Our Clients Ask Us: Budget/division Of Expenses

Q: When our Board is compiling the budget, we understand that we are supposed to divide the total projected expenses by the number of units/lots in the Association. However, we have a few units that are seriously delinquent, and we know they will not pay the maintenance fees. Can we just divide the total expenses by the paying owners instead of by all owners?

NO. Although this may seem like a viable solution, this will seriously compromise the basis for the maintenance fee. You must strictly adhere to the provisions in your governing documents regarding budget and maintenance fee computation. Failure to do so may be considered a breach of fiduciary duty, and may result in a lawsuit against the Association and/or the board members personally. The proper avenue to resolve this problem would be to implement a special assessment when there ends up being a budget shortfall. Even though this may seem counterproductive, this is the proper procedure for dealing with a shortfall. That being said, if you slightly overestimate the amount of each line item on the budget (due to inflation, higher materials costs, etc.), you may be able to avoid a special assessment but still properly calculate the maintenance fee. Just keep in mind that if/when the delinquent owners pay up, you may have an overage that year, and depending on your documents, the Board may have to return the overage to all the owners or take a vote to place the overage in the reserve account.

More on Community Associations