Allocations for Mixed-Use Condominiums

A strange hybrid. In mixed-use condos, there are no standard documents that lay out how boards govern residential and commercial units. It varies from building to building, but there are two main formats: separate boards for each section, or one overarching board with committees dedicated to each section. And condo bylaws are all over the place in what they say about how to determine the common charges payable by each section. Some point to the budget contained in the offering plan and specify that it should be followed going forward, but that’s a problem when the original common-charge allocations no longer match your current budget and needs.

Flare-ups. Disputes arise when boards think the commercial units are not paying enough and the commercial units think they’re paying too much. The usual format for common charges is that a percentage of the budget equal to the percentage of common interest allocated to a particular unit is what that unit-owner pays. So if the overall budget is $10 million and your common interest is 1%, then your common charges are 1% of $10 million, or $100,000.

The Condominium Act, however, says that common charges can be allocated by the board based on actual usage of things like labor, services, electricity and other kinds of utilities. Sometimes these special allocations are specified in the bylaws. So, for example, if there’s an elevator that serves the residential portion, the commercial unit may not be required to pay any part of that expense. The bylaws have to be carefully reviewed in each case to determine whether these special allocations exist.

Proper budgeting is key. To prevent conflicts, it’s crucial to adhere to your governing documents to ensure that budgeting is done correctly. For example, if you’re increasing common charges 3%, it may be easier to increase them across the board, but if a particular item is driving that increase — like labor, and maybe 80% of employees service only the residential section — then the commercial units are going to be disproportionately impacted in a way that violates the documents. So you need to have your attorney examine those documents to ensure that your common-charge calculations are accurate.