Buyers: Don’t Drown Yourself in a Seller’s Pre-Closing Water Bills

Many people who have bought or sold a property in the City of Chicago limits know that in order for the property to be transferred and the deed to be recorded, a water certificate from the City of Chicago must be presented at closing indicating that the water bill for the property has been paid.  However, the water certificate process is imperfect and can expose buyers of a property to financial liability for water bill payments that accrued prior to them acquiring the property.

Providing a water certificate at closing is no longer sufficient to insure that the water bill is paid up through the closing date.  Although a water certificate may not “expire” until after closing (they usually do not expire until a few months after payment), the Chicago Water Department is starting to take a stand that a water certificate only certifies that the amount through the time the water meter was last read has been paid.  If the last meter reading was a substantial amount of time prior to closing, buyers may be stuck with a water bill that includes charges from before they were owners.

This can be especially problematic for buyers of multi-unit residential buildings and non-metered properties, as the water bills for these can be excessive.  For multi-unit residential buildings, each tenant is using water and thus increasing the water bill every day during the period of time between a final water reading and the closing date.  This usage, when multiplied by the number of tenants, can amount to a large unpaid water bill for the buyer.  Non-metered properties present a slightly different problem.  These properties do not have a water meter to measure usage and are charged a flat rate for water use, based on such factors as building size, lot size, and plumbing fixtures.[1]  The flat rate is charged to the property owner bi-annually.[2]  This means a water certificate is usually not illustrative of the actual amount owed as of the date of transfer.  The last meter reading may have been months prior to closing which can lead to a situation in which a seller pays the amount due from the last meter reading which occurred months ago, obtains a water certificate that certifies the water bill is paid as of the last meter reading, and leaves a buyer with a bill for multiple months of water usage.

This additional water payment can certainly be a problem for any property purchaser, but renders purchases of multi-unit residential and non-metered properties especially risky.  However, this risk can be eliminated in any property transaction with proper diligence executed by the buyer’s attorney.  By first identifying the problem, the attorney can work to shift the burden of these excess water payments to the party that accumulated them, the seller.  Feel free to reach out to Brotschul Potts LLC to discuss how to identify and mitigate these risks as a buyer.

[1] City of Chicago: Understanding Your Water Bill (https://www.cityofchicago.org/city/en/depts/fin/supp_info/utility-billing/understanding-your-utility-bill.html)