Calculating Assessments

Landis says he’s seen associations veering toward an improper or incorrect method of calculating assessments, but typically the error is flagged by an attorney or some other knowledgeable party before it’s implemented.
“We see this in two kinds of situations, one I’ll call sloppy and the other specific,” explains Landis. “Sloppy is when someone says, ‘Let’s charge one-bedroom units this much, two-bedroom units this much, and three-bedroom units this much.’ No, that’s why you have percentages of common interest in a condo or a per-share interest in a co-op. Those sizes are generally reflected in the interest or the percentages to begin with, so you have to use those.”

New York City is currently undergoing a crackdown on terrace safety because of a recent fall by a resident. “If the building needs to spend $750,000 to inspect and do modest repairs to the terraces, it’s a very natural reaction to say, ‘We’re going to bill the people with the terraces,'” says Landis.

“But depending on what the condo’s bylaws say, that may not be the appropriate thing to do,” he explains. “If the terraces are considered a general part of the building exterior structure, that’s the association’s obligation to maintain, so the cost has to be divided on a percentage basis, just like you can’t assess only top-floor unit owners for roof repair because they have the leak. But you might have individual unit owner responsibility if the documents require owners to maintain limited common elements like a terrace. In those cases, the associations can do the repairs and charge it back to the terrace owners.”

‘Let’s Be Fair’ Can Backfire

You can also mishandle assessment calculations by trying too hard to be fair. “I’ve seen some associations, especially condos, in which the assessment rate is supposed to vary depending on the size of your unit, which determines your percentage interest in the common elements,” says Michael S. Hunter, an attorney and partner at Horack Talley in Charlotte, N.C., who represents more than 500 community associations. “Some didn’t know that and were charging everyone the same amount. We’ve pointed out they’ve been doing it wrong, and it’s like, ‘Oops!'”

The problem with mucking up owners’ share of assessments is that you may have to pay them back for overcharges, a feat some associations simply don’t have the money for in this economy. “I think a homeowner who has overpaid would have a claim going back to three years of overpayments, which is the statute of limitations,” says Hunter. “I haven’t had anyone do that, but I think they’d certainly have that right.”

That leads us back to Landis’ mantra, which Sharon Glenn Pratt, a principal at Pratt & Associates in Campbell, Calif., who advises many homeowners associations, agrees with. “I’ve seen governing documents both ways–where everybody pays the same assessment or it’s based on percentage of ownership. So I tell boards they always have to follow their governing documents or to amend them to reflect a new method of calculation.”