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Should I Offer an inclusive or non-inclusive rent agreement?
When drawing up a tenancy agreement, there is the option of either an inclusive or non-inclusive agreement. This needs to be considered carefully as there are advantages and disadvantages to both options.
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The benefits & risks of non-inclusive agreements
The benefits & risks of inclusive agreements
Why should landlords consider a utility bill management service?
Non-inclusive rent agreements
A non-inclusive tenancy agreement means that the landlord does not take any responsibility for the payment of bills. Tenants must arrange their own utility providers and are responsible for paying their council tax, television licence and any other regular bills for the services they need.
Benefits of non-inclusive agreements
Fewer landlord responsibilities
One of the main advantages of a non-inclusive tenancy is that, as a landlord, you have fewer responsibilities. Without having to arrange the utilities and calculate the total cost of bills to be added to the rent, there is less hassle on your part.
Non-inclusive agreements are a popular choice for many landlords, particularly those with a portfolio of rental properties who don’t have the time to manage all the bills as well as maintenance and collecting rent.
Risks of non-inclusive agreements
While non-inclusive agreements can save landlords time on managing a range of bills across a number of properties, they can also come with a few risks:
Unpopular with younger tenants
Non-inclusive tenancy agreements are not a popular choice among millennial renters, particularly those who are students. This group makes up a significant percentage of all tenants in the UK and they tend to have a preference for inclusive tenancies.
This is because they are busy themselves and often feel more comfortable with paying out a flat monthly rate that covers all their household bills. It also makes it easier for them to budget effectively, particularly in Houses in Multiple Occupation (HMO) where they would otherwise have to split bills with other occupants in a fair, equal way.
Choosing to only offer a non-inclusive tenancy may limit the potential tenants that would consider your property. These are factors worth taking into consideration when making your decision.
>Unpaid bills can cause issues
Of course, if the responsibility is left to your tenants, it can bring hassle to your door if there are unpaid bills. Failure to pay council tax can be problematic, and if utility bills (gas and electricity) are unpaid then the energy supplier could cut off their service. These can all amount to headaches for landlords if tenants turn out to be less reliable than they initially appear. Not to mention that disputes between occupants in an HMO can also end up causing problems.
One option to help tenants manage the bills, especially in HMO’s, could be to refer them to a utility bill management service to help provide you with peace of mind and to help your tenants pay and manage their bills effectively.
Pros and cons of non-inclusive agreements
| Pros | Cons |
|---|---|
| Less work for landlord in calculating and adding bill costs to rent | Unpopular choice for younger renters so can limit the number of potential tenants |
| Saves time in managing a number of bills across a number of properties | Unpaid bills can lead to cut off services and fall on the landlord to sort out |
| Avoids overuse of utilities that the landlord must cover and which can impact on profits |
Inclusive agreements
An inclusive tenancy agreement is one in which the monthly payments your tenants make to you also cover a predetermined set of household bills. You can choose what’s included in these agreements, but common things, in addition to rent, include:
- Utility bills
- Broadband
- Council tax
- TV licence
Your agreement can also cover bills such as Netflix or Sky TV, and even cleaning and gardening services. You can find out more about your responsibilities as a landlord in our guide – landlord responsibilities: utility bills, council tax, maintenance and more.
Benefits of inclusive agreements
Inclusive agreements have become more popular in recent years so can open up the rental market for a particular property to a wider range of prospective tenants.
Popular with younger tenants
This type of tenancy is popular with younger tenants, particularly in a HMO. Millennials and students like all-inclusive tenancies because it makes it easier to budget for other expenses in their lives and it takes the hassle out of splitting the bills between occupants.
If you offer an inclusive tenancy, your property will be more attractive to a wider range of renters, but it does place a lot more responsibility on you.
Risks of inclusive agreements
While there are benefits to inclusive rent agreements, there can also be a few risks associated with managing the bills for your tenants.
Additional management responsibilities
One of the key disadvantages of an inclusive agreement is having to arrange all the utilities and services yourself. Particularly if you manage multiple properties, there will be a huge number of bills to keep track of and you will need to keep on top of payments.
In addition, if your tenants fail to make a payment, you must still ensure the bills are paid, so it can be helpful to ensure younger tenants have a guarantor in place.
Tenants may overuse utilities
Another consideration is, particularly with utility bills, there is no guarantee that your tenants will be consistent with their usage of services. You can take measures such as installing a smart meter and LED light bulbs, having walls insulated and various other things that will help keep energy consumption down. But, ultimately, the way your tenants use energy is not entirely in your control.
The benefit of being more attractive to millennials and students is a significant advantage of inclusive tenancies, but you need to find a way to manage the risks and potential headaches that come with it.
Pros and cons of inclusive agreements
| Pros | Cons |
|---|---|
| May make your property more desirable to tenants compared to landlords who do not offer inclusive agreements | Adds to your management responsibilities |
| Utility bill management services can take the hassle out of managing bills for your properties | You must continue to pay utilities bills even if a tenant faults on rent payments, causing extra costs to you |
| Attract a higher number of tenants, especially millennials and students who account for a significant number of UK tenants | Rises in bill costs can impact on profitability |
| You can ensure that bills are paid on time to prevent issues with utilities being cut off or problems that can arise when council tax is not paid | A tenant may overuse utilities, causing extra, unexpected costs |
| Adding bills costs onto rent can make the rent seem more expensive to a prospective tenant |
Using utility bill management services
Utility bill management services can take the responsibility and the hassle out of your hands with inclusive tenancies. These services allow you to outsource the management work to specialists who can arrange all the services your tenants need and manage everything on your behalf. In exchange, you pay a flat fee that is a small price to pay for the peace of mind you get.
The benefits of using a utility bill management service include:
Impartiality
Involving a third party means, you have a dispute with tenants, or they have a dispute amongst themselves, the utility bill management organisation can help come to an agreement.
Furthermore, tenants like to have a single point of contact for all of their services, and it takes the headache out of dealing with multiple companies yourself.
Saves time
Offering an inclusive tenancy and managing all the bills yourself can be counter-productive. It is time-consuming, leaves you open to making mistakes and, ultimately, the extra hassle can outweigh the benefits of offering this type of tenancy.
By choosing a utility bill management service, the small extra financial cost will lead to huge savings in an even more important currency – your time. If you are an HMO landlord with multiple properties, your time is precious. Even landlords with only a single property need to manage their time effectively.
You can find out more about how utility bill management services work here.
In conclusion
Landlords and tenants alike have much to gain from inclusive tenancies, but the logistics of making it work are often a barrier.
Landlords are encouraged to consider outsourcing the management of bills in inclusive tenancies to a utility bill management service to take the stress and hassle out of the equation. It brings the security of having a dedicated service manage all the complexities whilst enabling you to offer the type of tenancy that your prospective tenants are looking for.
