Allocation of Budget to Unit Owners

When our HOA was formed the initial budget was allocated using a unit's square footage -
the percentage increase in the total budget for the next year was applied to the previous
allocation by unit .

I was wondering what others use for a method to allocate the annual budget - e.g. local town
property assessments .

First, Donald, does the variable rate apply to every item in your operating budget? Or just certain ones, aka, a “blended rate?” How many units are there?

My multi-story condo sets assessments based on sq.ft. uses a blended rate: “Blended Rate "Regular Assessment" shall mean and refer to the annual charge against each Owner and his respective Condominium representing a portion of the Common Expenses of the Association; (1) The "Base Assessment Component" (defined below) shall be allocated equally among Owners... and (2) the "Variable Assessment Component" shall allocated on a pro-rata basis according to a Condominium's square footage…” https://www.davis-stirling.com/HOME/A/Assessment-Allocation.

The citation is from a CA HOA law firm’s website with an excellent Index. Though many entires are about CA, many others can apply to any HOA.
Our variable assessment components set by the developer over 20 yard ago are gas, water, and building insurance. When we finally did a rewrite of our CC&Rs last year, we directors decided to keep the variable component as is even though nonsensical. Owners would’ve obsessed about whether the new components were ‘fair,” even though we informally determined the rate itself would barely change. (We have 31 different s.f. among our units)

Rewriting our entire 100+ pages CC&Rs was far too important to gin up controversy about such an insignificant change that could’ve made it more difficult than it was given we needed 67% approval from all units. A couple of owners (of 200+) did inquire about changing this and their theories about what would be “fairer” were goofy. Either way, as Shelia points out, the variable rate our HOA uses is based on the amount of use of 3 common area components. I’m can’t think of why town assessments would matter.

The points of my overly-long reply are that: assuming your variable rate is codified in your CC&Rs, you’d need to amend them. Is it worth the work to get out the vote, & the expense, e.g., mailings, attorney's opinion & advice, if your CC&Rs (Covenants, deed restrictions, declaration) are OK otherwise? Knowing HOA owners fairly well, after serving for many years on our Board, prompts me to promise that there would be arguments and controversy around the concept of "fairness." This is something simply grasped by folks in the US in general and also in HOAs. There’d be a lot of “whataboutisms.”

They use whatever the covenants and bylaws say they should use. Why? Because the covenants and bylaws are a contract.

Are your covenants and bylaws really silent on this point?

To do so would require an Amendment which would requiring owners voting. Also as it is a major change, approval of the change could easily be challenged in court.

Everything can be challenged in court but going to one size fits all from our current "weighted by square footage" doesn't seem that radical to warrant a lawsuit - I'm not on the Board BTW .

Unit owners pay for their own utilities and we have no amenities - tell the guy with the bigger unit and the same size lawn to mow and driveway to shovel by our vendors that he's going to continue being rewarded by paying more in his condo fee than the guy in the tiny house .

Some chatter about a California condo association that sought an amendment that would give each unit equal voting rights to every other unit:
https://www.davis-stirling.com/HOME/Case-Law/Blue-Lagoon-v-Mitchell

Excerpt:

At the urging of several members, the Association proposed two amendments to the CC&R's. The first one provided for equal voting rights, i.e., "one unit, one vote." The second one provided the governing documents could be amended by majority, as opposed to the then required 75 percent supermajority, vote. The proposed amendments were submitted to the property owners for a vote, and despite extensive efforts by all sides, not everyone voted. Tallying the votes of those who participated in the election, the amendments failed to receive sufficient affirmative votes. The first proposal received 71 percent of the vote, and the second one received 69 percent of the vote.

The Association then filed a petition pursuant to Civil Code section 1356, which was denied. Although the court expressed concern about the validity [55 Cal.App.4th 476] of the unequal voting arrangement, and thought that amendment perhaps could be approved, it denied the petition as a whole on the basis that the proposed amendments were "unreasonable." fn. 3 The court's apparent fear was the proposed amendments, as drafted, would allow the Association to cease maintaining the seawall.

Thanks, but you'll also need to be realistic about the cap percentage. Ours is 5%, which for years only amounted to a $5 increase. If your community wants to do this, I'd look at how the budget has increased over the last five - 10 years and then consider a percentage that will be realistic. A cap of 10% - 15%, for example, could be enough to give your board enough wiggle room without fighting homeowners every single year (just because it's 15% wouldn't mean an automatic increase at that rate).

We use SF to allocate each year's budget to our respective homeowners - at our recent annual budget meeting a member of our community noticed that his fee had grown to be much higher than his neighbor's fee - we explained that their respective shares of the budget had remained the same over the last 36 years but with many budget increases their dollar amounts had diverged exponentially much like the compounding of interest in bank account.

My takeaway from our discussion is that a flat or equal fee would be an alternative but an amendment to our governing docs would be required.

I think I joined this forum about 10 years ago at a time when I was on the board - this group ,representing many regions in the country , has a lot of knowledge and experience .

Once again thank you all for your time .

DonaldN

PS I had attached a couple of pics of our condos for JohnC , each less than 200Kb but got an error message saying they had exceeded the 1500KB limit???

Nice addition, JohnC, since there may be other posters who're curious about this topic. In your previous HOA, end units also had more exterior SF to maintain & paint as well as more roofing to repair/replace. Window casings too, if the HOA's obligation.

I wrote that our 200+ residential condos comprise 31 sf variations. The larger units pay more for gas, water & bldg.ins. To me, only the bldg. insurance variable makes sense because virtually all unit are 2 bedrooms, even the 8 or so that are 2-story 2,600+- (they vary) sq. ft. They have dens, which are not enclosed to be a suitable bedroom. With 2 persons per unit, we all pretty much use the same amount of water & gas (cooking, fireplaces & hot water).

When I first heard about the variables, I'd assumed they were for building exterior paint and for twice-annual window washing. We, floors 3-17, have 5 units per floor and 4 are corner units which all are larger than the lone units that have only one exterior face.

Just for fun, we also have in our CC&Rs, "special benefit areas." 194 units in "the towers," floors 3-25 pay more than the street level townhomes that line the city sidewalks, and 4 -2nd floor units that share the floors with common area amenities. The 194 units each equally pay extra for the custodial work in our hallways, extra light bulbs, the electricity to run the elevators, and into reserves to replace the carpeting, wall coverings, light fixtures and elevator vestibule tiles flooring and wall art.

So that's another way variable assessments can be fashioned. Both methods are difficult to comprehend by owners and cause debates about "fairness." If we had tinkered with either, which were mandated by our original CC&Rs, when we restated them in 2022, I think fist fights would've broken out!. So we left them alone because updating our CC&Rs as a whole was far, far more important than "correcting" those issues. I'm only mentioning them for readers who're possibly considering such schemes for their HOAs.

JohnC - Here's a picture of some of our units - several different architectural styles and interior layouts - definitely not cookie cutter.

Coming in late to the discussion...

I agree that any change to what the CC&Rs say about how assessments are calculated would require an amendment.

FWIW, my CC&Rs require unanimous approval for changes of this nature. We're condos, and we have three tiers of assessment based on "par value", which is loosely defined as percentage of ownership. It takes into account square footage but also things like how many contiguous units there are and how big the garage is. Any change to one of these tiers would require a change to the others since the fractional ownership of all units has to add up to 1 - hence the unanimous approval.

Note: we include water/sewer and trash collection in our monthly assessments. There is a statement in the governing docs to the effect that including utilities in the assessments may provide an unfair advantage to some owners and an unfair disadvantage to others. For example, persons living alone subsidize water usage of multiple-person households.

In general, no matter how assessments are allocated, there will be some who feel that others are getting a break and they're not. It goes with the territory.

CathyA - Thanks for posting , would like to get more specific detail on your "Par Value" method - it sounds interesting but I'd like to fully understand it .

Thanks , DonN

I'd ay only charge the larger units more for items that benefit them due to their size. This appears to be mainly reserves items: roofs, siding, ext. paint, gutters, maybe garage doors is some are only single. Window casings?

But once someone goes to all of the trouble to calculate what each unit would pay, would it make that much difference from what you have now? In other words, as our board decided, the predicted unhappiness from some owners and possible dissension might not be worth amending your CC&Rs & the time & expense that involves.

As Kathy said:
The par value is tied to the floorplan and is essentially the percentage of the condominium property that is owned by the unit owner.

If ones docs call for "apportioned" dues then it could be based on par value. Ours say same for dues each unit regardless of size.

I have seen it go both ways with neither way being wrong unless it contradicts one's docs.