The Federal Court has recently addressed a pressing issue concerning the distribution of costs within homeowner associations (HOAs). The court ruled on whether a majority within an HOA can impose financial burdens on a minority of owners. The answer is yes, but with specific conditions in place.

In homeowner associations, disputes over who is responsible for various costs are common and often lead to legal battles. The Federal Court has provided clarity on this matter, affirming that HOAs can redistribute costs among owners, provided that such decisions are justified and not arbitrary.

Understanding Homeowner Associations

A homeowner association is formed by property owners who share ownership of a particular residential or commercial property. This collective manages communal issues related to the building or complex. The rights and responsibilities of individual members and the association itself are outlined in the property ownership law, which was last reformed in 2020.

What Costs Does the Association Cover?

Costs that pertain to shared property, such as maintenance of the roof, exterior walls, hallways, or heating systems, are typically borne by the association. According to legal experts, unless otherwise specified, these expenses are generally divided among all owners based on their ownership shares.

Owner Responsibilities

Property owners are responsible for the costs associated with their individual units. This includes interior maintenance such as painting, flooring, and personal plumbing. However, associations can decide to allocate costs differently through a vote if such changes are deemed reasonable.

Defining the Association Fees

The regular fees are intended to cover ongoing expenses related to the operation, upkeep, and management of shared property. The amount is calculated based on an annual budget prepared by the property manager, which is typically allocated according to ownership shares.

Authority of the Property Manager

The property manager is appointed by the homeowners and has limited authority. They can make decisions regarding minor expenses but must present significant financial decisions for approval at the next owners' meeting. Many associations set a threshold for spending that allows the manager to act independently up to a certain limit.

When Can Costs Be Reallocated?

While costs are generally distributed based on ownership shares, the law allows for alternative arrangements for specific expenses or types of costs, provided they are agreed upon by the owners.

Can Costs Be Imposed on Individual Owners?

The court ruled that it is permissible for associations to impose costs on individual owners, but there are limitations. In a recent case, a homeowner contested the allocation of costs for garage roof repairs despite not having a parking space in the garage. The association had decided to spread the cost across all owners based on their ownership shares. The court indicated that while associations can adjust cost distribution, it must be based on valid criteria. In this instance, the matter was sent back to a lower court for further examination of the justification for the cost allocation.

In a separate case, the court allowed an HOA to change its cost-sharing method from ownership shares to heated living space, resulting in higher costs for some owners. The court found that the previous arrangement was not justifiable and thus permitted the change.

Reactions to the Ruling

The executive director of a property owners' association welcomed the court's decisions, emphasizing that adaptations in cost distribution can provide necessary solutions as circumstances evolve. However, he stressed the importance of ensuring that any changes are based on reasonable grounds and are implemented fairly.

Legal Recourse for Property Owners

If a property owner believes a decision made by the association is unlawful, they can file a challenge in the appropriate court. Such actions must be initiated within one month of the decision. If successful, the court may require the association to cover legal costs, which can subsequently be allocated to the winning owner.

As the legal landscape surrounding property ownership and cost distribution continues to evolve, it remains crucial for homeowners to be informed about their rights and obligations within their respective associations.