Bills-Included HMO: How to Set a Fair-Usage Cap and Bill the Excess

Bills-included rent is what fills rooms in a professional HMO. It is also what keeps HMO landlords awake when energy prices jump, because the tenant has no reason to turn anything off and you are holding the bill. A fair-usage cap is how you share that risk: energy is included up to a sensible level, and beyond it the tenants cover the extra at your cost. Done well, it protects your margin and nudges people away from leaving the heating on with the windows open. Done badly, with a cash cap or a vague clause, it causes arguments and, if you try to profit from it, breaks the law.

This guide sets out how to do it properly: the one rule that limits what you can charge, how to set the allowance, a worked example with real numbers, how to measure and bill the excess, the clause wording, and how to handle a tenant who leaves mid-period. It is general information for UK landlords, not legal advice.

What a fair-usage cap actually is

In a bills-included HMO, the rent covers energy up to a reasonable amount of use. The fair-usage cap, or fair-usage policy, is the line that says where reasonable ends. Below it, the tenant pays nothing extra. Above it, the tenants between them cover the cost of the additional units. It is not a second rent and it is not a profit centre. It is a way to recover your cost when a house burns through far more energy than you priced the rent around, and to give tenants a reason to care about waste they would otherwise never see.

The one rule that caps what you can charge

Before you set a single number, understand the limit. If you resell gas or electricity to your tenants, you are bound by Ofgem’s Maximum Resale Price rules. A genuinely all-inclusive rent with no separate energy charge sits outside this, but the moment you itemise and bill tenants for units over an allowance, you are reselling energy and the rules apply. In plain terms, you cannot charge more than you paid: the most you can recover is the price per unit your supplier charges you, plus a fair share of the standing charge. You are not allowed to make a profit on energy you resell to tenants.

That single rule shapes everything else. A fair-usage charge is cost recovery for the units used over the allowance, billed at your supplier’s rate, with the bill as evidence. It is never a mark-up, a flat penalty, or a round number you picked. Build the clause and the maths around cost, and you stay on the right side of the rule. This is general information, not legal advice, so confirm the current position with Ofgem or a solicitor before you rely on it.

Set the cap in units, not pounds

The most common mistake is a cash cap: energy is included up to, say, 150 pounds a month. It feels simple and it falls apart immediately. When unit prices rise, that 150 pounds buys fewer units, so a tenant who did nothing differently suddenly owes money. When prices fall, a tenant can waste energy and still sit under the cap. A cash cap also sits awkwardly with the cost-only rule, because the number was never tied to what you actually pay.

Set the allowance in kilowatt-hours instead. A unit allowance tracks real use, it does not move when tariffs move, and it maps straight onto cost recovery: the excess is simply the units over the allowance, charged at the rate you pay. Hold the allowance in units and let the price be whatever your bill says on the day.

How to set a fair allowance

The number that matters most is the property’s own history. Pull the last twelve months of meter readings, or your annual statements, and you have a real baseline for how much this house uses with normal occupancy. Set the allowance at, or a little above, that baseline. Nothing beats real data from the actual building.

If you do not have a full year yet, start from a benchmark and adjust. Ofgem publishes typical domestic consumption values for a single home: as of its 2026 review, a medium-use home is around 2,500 kWh of electricity and 9,500 kWh of gas a year (check Ofgem for the current figures, as they are reviewed). An HMO with several occupants uses more than one home, but not in a straight line per head, because kitchens, hallways, boilers and routers are shared. Use the single-home figure as a floor, scale it for the number of occupants and the shared space, and lean on the property’s meters as soon as you have a few quarters of readings.

Two adjustments catch people out. First, seasonality: a flat monthly allowance punishes winter and rewards summer, so either set the allowance over the whole year or the tenancy, or vary it by season. Second, the make-up of the house: electric heating, a hot-tub, or a house full of gamers changes the baseline, and the fair number is the one you can evidence for that property, not a figure from a forum.

A worked example

Numbers make this concrete. Take a five-bed HMO on a single electricity meter, billed quarterly.

Notice what the cap is doing. It is not making you money; the 66.15 pounds is exactly what the extra units cost you. It is protecting the rent you set and giving the house a reason to not run the immersion heater around the clock.

How to measure it

The charge is only as strong as the evidence behind it. Take meter readings at the start and end of every period, date them, and photograph the meter so there is no dispute about the figures. A smart meter makes this easier and gives you a usage trail, but it is not required. Keep your own supplier bills, because they are what prove the rate you are allowed to pass on.

One limit is worth naming: a single property meter tells you the total, not who used what. That is why a whole-property excess is split across tenants rather than pinned on one room. If you want to bill a room for its own usage, you need per-room sub-metering, which changes the whole approach, as we come to below.

Rent and metered electricity on one bill

Billing the excess, and splitting it fairly

Charge the excess units at your supplier’s rate and no more. That keeps you inside the resale rule. For the split, the fairest method is by occupied days: work out how many tenant-days each room contributed to the period and divide the excess in proportion. When everyone was present for the whole period that collapses to an equal split, which is why an equal split looks fine until someone moves in or out.

Resist two temptations. Do not fold the standing charge into the excess, because it is fixed and already in the rent. And do not reach for the deposit: energy overuse is a cost to bill with evidence, not a deposit deduction, and deposit schemes rarely back a vague fair-usage claim. Bill it openly, with the numbers and the supplier’s bill, and it holds up.

The tenant who leaves mid-period

This is the case the 500-word guides skip, and the one that causes the most friction. If a tenant moves out a third of the way through the quarter, they did not have use of the house for the other two thirds, so they should not carry a full share of an allowance or an excess that built up after they left. Pro-rate it: each tenant’s share of both the allowance and the excess follows the days they occupied a room in the period, and a replacement tenant picks up from their move-in date.

Doing that by hand across rooms and dates is exactly where fair-usage policies become a chore, and where the maths quietly goes wrong. Software that already holds each resident’s move-in date can split a metered charge between them automatically, instead of you working out tenant-days on paper. Our guide to tracking HMO rent, payments and arrears covers the same discipline for the rent itself.

Example fair-usage clause

A fair-usage charge is only enforceable if it is written into the tenancy, clearly and fairly, and agreed by the tenants before they sign. The wording below is an example of the elements a fair clause covers. It is not legal advice and not a template to copy blindly: have it checked by a solicitor or your redress scheme, and make sure it matches how you actually bill.

A cleaner way: bill metered usage, not a blunt cap

A cap is a workaround for not knowing who used what. The moment you can meter rooms, the fairer answer is to stop capping and simply bill each resident for their actual share. This is how PulseHub handles HMO utilities: you record a meter reading, it is priced against your tariff, and it is split between residents by their join dates, on the same monthly bill as the rent. Everyone pays their real share at your cost, so there is no cap to argue about, no cash limit to revise when prices move, and the resale rule is satisfied because the charge is your cost and nothing more.

Whether you run a formal allowance or bill metered usage directly, the hard part is the bookkeeping: readings, rates, who occupied which room and when, and a clear line on every resident’s statement. Across several HMOs that is more than a spreadsheet wants to hold, which is the same reason landlords move rent tracking off Excel. See our guide to managing multiple HMO properties without spreadsheets.

Run your HMO utilities the fair way

Fair usage only works if it is fair in both directions: you recover your real cost, tenants pay for what they actually use, and both sides can see the figures. PulseHub keeps rooms, residents, rent and metered utilities on one platform, splits charges by occupancy, and puts them on a single bill per resident, in pounds. See HMO management software, or start a free trial and set up your first property in minutes.