Advance payments vs. actual costs: how the annual utility settlement works

Many tenants pay a fixed amount every month on top of the rent for heating, water, waste collection, stairwell cleaning and similar costs. That amount is an advance, an estimate. Once the year's real bills are in, landlord and tenant compare the two: the tenant tops up if the advances were too low, or gets money back if they were too high.

This reconciliation is where a lot of rental disputes start. It rarely comes down to bad faith. Usually the settlement is just hard to follow. This guide explains what a clear settlement looks like, which costs belong in it, and how to set next year's advance. Germany is the worked example, because its rules are detailed and its deadline is coming up soon: settlements for 2025 must reach tenants by 31 December 2026, about ten weeks from now.

What a settlement has to show

Wherever you rent, a settlement that a tenant can check on their own usually contains six things:

1. The period. For example 1 January to 31 December 2025. If the tenant moved in or out during the year, only their months count.
2. The total cost of each item. Not one lump sum. Heating, water, waste, insurance and so on, each listed separately.
3. The allocation key. How each total is divided: by floor area, by number of occupants, by meter reading, or per flat. The key should match what the lease says.
4. The tenant's share. The amount that results from applying the key to the total.
5. The advances actually paid. What the tenant paid, not what they were supposed to pay. Missed advances are a separate debt.
6. The result. The top-up owed or the refund due, and ideally the new monthly advance.

If one of these is missing, the tenant can't check the figures, and that is when arguments begin.

A worked example

Take a 70 m² flat in a building with 700 m² of living space, so the tenant's area share is 10%. The tenant paid €180 a month, €2,160 for the year.

The figures are made up, but the layout is what counts. The tenant can see where each number comes from.

What can be passed on, and what stays with the owner

The general idea is the same in most countries: tenants pay the running costs of using the property. The owner pays for keeping it in good condition and running it as a business. In practice:

Usually passed on (if the lease says so): heating and hot water, water and sewage, waste collection, cleaning and lighting of common areas, lift operation, building insurance, chimney sweeping, garden upkeep, routine caretaker work and, in Germany, property tax.

Usually stays with the owner:

• Repairs and maintenance. A broken boiler pump, a new roof, repainting the stairwell.
• Management costs. Property manager fees, the owner's own time, bank charges, accounting.
• Reserves. Contributions to a building's renovation or reserve fund.
• Vacancy. The share of costs for empty units.

A common mistake is passing on the caretaker's or the building manager's whole invoice when part of it covers repairs or administration. That part has to be taken out.

In Germany this split is set out in law. § 1 of the Operating Costs Ordinance (BetrKV) explicitly excludes management costs and maintenance and repair costs from the operating costs that can be charged to tenants. Even an allowed cost can only be passed on if the lease provides for it.

Germany: the deadline and what happens after it

Under § 556(3) of the German Civil Code (BGB), advances for operating costs have to be settled once a year. The settlement must reach the tenant no later than the end of the twelfth month after the billing period ends. For a calendar-year period, that means the 2025 settlement has to arrive by 31 December 2026.

What matters is when the tenant receives it, not when you send it. If there is a dispute, the landlord has to prove receipt. So don't drop the letter in a postbox on 30 December and hope for the best. Hand it over in person with a witness, or send it in a way you can prove, well before the deadline.

If the deadline is missed:

• The landlord generally can no longer claim a top-up. The only exception is a delay the landlord is not responsible for.
• A refund is still owed. The deadline protects the tenant, not the landlord.
• The tenant has twelve months after receiving the settlement to raise objections. After that, objections are generally excluded, again unless the delay wasn't their fault.

The law also requires costs to be kept reasonable (the principle of economic efficiency). A landlord can't pass on an overpriced contract just because the tenant pays for it.

Heating has its own rules in Germany: under the Heating Costs Ordinance, a large part of heating costs has to be split by measured consumption. That is why the heat-cost statement from the metering company is usually a separate attachment. Our 3 October article on heating meter readings covers this in more detail.

Resetting next year's advance

The settlement is the natural moment to adjust the monthly advance. In the example, the real cost was €2,340, or €195 a month, so keeping the tenant at €180 would build up another shortfall.

In Germany, § 560(4) BGB allows either party to adjust the advance to an appropriate level after a settlement, by a declaration in text form (an email is enough). "Appropriate" means based on the last settlement, plus any increases you can actually show, such as a published price rise from the energy supplier. A round extra margin "just in case" doesn't count. Tenants can use the same rule to ask for a lower advance after a large refund.

Outside Germany, check whether your lease allows the advance to change and how much notice it requires.

What a tenant can ask to see

A settlement is only as trustworthy as its paperwork. Tenants are generally entitled to see:

• the supplier invoices behind each item (water utility, waste service, insurer, cleaning company);
• the building's cost statement from the property manager or owners' association, if the flat is in a shared building;
• meter readings at the start and end of the period, including readings taken at move-in or move-out;
• the heat-cost statement and the readings of heat-cost allocators;
• the documents behind the allocation key, for example floor areas.

In Germany, § 556(4) BGB gives tenants the right to inspect the receipts on request, and the landlord may provide them electronically. Scanned invoices sent by email are fine.

Elsewhere: same logic, different rules

The German deadline and cost list don't apply in other countries. Every country handles this differently, and the lease often matters more than any statute.

Hungary is a good example. Utility contracts often stay in the owner's name, and the tenant pays either the real bills based on meter readings or a fixed monthly flat rate (átalány) agreed in the lease. With a flat rate, whether there is ever a year-end reconciliation depends on what the lease says. The building's common charge (közös költség) is owed to the owners' association by the owner. Whether the tenant pays all of it, only the usage-related part, or none of it is also a matter for the contract. Hungarian landlord guides such as Fundamenta's overview and this guide from RentTab recommend listing rent, utilities and common charges separately in the lease, and stating whether you settle by meter or by flat rate.

Whatever the country, if a top-up is large or a tenant disputes it, a short conversation with a local accountant, lawyer or tenants' or landlords' association is worth it.

Checklist before you send the settlement

• ☐ Period stated, with move-in or move-out dates if relevant
• ☐ Every cost item listed with its building total
• ☐ Allocation key named for each item and matching the lease
• ☐ Repairs, management fees and reserve contributions taken out
• ☐ Only costs the lease allows are included
• ☐ Advances actually paid shown, not the expected amounts
• ☐ Top-up or refund clearly stated, with a payment date
• ☐ New monthly advance proposed, with the reason
• ☐ Invoices, cost statements and meter readings ready to share
• ☐ Germany: delivered with proof of receipt well before 31 December 2026

Most of this work is finding paper: twelve months of advances in one place, invoices in another, meter photos on a phone. In LeasingTrack, each property keeps its income, expenses and documents together, and the tenant sees their own payments. When settlement season comes, the numbers are already in one place.