Over the last few weeks there have been numerous requests by Sellers to obtain a prorated credit for unused gas remaining in their propane tanks. In these instances the Sellers thought Standard K (“Proration’s; Credits”) of the Standard FRBAR-2 Contract addressed this issue. Standard K specifically requires the following recurring items to be made current and prorated as of the day prior to Closing Date: real estate taxes, interest, bonds, association fees, insurance, rents and other expenses of Property. The Sellers argued that the propane gas was an “other expense of Property” and therefore should be prorated on the HUD-1. However the Sellers acknowledged (and actually agreed) that the same argument could be made that the use and payment of propane gas is similar in nature to a cable or utility bill which are not prorated at closing. It is clear that the phrase “other expenses of Property” is not clearly defined and ambiguous. To avoid having to deal with this ambiguity moving forward we would suggest that you should:
- Ask the Seller if they have an existing gas propane tank that they use.
- Ask if the gas propane tank is leased or owned.
- Ask the Seller to provide a copy of the last invoice to fill the propane tank.
- Ask the Seller to find out how much it would cost for the propane company to inspect the tank a few days before closing (most propane gas company’s charge a service fee ranging from $65-$100).
- Consider the following methods for determining credits:
a. Have your attorney add language to the Contract (specifically under additional terms) that addresses the service fee (i.e., who pays) as well as a credit to the Seller for any unused propane gas. The credit should be determined by multiplying the percentage of propane gas remaining multiplied by the last invoice.
$1,000 – reflects the amount of the last invoice to fill the entire tank
X 20% – propane gas remaining
= $200 – equals the credit due to the Seller
b. As an alternative to 5(a) above, the parties could add language that the Seller will provide a full tank of propane at closing and a credit will be issued for the going rate of propane for the full tank. Example, the tank is 200 gallons and the price per gallon is $3.00, so the credit would be $600.00 to the Seller.