What constitutes fair shared HOA common expenses?

Started by GerryW1 • 13 replies • 1001 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

GerryW1 (Florida)
Posts: 129

Posted:

Another of my Master/subassociation posts. We are a condo which is part of a large master association comprised of much more expensive homes/subassociations, and us. We have the usual arrangement of paying high condo association fees, and lower master association fees (approximate 5/1 ratio). As a condo, we have our own manager, own landscape company, own pool, etc. 50% of the homes do not have a manager, and use the master association manager (and office)for daily issues, which we rarely use . We also are located near the entrance gate, share a very short entrance road, and have nothing to do with the other mile of roads within gated areas beyond us (and do not use them- no shared amenities, but considered common area). In a nutshell, we get around $.40 cents for every maintenance dollar (including reserve contribution), vs half the association which gets around $1.20 for every dollar. More or less. And the dues are exploding higher due to various issues which we as a condo have no relationship with except being lumped in with all properties. So my question is, how does one determine what should be counted as shared common Master expenses (per CC&Rs, shared expenses are equal, but what constitutes "shared" besides deeded road obligations, insurance and a few other things). There are specific statutes that state use of common areas, etc, does not affect dues amount. Thanks

KellyM3 (North Carolina)
Posts: 2,239

Posted:

In a fair HOA world, the master association would financially maintain the amenities and private streets that are accessible to 100% of the community OR deal with the community entrances, which must be maintained by a common master board, otherwise, you'd have brand and maintenance discrepancy. Also, master associations are most appropriate to handle single family homes as stand-alone houses aren't making maintenance calls and the HOA isn't responsible for much more than ensuring access to common amenities. Condos are more maintenance-heavy and inherently communal.

I'm a master association president. I would have trouble justifying our master association covering a gated community UNLESS the gates were installed by the developer and are part of the master development plan. At that point, it's part of the community and always has been. However, if the gates were installed by the developer, then I'd begrudgingly accept status quo as that was the design....and I agreed to it by buying into the property development.

It would be very difficult for those single family homeowners to organize a new HOA to fund amenities "locked" behind the gate, if you will.

SheliaH (Indiana)
Posts: 6,964

Posted:

Can you print your questions in paragraphs next time – this was a little hard to read.

Generally, assessments are based on expenses incurred by the association, so I would think yours would be based on the services provided exclusively to your condo community. I suspect the developer set it up like you describe to generate supplemental income to underwrite expenses for the larger community until it was turned over to the homeowners. Money always talks and the declaration, bylaws and CCRs are always written to benefit the developer at first - that's why the association needs to look at them during the turnover and make sure they're updated to delete references to the developer and tailored to the association itself..

If your residents don’t use ANY of the larger community’s services, you'll probably need to change the documents to make that clear, perhaps establishing the condo community as a seperate association. that way, all the assessments paid by those owners will be used exclusively for that community.

First, check your documents to see how they are to be changed- you'll probably need a significant percentage of homeowners (maybe from both communities) to agree to this. If the larger community goes along with this, there could be more expenses in getting the condo community set up as a non-profit corporation, getting your own tax ID, etc. That could get pricey, so if the condo community has its own board, it may be a good idea to consult the association attorney and get some estimates on how much this will cost. The homeowners should also be consulted to see if they want to do this at all because they'll have to pay for the change.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

GerryW1 (Florida)
Posts: 129

Posted:

Excellent and applicable comments. The gates were installed around 10 years after the condo went in. As did a new road beyond the gates. Unfortunately or not, the condo is located outside the main gate!! This was decided by the Master Board at the time (traffic logistics, geography). There are zero amenities, just additional gated and ungated single family home subassociations. Since we pay the same Master Dues as the $4+ million dollar homes a mile from the gate, we were given gate cards to use the road as an alternate exit (which is used 1% at best, most condo owners don’t know or care). And as time has gone on, the shared “non-common area” expenses have gone up and are now exploding (off property management office, managers, insurance, landscaping, legal and other things- virtually all nothing whatsoever to do with our condo association, which does all that on its own). It’s just been assumed from Day 1 (when we had equal number of homes and condos), and low expenses, to lump all expenses and split.

GerryW1 (Florida)
Posts: 129

Posted:

My previous reply was to Kelly. Thanks Shelia, and sorry about the format. Your comments are key, and why I am asking the question. There is a zero chance of changing the founding documents. We are less than 20% of votes, and most of the other 80% private homes want things to remain as is. It would likely approach or exceed 7 figure legal fees, with no good outcome guaranteed. Litigation would occur against us. I believe we were stuck from the start. That’s why my question about what constitutes Fair shared costs are critical, since maybe those can be changed at the Board level or even mediation. Again, we are paying full cost for use of 10% of road (most of which is beyond gate placed after condo inception). Full landscaping, insurance. I believe those are untouchable as true deeded common areas. Maybe not.

However, other things are not clear- outside office managers and office, which we use for 1% of total usage (not that we need to, but are bound to). Gates, sign repairs, legal fees, landscaping, etc. Growing outside liabilities. These are our biggest concern. So in summary, trying to get a feel for what is really reasonable for us to be contributing, and somehow, remove ourselves from things which likely never were originally anticipated (applicable to individual subassociation of homes, not pre-existing condo). Thanks.

SamE2 (New Jersey)
Posts: 310

Posted:

Who pays the master HOA? Does your HOA pay them for your share or do your members pay them directly? If the HOA pays I would send the master HOA a letter stating you are reducing your payments by 60% because you believe they are counting the shared expenses incorrectly. Then I would either work with them to agree on a number or let them sue you and your D&O insurance should cover you. A courtroom is probably the only place this will be resolved unless you just keep on paying.

GerryW1 (Florida)
Posts: 129

Posted:

Quote:

Posted By SamE2 on 07/19/2019 10:40 AM
Who pays the master HOA? Does your HOA pay them for your share or do your members pay them directly? If the HOA pays I would send the master HOA a letter stating you are reducing your payments by 60% because you believe they are counting the shared expenses incorrectly. Then I would either work with them to agree on a number or let them sue you and your D&O insurance should cover you. A courtroom is probably the only place this will be resolved unless you just keep on paying.

Thanks Sam. We each pay individually. The bylaws say dues cannot be withheld for any reason, so don't think that is a viable option. But the idea of working with them is where we probably need to start. That's why I'm trying to figure out how and what is reasonable. My other main concern is marked increased liabilities with legal costs and admin time, 100% of which are associated with newer incompletely developed subassociations, but shared by all.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

In the world of HOA's, the word "fair" doesn't exist. You are to pay what you are contracted to pay in the CCR's. Doesnt matter what they say and almost impossible to change. Its what the developer setup, and it goes until the end of time.

In my area houses in towns with super high taxes sell for less money. Same would go for condos with high super high dues. Nothing is "fair" its just the way it is.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

So my question is, how does one determine what should be counted as shared common Master expenses (per CC&Rs, shared expenses are equal, but what constitutes "shared" besides deeded road obligations, insurance and a few other things). There are specific statutes that state use of common areas, etc, does not affect dues amount. Thanks

Your CCR's to start. Your bylaws second.

Should be in there somewhere.

KerryL1 (California)
Posts: 14,550

Posted:

I, honestly cannot read all of this so hope I'm not repeating other's points.

While entirely different, Our urban high rise HOA has, let's call it a Master Association and two "special benefit areas." One of them is a commercial lot (10 suites) that takes up 5% of our entire premises. So they pay 5% of every operating and reserves budget item that they use or CAN use. They are not permitted to use the residents' recreational amenities, so, of course, they do not chip in for them.

"Comm" also has a few reserves components that service only their suites so they have their own reserves account and reserves study for those. The residential owners contribute nothing for them.

The 2nd Sp. Bene. Area are the "towers," floors 3-25. They have hallways and stairwells that do not serve floors ground-2. The towers pay an extra operating budget amount for the elevators above the 2r floor and for custodial above the 2d floor and electricity for all the hallways lighting and elevators above the 2nd floor. They have a reserves account & study to replace the hallways' carpeting and wall coverings.

Some of these were very unfairly split in terms of dues and the board actually hired a budget specialist to calculate what a "fair" dues split should be. Some of his research simply involved a signed document for the custodial firm about how much of their time they actually spent in the towers. Other aspects, electricity for example for the lights & elevators, he calculated using a formula. The Towers had been paying way too much. Our attorneys wrote an opinion that IF a board discovered inequities in dues, it should correct them. We did.

GerryW1 (Florida)
Posts: 129

Posted:

The only thing it says is “Base Assessment- Common expenses for the benefit of all homeowners”. By definition, we have our own manager w clubhouse and office. The manager does everything. At the other extreme, 50% of homes-only subassociations have no manager or clubhouse, so use our off site “common expense” manager and office for every daily issue. I mean 100% of things. There’s a benefit for all in theory, except we use our manager exclusively, who does repairs, pool cleaning, paperwork, etc. We literally use the office for under 10 hours/year. That’s one example. Same with roads except for entrance, and many other things. The percentage uses stretch the term “for the benefit of all” when 50% are benefitting at the gross expense of others. I suppose it would be similar to say that some people can’t swim so never use our pool, so they aren’t benefitting either. The difference is they would know it buying in. When we bought in, our dues were half, the main road and gate (which we don’t go through to get to condo) hasn’t been built or position decided. And there were no circa 2019 expenses specific to non- condos which are now lumped in.

GerryW1 (Florida)
Posts: 129

Posted:

Quote:

Posted By KerryL1 on 07/19/2019 6:33 PM
I, honestly cannot read all of this so hope I'm not repeating other's points.

While entirely different, Our urban high rise HOA has, let's call it a Master Association and two "special benefit areas." One of them is a commercial lot (10 suites) that takes up 5% of our entire premises. So they pay 5% of every operating and reserves budget item that they use or CAN use. They are not permitted to use the residents' recreational amenities, so, of course, they do not chip in for them.

"Comm" also has a few reserves components that service only their suites so they have their own reserves account and reserves study for those. The residential owners contribute nothing for them.

The 2nd Sp. Bene. Area are the "towers," floors 3-25. They have hallways and stairwells that do not serve floors ground-2. The towers pay an extra operating budget amount for the elevators above the 2r floor and for custodial above the 2d floor and electricity for all the hallways lighting and elevators above the 2nd floor. They have a reserves account & study to replace the hallways' carpeting and wall coverings.

Some of these were very unfairly split in terms of dues and the board actually hired a budget specialist to calculate what a "fair" dues split should be. Some of his research simply involved a signed document for the custodial firm about how much of their time they actually spent in the towers. Other aspects, electricity for example for the lights & elevators, he calculated using a formula. The Towers had been paying way too much. Our attorneys wrote an opinion that IF a board discovered inequities in dues, it should correct them. We did.

I like this a lot. This may have potential since utilization is being factored in.

KerryL1 (California)
Posts: 14,550

Posted:

The man we hired to calculate how much electricity "the Towers" use to light their hallways & stairwells & run the elevators from floors 3-25 is a CCIM, a Certified Commercial Investment Member, a recognized expert in the commercial and investment real estate industry. The designation process ensures that CCIMs are proficient not only in theory, but also in practice. There are 8600 of them in the US. We paid him about $3,500.

Now, our CC&Rs only refer us to the original budgets sent to the Dept. of Real Estate (DRE, now BRE in CA) to calculate these expenses, but they ARE set in the DRE budget. The trouble was there were many errors, which led to unfairness viz. our documents.

Even with corrections, the towers pay more into the operating budget and reserves than about 20 non-tower units in our 200+ residential units. And it is based on usage.

Our HOA attorneys wrote: "...as an issue of fairness, and based on equitable legal principals, we consider the board should endeavor to correct any patently wrong attribution of expenses to a special benefit area when this has been discovered..."

But in the a case of the a attorney and the CCIM, we only corrected what were calculation errors. We did not change any DRE Budget categories because our CC&Rs say we must abide by them

But here's different example: we have three garage levels. Some cars park very near the only entrance on P1. Some park in the furthest spaces from the entrance in P3. Obviously the latter put more wear and tear throughout the P-levels. Should they pay more to the garage floor surface line item in reserves?

Some here have argued there should have been an elevator usage dues variance. The higher the floor the more the units involved pay.

I guess I won't actually read all of the above math, etc., but if your sub association is willing to hire some experts to do some calculations within the perimeters set by your docs & state statute, you might get somewhere, Gerry???

GerryW1 (Florida)
Posts: 129

Posted:

Posted By KerryL1 on 07/20/2019 5:10 PM
The man we hired to calculate how much electricity "the Towers" use to light their hallways & stairwells & run the elevators from floors 3-25 is a CCIM, a Certified Commercial Investment Member, a recognized expert in the commercial and investment real estate industry. The designation process ensures that CCIMs are proficient not only in theory, but also in practice. There are 8600 of them in the US. We paid him about $3,500.

Now, our CC&Rs only refer us to the original budgets sent to the Dept. of Real Estate (DRE, now BRE in CA) to calculate these expenses, but they ARE set in the DRE budget. The trouble was there were many errors, which led to unfairness viz. our documents.

Even with corrections, the towers pay more into the operating budget and reserves than about 20 non-tower units in our 200+ residential units. And it is based on usage.

Our HOA attorneys wrote: "...as an issue of fairness, and based on equitable legal principals, we consider the board should endeavor to correct any patently wrong attribution of expenses to a special benefit area when this has been discovered..."

But in the a case of the a attorney and the CCIM, we only corrected what were calculation errors. We did not change any DRE Budget categories because our CC&Rs say we must abide by them

But here's different example: we have three garage levels. Some cars park very near the only entrance on P1. Some park in the furthest spaces from the entrance in P3. Obviously the latter put more wear and tear throughout the P-levels. Should they pay more to the garage floor surface line item in reserves?

Some here have argued there should have been an elevator usage dues variance. The higher the floor the more the units involved pay.

I guess I won't actually read all of the above math, etc., but if your sub association is willing to hire some experts to do some calculations within the perimeters set by your docs & state statute, you might get somewhere, Gerry???

Thanks. Great concepts/ ideas. I will post what happens during next 5 months months.

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here