Sitting on a Gold Mine

You may be missing out on a gold mine by vastly undercharging the owner of your condominium’s commercial space. That was the situation when a 141-unit mixed-use condo with commercial and professional space on Manhattan’s Upper East Side got into a dispute over common charges with the owner of the commercial unit.

For more than 30 years, the commercial unit’s share of common expenses was set at 17.2 percent. This figure was based on the commercial unit-owner’s use of building services as shown in the building’s first-year budget, as well as the unit’s square footage, fair market value, and any amenities – which together create what’s known as common-interest ownership. Residential board members argued that instead of paying only 17.2 percent, the commercial unit-owner’s share of common expenses should be based on its 22 percent common-interest ownership. The court agreed and allowed the condominium board to increase the commercial unit-owner’s share of common expenses from 17.2 percent to 22 percent.

“If your common-interest figure is 0.3, that means you’re paying 30 percent of the building’s cash needs to common charges,” says attorney Bruce Cholst, a shareholder at Anderson Kill. “You pay accordingly.” Yet many condominiums still charge commercial owners a lower amount based on usage, rather than on common-interest ownership. Some bylaws explicitly provide for commercial owners to pay less, but if the bylaws are silent, each unit-owner should be paying his or her pro-rata share.

The lesson? Boards should examine their budgets and bylaws to determine if common expenses are being allocated correctly between the residential and commercial sections of the building. Doing such homework could result in big savings to residents in buildings where the commercial owner has been historically undercharged. If you’re sitting on a gold mine, you should take advantage of it.