Assessment of Common Expenses

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Assessment of Common Expenses

Short Answer

The determination of the amount that unit owners must contribute to the common expenses, based upon the condominium corporation's budget and the proportionate allocation of responsibility set out in the declaration.

Definition

In this article, we do not define "common expenses." For that discussion, see the Condopædia article, "Common Expenses".

An assessment of common expenses is a determination of the amount of the common expenses. In this sense, a budget is an assessment; but the more typical and accurate use of the term in the context of condominium administration is an assessment of the amount that is the proportionate share of the common expenses that a unit owner is required to pay.

In a properly managed condominium, this assessment is conducted at least once annually and is based upon the budget for the coming fiscal year of the condominium corporation. The board, generally with the assistance of the corporation's property manager, if any, determines what the anticipated total costs of the condominium will be. This amount is then multiplied by the proportionate shares of the common expenses for which the owners are respectively responsible, which are set out as percentages in the declaration (under the current legislation, these percentages will be set out in a table in Schedule D of the declaration). This results in an annual assessment amount. The usual practice is for this amount to be further broken down into equal monthly payment amounts. Sometimes, in order for the result to be even month to month and to help ensure the corporation does not experience a shortfall, the monthly common expense figures may be rounded up (though such rounding up should merely be to the next full penny).

For example:

presume that the condominium budget for the coming fiscal year is $55,000.00; and

presume there are 16 units in the condominium and their proportionate obligations to pay the common expenses are defined as follows in Schedule D of the declaration:

Units

1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4

Levels

1
1
1
1
2
2
2
2
3
3
3
3
4
4
4
4

TOTAL:

Percentages

6.00
6.00
6.00
6.00
6.25
6.25
6.25
6.25
6.25
6.25
6.25
6.25
6.50
6.50
6.50
6.50

100.00%

Based on these presumptions, the annual and monthly common expense assessments for the units will be determined as follows:

for Units 1 through 4 (both inclusive) on Level 1: $55,000.00 x 6.00% = $3300.00 / 12 = $275.00;
for Units 1 through 4 (both inclusive) on both Level 2 and Level 3: $55,000.00 x 6.25% = $3437.50 / 12 = $286.458333..., which should be rounded up to $286.46; and
for Units 1 through 4 (both inclusive) on Level 4: $55,000.00 x 6.50% = $3575.00 / 12 = $297.91666..., which should be rounded up to $297.92.

As a result, the condominium will collect monthly common expenses in the amount of (4 x $275) + (8 x $286.46) + (4 x $297.92) = $4583.36 x 12 months = $55,000.32.

Note that if the figures for units on Levels 2, 3 and 4 were not rounded, the collection at the end of the year would be $54,998.88, causing a greater shortfall in the revenues (as compared to the budget) than the increase caused by rounding up. (Although in this example, both the shortfall and the increase are relatively minor, larger condominium complexes with larger budgets might anticipate greater differences will occur.)

The foregoing method is also used to calculate special assessments. For other information regarding special (i.e., extraordinary) assessments of common expenses, see the Condopædia article, "Special Assessments"

What you need to know…

…as a Unit Owner

A unit owner is required under the Act to contribute to the common expenses of the condominium in the amount(s) assessed by the board.

We have known of condominium boards that have not paid attention to Schedule D or have not made a proper budget in order to make rational and appropriate assessments of common expenses. When you purchased your unit, if you purchased a newly built condominium unit from the declarant, you would have been provided with the proposed budget for the first year of operation of the condominium and a copy of the proposed declaration. If you purchased a resale (existing) condominium unit, then you should also have purchased a status certificate which would contain the current budget for the corporation and a copy of the declaration. With such documents in hand, you are able to determine what your monthly common expense assessment should be.

…as a Board Member or Manager

A condominium board does a disservice to the condominium corporation and the unit owners if they do not assess common expenses and individual contributions based on a sound and reasonable budget and in accordance with the proportionate shares of obligation that are set out in the declaration. If there is a property manager, the manager can assist with this process and likewise should ensure it is done accurately. Where there is no property manager, or if uncertain, seek the assistance of an accountant experienced in condominium accounting or a lawyer who is experienced in setting and analysing budgets for developers of condominium corporations.

…as a Declarant

A declarant of a condominium corporation will want to pay close attention to how the assessment of common expenses works out when developing the initial budget for the condominium, since this could have a direct impact on effective marketing of the units. A temptation that some declarant's face is to aim for a particular -- especially, a low -- assessment figure, since it is easier to market units that have low common expense assessments, and then manipulate the budget in order to ensure that figure is reached. This is generally not an advisable practice. It is generally more advisable to establish a realistic budget based on the structure, facilities and services of the condominium, and to allocate proportionate contribution obligations amongst the units on a reasonable basis. For a discussion of a common basis for such allocation, see our About Condo memo on allocating common expenses here.