At the beginning of a condominium’s life, there is an offering plan. And if the condo has commercial units, certain expenses to operate the building are allocated to these units, while others are not. As time goes by, though, there is a possibility that no one ever goes back to see if these allocated expenses have gone up or gone down, which would affect the common charges that these units owe.
Common charges for commercial units are defined the same as those for residential units, but they are calculated differently. Lots of times they are based on a percentage of allocated expenses. And because of this, boards need to confirm the allocated numbers.
Make sure the commercial units are paying proper common charges that are tested in an audit. “We’ll test it every couple of years,” says Avi Zanjirian, manager at the accounting firm Czarnowski & Beer. “In one condo we went back eight years and found that in the first five years the commercial unit owed more money, and then in the remaining three years they were overpaying.” In that instance, Zanjirian says, the board and commercial unit-owner agreed that the past was a wash. But the board now understands the importance of checking this out, Zanjirian says, and it’s going to look at this calculation every year going forward.
When the disparity between what was paid and what should have been paid by both the residential and commercial owners is clear, it’s time to “true up,” in the lingo of accountants. This means that the expenses and allocations have to be sorted out and properly executed. If not, it can result in either the residential or commercial owners carrying the financial responsibilities of the other. And no condo board wants its expenses and income to be out of balance.
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