Shared Cost Dilemma, The

December 2017

Condo corporations operate by balancing shared and individual costs.

Shared costs are those paid by condo fees through the condo corporation.  They include anything relating to common areas.

Individual costs are those for which individual suite owners or residents are directly responsible.  They generally include anything relating to in-suite maintenance.

A condo board has discretion to decide if certain costs are shared or individual.  Including them in shared costs can be justified when safety is a concern or when overall financial savings will be realized by condo owners.  Services such as cable/Internet, vent cleaning, in-suite pest control and interior window maintenance are among those that can be viewed as shared or individual costs.

Condo corporation math becomes complicated when decisions on shared or individual costs are based on personal interests.

Shifting costs between shared and individual can be rationalized to support either approach.  Reducing shared costs will always reduce monthly condo fees at the expense of increasing individual costs.

For many services the shared cost approach allows residents to benefit from bulk pricing discounts and is an overall financial savings for them.  The shared cost approach can also be utilized to ensure maintenance is not neglected or incorrectly undertaken by individual residents to the detriment of the entire community.  Such services may include pest control, internal window maintenance and energy usage.

A condo corporation is a corporate organization.  Individuals will push for the  organization to pay for things on their behalf.  While some residents may feel they are getting something for free or at lower cost, this can come from forcing a majority of residents to pay more in condo fees to support their personal lifestyle choices.  This approach conflicts with the idea of individual responsibility which remains the most effective way to control costs.  People are expected to pay for what they use and should not be allowed to make others pay for them.  Once some people get something for free, it becomes impossible to deny the same benefit to all which means that most people pay MUCH more.

Condo owners prefer not to receive a direct bill for services.  It feels better to think they are not paying for services  they consume.  Rather than paying $100 per month for electricity, it feels better to never receive a bill.  The drawback of this approach is that those who don’t receive a bill are less aware of their energy consumption and tend to use more energy than those who are aware of their energy consumption.  This leads to higher condo fees for all because of generally poor energy usage habits and the perception that someone else is paying for this excessive usage.

Some condo boards view individual billing of services as an inconvenience without consideration of cost.  While done with the best of intentions, this is a costly path to follow and a disservice to most condo owners.  It frequently requires that all owners pay more and depletes corporation funds which could be used for other purposes.  Some view this as a breach of the fiduciary duty of condo directors.

To understand how this works consider a condo building with a 20 year old swimming pool.  The pool may cost $20,000 to $30,000 per year to maintain.  This is a relatively small amount when spread among 300 suites and a $2,000,000+ annual budget.  In the 21st year equipment needs to be replaced at a cost of $200,000.  In that year owners will be paying out an average of about $750 for the swimming pool which may amount to 3% of the budget.

The reality is that the swimming pool may only be used by a small minority of residents and unused 90% of the time.  Residents desiring a swimming pool do have the option of joining a nearby recreation club with a swimming pool at a lower cost than what they pay to support their condo swimming pool.  Eliminating swimming pool expenditures, and closing down the amenity, means those who do not desire a swimming pool would have $750 more to use as they please in that one year with further savings for the condo corporation and ongoing savings to each condo owner.  Of course, those who wanted the swimming pool would save money but have to go elsewhere for access to a swimming pool.

Home ownership comes with inconvenience.  Condo ownership can reduce but not eliminate this inconvenience.  It is the job of condo directors to provide a stable, secure and safe environment.  Eliminating all inconveniences is not reasonable or practical.  This requires difficult financial choices on behalf of ALL owners.