The Six-Unit Split Incentive

The split incentive is misaligned costs and benefits. The landlord pays for common-area gas and water, while tenants pay in-unit electricity. If the landlord buys in-unit insulation or window improvements, tenants capture most of the electric savings, so the landlord has little direct payback. Conversely, tenants will not replace the landlord's water heater. The heat-pump water heater is different: because the landlord pays the gas for the common basement, the landlord can capture the savings and the $2,500 rebate, making that measure more attractive. For in-unit measures, the landlord needs a cost-recovery structure-such as a phased rent adjustment tied to documented improvements, a green lease disclosure, or a utility-funded direct-install program. Benchmarking first makes the split visible and helps target the measures with the best landlord payback. The broker should frame this as an alignment problem, not a tenant-behavior problem.

Phase 1 should capture landlord-paid savings: free benchmarking, then replace the 20-year-old water heater with a heat-pump unit, using the $2,500 rebate. Budget roughly $6,000–$8,000 net, and confirm electrical capacity and condensate drainage. Phase 2 should be low-cost in-unit measures: seal and cover the failed window AC seals, distribute LED bulbs, and air-seal obvious penetrations. Budget $1,500–$2,500. Phase 3 should be attic and common-area air sealing plus insulation if the attic is accessible. Budget $5,000–$7,000. Keep a 10% contingency. Tenant protections: give written notice before access, avoid rent increases above $25–$35 per unit in the first year for the two long-term tenants, phase any increase over two years, and offer a payment plan before pursuing arrears. The landlord should not use the retrofit as a pretext for displacement or retaliation.

I would hold a short, in-person meeting with a written summary and a clear timeline. I would explain what is being replaced, when access is needed, who will be in the units, and what tenants can do to prepare. I would present the rent change separately from the energy work, with the amount, effective date, and phase-in for long-term tenants. I would avoid saying tenants "crank the heat," blaming them for high bills, or promising that their bills will drop by a specific amount. I would avoid linking the rent increase to the retrofit in a way that implies retaliation if they question it. I would offer a follow-up walkthrough and a way to report problems. Language access and written notices matter. I would document the meeting and keep tenant questions in a log so the landlord can respond consistently.