Management Fee Calculations

Summer Sun

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I have been living at my apartment since 2007 and pay annual mgt fees. At a recent AGM, which unfortunately I wasn't at, it was agreed to change how service fees are charged. heretofore it was calculated on the sq footage of your apartment, but now they are calculating it as a fixed percentage of the budget. So whether you have a 1 bed or a 4 bed Penthouse, you pay the same service charge. Surely this isn't fair?

It was agreed at the AGM so can anything be done on it now?

Any advice/assistance would be appreciated.

Elaine
 
Did you get a report from the AGM? Did it say what how many people voted to change the fee structure? And do you have an idea of what % of the total owners that represents?

Possibly there might be something in your lease that a quorum or certain % required to change the fee amount or fee structure.
 
The manner in which service fees are attributed to each unit is called 'apportionment'. Typically this will be outlined within the contract lease document and can contain mechanisms such as by area, by bedroom or by equal division. Sometimes there may be no defined manner of apportionment in the lease. In this case the directors are free to determine a suitable method to calculate how differing units will pay for service fees.

To make such a change the proposed budget would of needed to of been calculated in this manner and by law you should of received this at least 21 days prior to the AGM with a detailed breakdown of all elements as you would normally. This is a requirement of the MUD act. If it wasn't then there could of been a motion put forward on the night to make such a change but it is quite a significant change and as such requires 60% of all members present and able to vote in accordance with the companies articles of association to make such a change.

I find it odd that the directors would of accepted such a radical proposal on the night from an individual member as there would be a reasonable amount of recalculation required and unless the larger units massively outweigh the smaller ones or are not represented on the night? Check your AGM pack and the budget provided. I would imagine this was pre planned and the budget you received should reflect that.

So: -

Read your contract lease!!!! If it specifies that service fees are calculated by square footage then this cannot be changed. In that case notify your directors that such changes are a breach of contract and are legally invalid.

Request minutes of the AGM. See who attended (presumably lots of three and four bed units!) Also, what units do the directors live in? Check to make sure the minimum number of people attended and it records the outcome of all votes and how many voted for and against, in particular the 60% required to make such a huge change to the annual budget.

Check articles of association as to rules regarding voting. Typically votes requires all service fees to of been paid by the member. You wont know who has or has not paid (unless they have confided in you) but significant non payment could mean that people who were not eligible to vote did so.

Edit: Just thinking, if there was no contract lease provision to calculate by area then why did a group of the larger apartments not get together and try to make such a change anytime in the last 8 years? Its the least easy manner in which to calculate fees and to do this you would need the internal area of all the apartments to start with which presumably the developer provided? Why bother going to all that trouble when you could just use say number of bedrooms?

I think a very quick review of your contract lease is required.

Let us know the outcome.
 
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Thank you for responses thus far.

So it seems as if it is clearly stated in our lease agreement that all apartment owners would be charged equally and NOT as per sq footage.
In order to change this, my understanding is I would have to take a court case to change it.
However, the fact that we have paid service charges for the last 8 years based on the size of your apartment, has this not set a precedent - custom and practice in order for me to challenge it in some way? Legally can the larger apartment owners sue the mgt company for not apportioning the service charges as per legal lease agreement in last 8 years and bill the smaller apartment holders now for the difference over 8 years?

Is this the norm in other apartment blocks that a one bedroomed apartment pays the same as a 3 bed owner? EG we have no lift in our block so now we will be paying for lift maintenance in other blocks that do have lifts which has been fairly substantial over the years.
 
If the lease states equal apportionment then that is how it should be done. Every unit owner has the same lease. Basically it is the total service charge for the year divided by the number of units in your case.

Getting a lease changed is potentially possible with the MUD act but as yet there is not a single case so there is no precedent legally. Bear in mind that your proposal could be challenged by numerous other unit owners who feel that equal apportionment is more than fair (and the OMC!). The cost could be quite significant as well given the non simple and custom manner of the case you are taking. It could easily be thousands, possibly nearer 10k+ if you factor in that every legal lease document will need to be amended or changed. There is also the fact that as a unit owner you should of known this when you purchased your unit. If you didn't know this then you will have to state you did not know what you were buying in court, have decided you don't like what you have bought and now want the courts to amend multiple contracts to benefit you at the expense of most others. I am not an expert in legal matters but I doubt that this will be much of a case if any to base any legal challenge on.

The fact that the OMC has been doing this for 8 years is cause for concern however. As you it seems benefitted from this lapse then there doesn't seem to be much point in trying to complain about it now. In terms of other units suing the OMC this is probably not realistic but potentially possible that if they have not paid past years then they may not have to repay the difference. i.e. their arrears may well be just what it should of been if it was a smaller amount although this again will probably need to be tested legally either by a unit owner taking such a case or the OMC trying to undertake debt recovery at which point the unit owner can quite rightly claim that the OMC breached the contract by improperly attributing apportionment.

Doing something wrong for 8 years doesn't set a precedent in itself. It just means 8 years of bad management. The directors could be potentially liable for this as they should know this inside and out.

In terms of other developments there is no such thing as normal. There are multiple scenarios and lease contracts out there. Usually the common buildings (apartments) are considered to be a single entity regardless of whether there are multiple blocks. This is confusing for many owners as they view such things as being distinct but from a legal and practical perspective they are usually one single entity. You will find that if you had to procure a single block insurance policy just for your block your service fee would be vastly more expensive than splitting between everyone. There may well be elements on your block which have unique costs you have not factored in.

Like I said you can have splits by no of bedrooms, area or equal or nothing. These will often not be block but development specific. So if you have four blocks and one has a lift and one has a glass atrium and one has an underground car park then all units may well pay for a bit of each of these.

That's the nature of managed developments. The unfairness is that your OMC messed up and so now you are going to have to pay what you should of done all along which is unpleasant but no grounds for complaint . The larger units will benefit but again they have been overpaying for 8 years which is in my opinion worse given that we have gone through a recession and a lot of these owners have probably half starved themselves to make sure they paid a service fee which had been unfairly higher in their case.

I would advise that to reduce fees you look at where cost savings can be made. Scrutinise the budget, even look at becoming a director and making these decisions yourself. Its your company and you have a say and equal opportunity to get involved.
 
Iantus, thank you. Much appreciated.

Just have to suck it up so I guess, even though my service charge is almost 100% more than previous years which seems very unfair in my opinion.

Thanks for your advice
 
Understandably so! No one wants to pay more than they have to.

Scrutinise the budget and identify wastage or ways to save money. Do you use an agent to manage the block? Can you renegotiate the contract. Are there members not paying? These need to be clamped down on to reduce everyone else's exposure. Agents add a cut to everything to increase their profit far above their identified fee. Its called kickback.

Can some services be provided by residents at a reduced cost or for free? (Insurance and professional competence must be relevant and correct however!) The directors could look at directly managing the development with no agent. Depending on your block this could save a lot of money but requires a huge amount of time and effort by a skilled director team with a lot of time and motivation to deal with every minor issue themselves.

A lot of the contracts are relatively straight forward. Lifts generally have a single contract to manage all the maintenance and repairs for example plus the telecoms connections etc. Its the admin and general stuff that takes a lot of time. 40 units is going to be much simpler to manage than say 400 units when you factor in letters, accounting and dealing with queries etc.
 
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