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Resolving Conflicts over Cost Allocation in Condominiums with Commercial Units

Peter Moulinos, Managing Partner, Moulinos & Associates in Legal/Financial

New York City

Common charges feed the coffers of condominiums and it's never good when owners push back on these charges or assessments. But that can happen when a condo has two classes of owners, residential and commercial. Unit-owners are assessed common charges based on their percentage of their common interest. However, on occasions a commercial unit-owner is asked to pay a cost either by way of an assessment or through an allocation of common charges for an expense that is unrelated to the commercial unit. For example, a commercial unit-owner may be asked to pay an assessment for repairs and upgrades to a dedicated elevator for residential unit-owners. Equally, residential owners may find that commercial unit activities increase the insurance premiums for the building. These situations can prompt disputes about the allocation of costs. 

Determining financial responsibility. The rights of all unit-owners will be outlined in the governing documents, namely the condo declaration and the bylaws. To determine who should be paying what, the board must review these documents. Some declarations and bylaws were written many years ago and the majority are silent on the allocation of costs. If this is the case, the board can insist the commercial unit-owner participate in all the costs in proportion to their percentage of common ownership interest in the building. Some of the newer declarations and bylaws make it clear that a commercial unit-owner shall not be responsible for any costs or assessments related solely to residential components of the condo. 

Amending the bylaws. It’s possible to amend the bylaws to ensure fair participation from commercial unit-owners, but the process typically requires a two-thirds vote by all owners. This can be challenging, especially if the bylaws say you can't make amendments affecting the commercial unit owner without their consent, technically giving them a veto. Bear in mind the declaration is drafted by the sponsor who may retain the commercial unit of the building as an investment. The sponsors often build these clauses into the bylaws for their own benefit.

Resolving disputes. As costs come up, it's always good to have a professional opinion in writing from a technical expert — an architect or engineer — who can identify whether or not that cost should be absorbed by the commercial unit owner. This demonstrates the board has done its homework and is not randomly assessing certain costs to the commercial unit owner. When the situation escalates to legal action it may come in the form of filing common charge liens or foreclosure proceedings. These routes are often costly and time-consuming, prompting most parties to seek resolution through negotiated settlement and compromise. 

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