Commercial and Mixed-Use Water Submetering

Why Commercial Owners Ask About Water

A strip center, an office building or a ground-floor-retail building often has one water meter serving every suite. The owner pays the bill, and the lease decides who carries the cost. Often that is a line in the common area maintenance (CAM) pool, split by square footage. That works while every tenant uses water about the same way. It stops working when a restaurant, a salon or a laundromat moves in next to a dentist's office and an insurance agency.

This guide covers what the law and the utilities allow, where apartments in a mixed-use building change things, how leases handle the pass-through, and what a billing meter must meet.

Electricity Is Mostly Closed. Water Is Mostly Open.

Owners who have looked at electric submetering often assume water works the same way. It doesn't.

For electricity, commercial tenants in CPUC-regulated territory (PG&E, SCE and SDG&E) generally cannot be submeter-billed at all. The tariffs let electricity reach them only as part of the rent, with narrow exceptions such as EV charging. SDG&E's Rule 19 puts it in one line: "Submetering of non-residential service is prohibited." LADWP is the main exception and allows commercial submetered pass-through at LADWP's rates. Our RUBS vs. submetering guide covers the electric side in detail.

Water is different. We have not found a California statute that caps what a commercial landlord may rebill for water and sewer. SB 7, the state's water submetering law, covers dwelling units only. So for a building with no apartments, the limits come from elsewhere: your water utility's rules, your city's rules and your leases. Those limits are real, and they vary by utility.

Start With Your Water Utility's Tariff

California has many water purveyors: investor-owned utilities regulated by the CPUC, municipal departments and water districts. Each has its own rules on reselling water. Two examples show how far apart they can be.

Other utilities, including Cal Water and California American Water, have their own tariffs, and we don't generalize from these two. Get your purveyor's current rules on resale and submetering first. That one document can decide whether you need an agreement, what you may charge and whether any fee is allowed.

City rules can add another layer

Some cities regulate utility pass-throughs too. San Diego adopted an ordinance, effective August 17, 2025 (San Diego Municipal Code §98.1201–.1207), that lets landlords charge City water, sewer, stormwater and trash fees "no greater than the amount the landlord pays." It requires written notice, bills and calculations on request within 10 days, and separately itemized third-party billing costs with backup. Tenants can sue, including for punitive damages. Landlords who submeter under SB 7 are exempt for those services. The ordinance sits in the city's housing code and targets residential landlords, so in a mixed-use building it matters for the apartments; have counsel confirm how it treats any commercial lease.

Mixed-Use Buildings: SB 7 Governs the Residential Units

Add apartments above the shops and the picture changes. SB 7 (Civil Code §1954.201–.219, in force since January 1, 2018) applies to real property with two or more dwelling units served by a single master meter. Its definition of a submeter expressly includes a device measuring an individual rental unit's water "within a multiunit residential structure or mixed-use residential and commercial structure." So once you bill any residential tenant from a submeter, the full SB 7 rulebook applies to that tenant. The commercial suites in the same building remain outside it, because SB 7 reaches dwelling units only.

What SB 7 requires for the residential units

• Written disclosure before the lease is signed, in at least 10-point type. It covers the estimated monthly bill, how to pay, the allowed charges, how to report leaks, and the dispute path, which runs to the landlord first and then to the county sealer.
• Only the charges the statute lists. Usage at the tenant's pro-rata share of what the utility charged. The utility's recurring fixed charges. A billing fee of no more than the lesser of $4.75 (CPI-adjusted) or 25% of the usage charge. A late fee within §1954.213's limits. Nothing else, and no markup.
• Bills with reads, dates and gallons, a statement that the landlord is not the water purveyor, and the purveyor's name.
• Leak duties. The landlord must investigate reported leaks, and billing is capped if a warranted repair takes more than 21 days.
• No shutoffs. Water may not be shut off for any reason, including nonpayment, except for repairs. Water charges are not rent.

Our guide to water submetering for apartment communities covers these rules in full.

How the commercial suites share the fixed charges

SB 7 lets the landlord pass the utility's recurring fixed charges through to residents in one of two ways: by each unit's share of usage, or equally across all residential and nonresidential units (§1954.205(a)(2)(B)). That second option is the one place SB 7 touches the shops. If fixed charges are split per unit, the commercial suites count in the division, so the apartments don't absorb the whole base charge.

New mixed-use construction

Water Code §537.1 requires a water purveyor serving a newly constructed "mixed-use residential and commercial structure" to require a measurement of the water supplied to each individual residential dwelling unit. This applies where the application for a water connection was submitted after January 1, 2018. The commercial-only units in such a building are excluded from that requirement. The measurement can come from utility meters or from submeters that the owner installs and reads. A building required to submeter must bill its residents under SB 7.

The statute also says who may install those submeters: either a contractor licensed by the Contractors' State License Board that employs at least one journeyperson who graduated from a state-approved apprenticeship program, or a registered service agency with the California Department of Food and Agriculture. If your project falls under §537.1, confirm that whoever installs your submeters meets that definition. We install to that standard and staff every job accordingly.

Plan the two sides separately

A mixed-use building runs two programs from one master meter: a residential one written by statute, and a commercial one written by your tariff and leases. Keep them apart, with separate meters, separate bill formats and a clear rule for common-area water.

Lease Language: Where Commercial Pass-Through Is Actually Decided

For the commercial suites, the lease does most of the work. This isn't a substitute for your counsel's drafting, but these are the points we see matter most when a building moves to measured billing.

• Say how water is measured. A clause that says the tenant pays "its share" of water, with no method, invites argument. Name the method, whether that's a submeter serving the premises or a stated allocation, and say what happens if a meter fails.
• Say what's included. Water usage, the utility's fixed charges, and sewer and other charges that appear on the water bill. Match the list to what your utility actually bills.
• Take metered water out of CAM. In a triple-net (NNN) lease, water usually sits in the CAM pool and is reconciled annually by pro-rata share. Once a suite is metered, bill its measured water directly, and keep only common-area water in CAM. Otherwise the metered tenant pays twice.
• Deal with common-area water explicitly. Landscaping, restrooms, cleaning and fountains are building costs. Decide whether they go in CAM or are absorbed, and keep them off tenant meter bills.
• Set the read and billing schedule, the bill format, the payment terms and how a tenant can dispute a bill or ask for a meter test.
• Reserve meter access. Meters are read and maintained. The lease should let you reach them, ideally without entering the suite.
• Stay within your tariff. If your utility caps charges at its own rates or bans fees, the lease can't grant you more. Have the clause refer to the utility's rules rather than to a fixed rate.

Existing leases are the hard part. If a lease says water is in CAM by square footage, you usually can't change that on your own partway through the term. The practical path is to make the change at renewal or with a new tenant, or by agreement with a tenant who benefits from it.

High-Use Tenants: Why Measurement Matters Most Here

The case for commercial water submetering is strongest where tenants' water use differs widely. A restaurant runs dishwashers, prep sinks and ice machines all day. A salon washes hair at every chair. A laundromat is water use as a business. An office next door may use little more than its restrooms. Split the bill by square footage and the office pays part of the restaurant's water.

Measured billing fixes that:

• Fairness. Each tenant pays for its own use. The low-use tenants stop subsidizing the high-use ones, and they notice when their CAM reconciliation drops.
• A price signal. A tenant who sees its own water cost has a reason to fix a leaking pre-rinse valve or a running fixture. Under a pooled split, that saving is shared with the whole building.
• Simple disputes. "Is the formula fair?" is an argument. "What does the meter say?" is a lookup.

A note on savings claims: the best-known study, the 2004 National Multiple Family Submetering and Allocation Billing Program Study, found submetered apartments used 15.3% less water than apartments with water included in rent. It studied residential properties, not commercial ones. We don't carry that figure over to restaurants or offices.

Irrigation, Common Areas and Sewer

Irrigation and common-area water. A shopping center's landscaping can be one of the biggest users on the master meter. A submeter on the irrigation line tells you how much of the bill is landscape water, so that share can go to CAM or be absorbed, and the tenant allocation starts from the right number. Without it, tenant bills built by subtracting from the master meter carry the irrigation load.

Sewer. Sewer charges often arrive on the same bill as water. How your sewer agency calculates them, and whether it will credit water that never reaches the sewer, depends on that agency's own rules. Get them before you assume a submeter changes your sewer bill. For the residential units in a mixed-use building, SB 7's definition of "water service" includes sewer, stormwater and flood control charges, so those follow the same SB 7 rules as the water itself.

Meter Standards: Type Approval, the County Sealer and Testing

A meter that sets a tenant's bill is a commercial device under California law, whether the tenant is a household or a restaurant. Business and Professions Code §12500.5 makes it unlawful to use a device for commercial purposes unless its type has been approved. §12500(e) defines "commercial purposes" to include any measurement on which a charge for service is based. County sealers of weights and measures inspect and test these devices.

Tolerances are from NIST Handbook 44 §3.36, Table T.1 (accuracy class 1.5), as reproduced in the CDFA 2024 Field Reference Manual.

The inspection interval deserves a plain warning. The state's schedule lists "Water Submeter (Domestic Service)" at 10 years and "Water Submeter (All Others)" as annual, and the extract we reviewed doesn't define "domestic service." Whether a submeter serving a restaurant or a retail suite falls under the 10-year row or the annual row is not settled. Ask your county sealer before you budget for testing, and plan for the stricter answer until you have theirs.

You'll also see meters sold against AWWA standards (C700, C710, C712, C713 and C715 cover the common meter types). Those are industry product standards, not California's legal test, which is type approval plus Handbook 44. Ask for the type approval, not just the AWWA listing.

Two practical points for commercial suites. Put the meter where it can be read and serviced without entering the tenant's space. SB 7 requires that for residential submeters installed since 2018, and it's good practice everywhere. And size the meter to the tenant's flow: a meter sized for a restaurant's peak may under-register an office's low flows, and minimum-flow accuracy is where tolerances are loosest.

Commercial Water Submetering Checklist

Work through these before you buy a meter or send a tenant a bill.

Frequently Asked Questions

Sources

Accessed September 2026.

• California Civil Code §1954.202 (part of §1954.201–.219, SB 7) — definitions, including mixed-use structures and water service
• California Civil Code §1954.205 — allowed charges, including the fixed-charge split across residential and nonresidential units
• California Civil Code §1954.214 — local ordinances adopted before January 1, 2013
• California Water Code §537.1 — per-unit measurement in new multiunit and mixed-use buildings; installer requirements
• California Public Utilities Code §2705.5 — water submetering at the utility's rate
• California Business and Professions Code §12500.5 and §12500(e) — type approval and "commercial purposes"
• Golden State Water Company Rule 19 — resale and submetering
• LADWP Rules Governing Water and Electric Service, Rule 18 — resale, submetering and fees
• San Diego Municipal Code §98.1201–.1207 — landlord utility fee pass-throughs
• CDFA 2024 Field Reference Manual — NIST Handbook 44 §3.36 water meter tolerances
• California Code of Regulations, Title 4, §4070 — device inspection intervals
• Aquacraft et al., National Multiple Family Submetering and Allocation Billing Program Study (2004)