How Are Common Fees Determined?

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N.H. from New Haven County writes:

Dear Mister Condo,

How are common fees determined?

Mister Condo replies:

N.H., even though it may seem like a Magic 8 Ball has been consulted to determine a random dollar amount for common fees, I can assure you there is an excellent and highly reliable mathematical formula for determining the correct amount an association needs to charge its members for common fees.

It all starts with the annual operating budget for the condominium. Whether the association has 2 units or 2000 units, there are certain items that come up year after year that the association has to budget for. Items like insurance, maintenance for the common areas, managerial expenses, utilities and much more have a pretty good track record of what they will cost each year. Other items, such as snow removal, emergency damage repairs, and the like are variable but can be generally accounted for in a well-prepared budget. Finally, contributions to the Reserve Fund for those big ticket items that are going to appear in a few years need to be accounted for as well. Once all of the known and forecasted expenses are compiled, the balance is budgeted by offsetting the expense with income. That income is the money unit owners will contribute in the form of common fees.

The individual unit common fees are determined by a formula laid out in the condominium documents. The most common and typical is the % of unit ownership formula. Basically, the square footage of individual units is divided by the total square footage of all units. For instance, if there were 50 units in a condominium complex and each unit was 1,000 square feet. Using the % of unit ownership formula, each unit would be responsible for 1,000 divided by 50,000 or 2% of the annual budget. If the annual budget required $250,000 in income, each unit owner would have to contribute $5000 annually, or $416.67 monthly. This is a very simplistic example but I hope it offers some insight into how your monthly common fees are determined.

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