The Common Area Deduction (CAD) allocates the cost of utilities used by shared property areas (e.g., elevators, lobbies) to the property owner, ensuring residents only pay for their individual usage through a calculated and fair billing process.
The Common Area Deduction (CAD) represents utilities that are used by common areas of the property, such as elevators, lobby lighting, common irrigation, shared laundry, or a pool. Ownership absorbs this portion of the bill. By default, the CAD is set to 5% in Livable Pro.
See also: What is a Good Will Deduction (GWD)?
Why is CAD Important?
We strongly advise against Property Owners/Managers passing through 100% of the utility bill to residents for several reasons:
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Fairness and Equity: CAD ensures a fair distribution of utility costs by making sure residents only pay for their individual usage and not for the common areas they share with others. This equitable approach builds trust and satisfaction among residents.
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Encouraging Conservation: When residents are confident that they are only being billed for their personal utility consumption, they are more likely to adopt energy-saving habits. This contributes to overall energy conservation, benefiting the environment and potentially lowering utility costs for everyone.
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Transparent Billing Practices: Implementing CAD promotes transparency in billing practices. Residents appreciate knowing how their utility bills are calculated and that common area usage is not unfairly included in their individual bills. This transparency can enhance the reputation of the property management.
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Regulatory Compliance: In some regions, regulatory guidelines mandate fair utility billing practices, including the exclusion of common area utility usage from resident bills. Adopting CAD ensures compliance with such regulations, avoiding potential legal issues.
How is CAD Calculated?
The calculation of the Common Area Deduction (CAD) involves several steps to ensure accuracy and fairness. Here's a simplified breakdown of the process:
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Identify Common Areas: First, the property manager identifies all the common areas that contribute to utility usage. These include spaces like hallways, lobbies, shared bathrooms, gyms, and outdoor lighting.
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Estimate Utility Usage: Next, the property manager estimates the amount of utility consumption attributed to these common areas. This can involve historical data analysis, meter readings specific to these areas, or industry-standard usage estimates.
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Apply the CAD Percentage: Once the total utility usage for common areas is determined, a CAD percentage is calculated. This percentage reflects the portion of the overall utility bill that should be deducted before allocating the remaining costs to individual units. For example, if the common areas account for 20% of the total utility usage, then 20% of the utility bill will be allocated to CAD.
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Adjust Resident Billing: After the CAD is calculated, the remaining utility bill is distributed among the residents based on the Ratio Utility Billing System (RUBS) method in use. This ensures that residents are only billed for their share of the utilities and not the common area usage.
By incorporating CAD into the utility billing process, property owners can ensure a fair distribution of utility costs, making it clear to residents that they are only paying for their individual usage and not the common areas.