One thing about this business – it is full of surprises. One surprise that occasionally comes to light during our course of representing an association has to do with how common expenses are shared. The declaration of restrictive covenants (which imposes the obligation to pay assessments) should describe how expenses of the association are allocated. In fact, CCIOA mandates that the declaration must allocate the various types of allocated interests: the allocation of voting rights; the allocation of burden of common expenses; and in condominiums, the ownership of the undivided interests in the common elements. In a couple of cases recently we’ve discovered that an association is allocating common expenses in a manner that is different from how the declaration specifies.
In one case, the declaration specified that the expenses were to be allocated according to the phase of the development, without any sharing of what might be considered expenses that benefited all owners. We found out that, from its inception nearly 25 years ago, the association never allocated expenses according to this formula. In another case, somewhat the opposite situation existed. The declaration specified that all common expenses were to be allocated based on ownership percentage of the common elements. And yet, for over 20 years the association had been allocating assessments based on a formula that allocated certain expenses according to percentage ownership of common elements, and maintenance expenses by building type.
In each of these cases, the particular allocations employed made sense based on the practicalities of the situation. However, in each case, the allocations were not being carried out in the manner specified by the declaration.
So, what’s the problem, you might ask? When new owners buy a unit in the community, the only things they have to rely on are the recorded documents and the other available records of the association. The recorded declaration will supersede any inconsistent provisions of other documents or records. The buyers, if they read the recorded documents, have an understanding of how their expenses are allocated. They later find out that the allocation is being done entirely differently. Anytime actual procedures and processes are carried out in a way that is different from how the declaration specifies, the association is at risk of a lawsuit to require compliance with the declaration.
So what should the association do? It can revise the method by which it assesses the common expenses to conform to the declaration. This alternative can be difficult because of the history of doing things one way, albeit incorrectly, and trying to change owners’ understandings and expectations. The other thing that can be done is to amend the declaration to bring it in line with historical practice. While this is not an easy fix, it is probably the more practical.
If you are experiencing similar problems in your association, give us a call. We would be happy to discuss the matter with you.