DISGUISE. On a building where each unit is separately metered, the tenant's consumption is the tenant's problem. On a building with a master meter, every long shower and every thermostat left running is yours, and it is the one line item that grows without anyone deciding to grow it.

This article is about what to check before you buy, what separation actually involves, and the cases where the honest answer is to leave it alone and price the deal accordingly. It sits with the rest of the small multifamily material on the investors hub.

What older Claremont stock typically looks like

The pattern in mid-century two-unit buildings is fairly consistent. Electric is usually separated, because the original design put a meter bank on one exterior wall and ran each unit its own service. Gas is sometimes separated and sometimes not. Water is very often a single meter for the whole parcel, because separating water was never standard on small residential lots and still is not.

Then there are the invisible ones. Exterior lighting, the laundry room, an irrigation system and a shared hallway all draw from somewhere, and that somewhere is frequently a unit's meter rather than a house meter. A tenant who is quietly paying to light the parking area is a complaint waiting to arrive.

Finding out what is actually shared

Do not accept a verbal answer. Verify it three ways.

COUNT AND PHOTOGRAPH THE METERS on your first walk. Note the number, the type and the age. Old meter bodies and old service equipment tell you something about how much of the building has been touched since it was built.

ASK FOR TWELVE MONTHS OF BILLS, in the account names as they exist. Bills reveal what a rent roll conceals. If the owner is paying a water bill, it appears here. If the owner is paying gas for both units, it appears here. This is also why a seller expense summary is not enough on its own, a point covered in reading a seller operating statement skeptically.

READ THE LEASES. Every lease should state who pays what. Where a lease says the tenant pays a utility that is master metered, you have found a mismatch that has probably been settled informally for years, and informal arrangements do not transfer. Confirm the reality with the tenants through the process described in estoppel certificates and rent rolls.

What separation involves

Separating a utility is a construction project and a permit project, not a phone call to the utility.

ELECTRIC separation on a building that was never designed for it means new service equipment, potentially a new panel per unit, and rerouting circuits so each unit's loads actually land on its own meter. In older construction the circuits do not respect unit boundaries. A bedroom outlet in the back unit can sit on the front unit's panel. Tracing that is the real work.

GAS separation requires a second service and separate piping to each appliance. The utility has its own requirements for meter location and clearances, and those requirements can dictate where the meter must sit regardless of where you would prefer it.

WATER separation is the hardest and often the least practical. It means a second service from the main, a second meter, and repiping so each unit's fixtures are fed from its own line. On a small lot with mature landscaping and an existing driveway, the trenching alone can be significant.

All of it is permitted work, all of it will be inspected, and on an occupied building all of it has to be scheduled around tenants who have a right to notice and to quiet enjoyment. If you are doing this during a turnover, the vacancy is part of the cost.

Deciding whether it is worth doing

Resist the instinct to separate everything on principle. Run the judgement in this order.

FIRST, SIZE THE LEAK. Twelve months of bills tell you what the shared utility actually costs you in a year. Not an estimate. The bills.

SECOND, PRICE THE WORK. Get bids from licensed contractors, and get the utility's own requirements in writing, because their conditions often drive the scope more than the contractor does.

THIRD, ASK WHAT ELSE THE MONEY COULD DO. A separation project competes with everything else the building needs. On a building with an aging roof or an original panel, the safety and insurability items come first, for the reasons set out in lender and insurer requirements.

FOURTH, CONSIDER THE ALTERNATIVES. Sometimes the practical answer is not separation. Low-flow fixtures, an irrigation controller, a repaired leak and a conversation about the laundry can move a shared water bill meaningfully for a fraction of the cost of a second service. Sometimes the answer is a lease structure that allocates the cost transparently, which is a legally sensitive area in California and one to design with an attorney rather than from a template found online.

Buying with it unsolved

Plenty of good small buildings have a shared water meter and always will. That is not a defect, it is a CHARACTERISTIC, and the correct response is to underwrite it rather than to plan a project you will not do.

Underwrite the actual bills as an owner expense. Assume they grow. Do not put a separation project in your first-year plan unless you have a bid, a permit path and a tenant plan for it, because a project that keeps getting deferred is not a plan, it is an excuse for optimistic numbers.

And be plain about the limits of any of this. Real estate can lose money, and a building with beautifully separated utilities can still be a poor purchase. Separation controls one cost line. It does not make a deal work.

This is not legal or tax advice, and utility requirements, permit rules and cost allocation law all change. Confirm scope with licensed contractors and the utility, and confirm any lease-based cost allocation with a California real estate attorney. Anthony Grynchal has been licensed in California since November 2009.