Commercial space not being charged enough

I believe the common element liability in the declaration for our mixed use condo building (45 residential, 3 commercial) is not being allocated in accordance with Missouri law, resulting in residential units paying too much in assessments, and commercial units paying not paying enough. Our declaration states that "The Assessments for each Residential Unit shall be proportionate to the Common Element Interest for each Unit. The Fixed Assessments for each Commercial Unit shall be determined based, in the Association's sole discretion, on each Commercial Unit's usage of the Common Elements."

At our last meeting, I brought up the issue, that our Common Element Liability needs to equal 1, and ours equals 1 + $1100. The person who owns all the commercial units is on the board (as required in bylaws, and me and the other two board member are residential owners), and he's totally pissed, saying that I'm just looking for "something for nothing". So, we as BOD forwarded the concern to our management company, who forwarded it to our HOA lawyer, and they replied that, "It is my opinion that the allocation of the common element liability currently set forth in the Declaration complies with the terms of the Declaration, the Missouri Act and Uniform Act." Unfortunately, this attorney also represents our building's developer, who owns our management company and is a land baron in our city. We've only been an owner-run board for a couple of years.

Any ideas about how to proceed without knowing if the attorney is giving me good info? Any opinions about whether or not the allocation is legal are also appreciated, and if I'm comically off base on this I'd like to know that as well.

Table of Common Element Interest and Common Element Liability is attached. TYIA

Pony up the funds and get a second opinion on your own (vs. through the MC).

I agree with Tim: pay for a second legal opinion. I think the HOA's attorney has a conflict of interest, which is a problem in and of itself - he can't represent entities that may end up being adversaries.

Kerry,

I was hoping for examples of how other mixed-use buildings allocate common expenses so I really appreciate your response. In our building, the commercial units have the same access to and use all building amenities (gym, theater, community room) as the residential units. The residential units contribute to the operating budget and reserves at the same percentage as their ownership of total residential sq. footage in the building, minus the commercial units' fixed assessment (which total $1100 per month) contributions. What it boils down to, I think, is this: commercial units are 17.7% of the building's total square footage and pay 8.4% of the operating budget and reserves contribution, while residential units are 82.21% of the building total square footage and pay 91.59%.

Other (maybe) pertinent info: Commercial units are currently banker's hours office space. Building water and gas (which is just stoves) are all on the same meter and are thus common expense items and included in our HOA dues.

I know I'm in over my head. Thanks again for your response.

I made a couple of typos in my quote of the attorney -- Here is their complete, copied and pasted response. (condo name redacted)

____________________________________________________________________________________________________________

I have gone back and reviewed the _____ Condominium Declaration, the pertinent
sections of the Missouri Condominium Act (the “Missouri Act”) as well as the provisions of the
Uniform Condominium Act (the “Uniform Act”), on which the Missouri Act is based. It is my
opinion that the allocation of the common element liability currently set forth in the Declaration
complies with the term of the Declaration, the Missouri Act and the Uniform Act.
Section 2-107 of the Missouri Act deals with the allocation of common element interests,
votes, and common expense liabilities. These allocations do not have to be made on the same
basis. As an example, the allocation of common element interests can be made based on the
total number of units, while the allocation of common expense liabilities can be made on the
basis of use. Missouri law only requires that the formula be disclosed and not discriminate in
favor of the Declarant.

In the _____ Condominium, the allocation of ownership and voting rights are based
on unit count. Each owner has an equal ownership percentage and voting rights. However, this
methodology does not apply to the allocation of common expense liability. For the residential
units, this allocation is made based on square footage, and the commercial units are assessed
based on a Fixed Assessment which the Board has the power to reasonably determine. This
formula was set forth in Section 3.07 of the Declaration, as required by the Missouri Act. The
portion of the stated allocation that is expressed as a fraction equals one, as required by the
Missouri Act. The Fixed Assessments attributable to the commercial units are not part of this
allocation.

It is quite common in mixed use projects to provide for these separate assessment
methodologies, due to the vastly different sizes, values and uses involved in a residential vs.
commercial unit. This flexibility in the Missouri Act prevents situations where allocations could
become quite unfair. For example, in a scenario where the common expense liability assessment
was made based on square footage, a 3,000 square foot commercial condominium would be
required to pay 3 times the assessments required of a 1,000 square foot residential unit, even if
the commercial unit did not utilize the common elements within the condominium to the extent
that the residential units used them.

It should be noted that the commercial units within the _____ Condominium are not
exempt from liability for common element expenses. The commercial units clearly use and
benefit from the common elements (ie the stairs, elevators, basement) and the Board is charged
with setting a Fixed Assessment reflecting this use to be assessed against the commercial units.

Under Section 7 of the Declaration, the Board determines the amount of the
Assessments, and specifically the amount of the Fixed Assessment charged to the Commercial
Units. This is done by preparation of a budget, which is then approved by the Unit Owners. The
Board certainly has the power to increase the HOA dues, which will increase based on the
amount of the approved annual budget. Any increase must be evenly applied in the same
percentages to all Unit Owners. Note that Section 7.05 of the Declaration provides that “no
Regular Assessment shall exceed 110% of the Regular Assessment levied for the same Unit for
the same month of the previous year, unless approved by at least 66 2/3% of the outstanding
votes in the Association.” This provision was added to protect all Unit Owners against an
extraordinary increase in the Assessments for the benefit of all Units in the project.

In the event that the Association determines that it believes it in the best interest of the
Condominium to revise the methodology for allocation set forth in the Declaration, the
Association has the right to amend the Declaration. Pursuant to Section 448.2-117 ((4) of the
Missouri Act, amending the Declaration in this manner requires 100% consent of the Unit
Owners. That Section states that no amendment may change the allocated interests of a Unit in
the absence of unanimous consent of the Unit Owners.

Please let me know if you have any additional questions or concerns.

Beck,

In reading your attorney's opinion, I think that they are spot on with what you provided in your initial posting.

Basically, it's up to the board to determine the assessment of the commercial space.
The Board should have a formula to determine this (as the attorney pointed out).
The formula is what you need to review.

We don’t have a currently have formula but it doesn’t seem like it would be too difficult to come up with one. Thanks.

Tim,
I really needed a start in how to approach this. Thank you!

I'm sorry I cannot open your attachment, Beck, and would like to see it. There may be taxes and licenses that the commercial owners pay differently than the res owners.

Tim remarks that one of the commercial units is actually a residence. Based on my HOA's formula (wish I'd used that word earlier) you actually have 46 residential and 2 commercial. The 2 commercial units are now less than 17.7% of the total. Use the Sq. ft. of the entire project to get your formula. Start with all units paying the same. Then start deducting some from the water & electric bills since the comm. units do have "bankers hours." That's a second reason why our Comm owners pay less for those utilities.

Can't the sq. ft of Comm. be a Fixed Assessment % vs. a $ amount? Could their fixed assessment be, for example, 14% (or however the math works out ?

I think your attorney wrote a very good explanation of your situation. I don't see the concern that s/he's your developer's attorney on this topic. The commercial owner isn't your developer, right? (Ours is) If you find construction defects, though, you'd definitely need a different attorney.

It does make a difference.

They should not be charged for upkeep in those areas.

The residential/commercial might be charged but only if it is being used as a residence in addition to commercial.

Beck,

The special assessment seems right to me.

The costs of the special assessment appears to be between 4 and 8K per unit.
I am of the expectation that the commercial item is for all 3 commercial spaces.
That amount is 27K or about 3 of the residential units.

Seems fair to me.

It is for all three commercial spaces. Thanks for your reply...maybe I need to rethink this.

Sorry, that last on was for JohnC46. I don't know how to do what you guys are doing with responding to specific parts of posts.

Well, if they are using the amenities, they should be paying for the amenities.

Perhaps give them an option of a per use charge or a flat fee commensurate with all others in the building.

Thanks!

I'd tried a hard stupid way to open your attachments, Beck, and finally did it the right way. I wasn't aware that assessments are based on a sq. ft. variable. Am I understanding his correctly? In other words, does every unit pay for every operations and every reserves item based on that unit's sf?

That seems wrong to me. Every unit has EQUAL access to rec amenities, equal mgmt. services, if any, equal service for termite inspections, et., etc.

If so that does'nt make sense. We have a sf veritable too, BUT unit size only matters for water/sewer, gas & building insurance. We have quibbled that the larger units certainly do have more exterior building area, but also way more window. shouldn't they pay more for window washing based on sf? And does a large 2 bd unit really use more gas (range top & fireplace) than a small 2 bd. unit. Virtually all of our units are occupied by two people.

So for your special assessment, every unit has the same protection from the roof no matter their SF. Every unit may use the elevators no matter their sq. ft. (And to be sure, some here have argued that the upper floor units should pay more for the elevators and their contracts & electricity than the lower units! The boards here have NOT changed these for our new CC&Rs as everything becomes too finely-grained and unwieldy.

All, residential units should be assessed equally. Use the sf variable maybe just for utilities. So, perhaps they total 85% of all. Then 15% if is shared by the commercial owner for everything that's a amiable to the, which sounds like everything. The 2 sole comm. units pay less for shared utitilites. But j keep that flexible because a high water and gas user may occupy one of those someday, if you CC&Rs permit it. somehow the com/res unit would have to be treated differently.

Our developer assumed our 8 Comm "suites" would be office & retail. The CC&Rs show they pay only .08% of water! Well, a hair style salon moved in right away, and a coffee shop a few years ago. Our new CC&Rs have the paying for 2% of water & elect. due to their bankers hours vs. their usual 3.16.