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Unequal Condominium Assessments

In the typical condominium association each owner pays the same amount of monthly assessments. The amount is based upon a pro rata sharing; that is, the total budgeted amount of the assessment divided by the number of owners in the entire project. But is that the only way to spread the assessments?

Apparently not. A California appellate decision [Cebular v. Cooper Arms Homeowners Association (8/21/06)] approved an assessment method that in reality was not a method at all, but rather an arbitrary assignment of assessments to each unit in the project. For example, each unit had a certain number of "interests" assigned to it; the range of interests varied from 19 to 85. The assigned number did not bear any relationship to any feature of the unit -- neither to the location of the unit, its view, its size, its value or its maintenance costs. In the reported case, a small unit could have 85 interests attached, while a larger unit might have 19; and each would pay assessments in an amount corresponding to those interests. But some compensation existed: The owner of the unit with a higher number would receive a corresponding number of votes for purposes of voting on Association issues.

One of the owners did not see the greater number of votes as adequate compensation for the higher dollar amount of assessments. He sued the Association, He claimed, in essence, that the assessment method lacked any rhyme or reason. However, the appellate court disagreed.

The court pointed out that the condominium project had resulted from conversion of a previous cooperative apartment project; and that a majority of the owners had voted for the assessment system. The court saw no reason to interfere with what the owners had agreed to contractually. Beyond that, the court pointed out that California law is very deferential to the rules and regulations of any homeowners' association. Here the assessment system did not violate any particular statute or regulation. Moreover, it did not violate any public policy in California. Since greater voting power went along with greater assessments, the system theoretically delivered some benefit to the owner.

I find that analysis unpersuasive. A greater number of votes does not mean that any single owner will derive greater control over the association's decisions. In most associations it takes a majority vote, at minimum, to pass resolutions at a membership meeting. It is unlikely that a member holding 85 votes would be able to control the outcome any better than a member with only 19 votes. Both members would need a group of allies to prevail.

Once one takes away the greater number of votes, one is at a loss to find any rational basis for the system. It makes even less sense than a system based on, for example, the relative market values of each unit.

Yet the question of market value does suggest one practical justification for the system: A buyer of a unit with higher assessments would logically pay less for that unit precisely because he must pay higher assessments during his period of ownership. The lower purchase price indirectly compensates for the higher assessments, all other features of the unit being equal. The seller of the unit would, of course, hold a different point of view.

Still, I wonder what justification exists for an association to tinker with market values by imposing assessments on essentially a random basis. Very little, I think. Moreover, by inviting buyers who are prepared to pay a premium for greater voting power, one also invites corruption within the association. It is predictable that an owner who has paid for voting power will look for ways to use it in a way that benefits not his co-owners but only himself.

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