When a developer includes common facilities or services that benefit a limited number of lots, Department of Real Estate guidelines require establishing a "cost center" when there is at least a 10% cost benefit to those owners. The cost center is created in the CC&Rs and allocates assessments to those owners who benefit from the amenities/services. In its "Operating Cost Manual for Homeowners Associations," the DRE states:
The “cost center” term, used for budget purposes, identifies an area of a project used by only some owners within a homeowners’ association. Typically, this may be a guard gate or recreational facility utilized only by a portion of the association membership. It would be unreasonable in these cases to require all members of the association to contribute to the maintenance of a facility that only benefits a portion of the project.
A cost center may also be used for projects with mixed product types. When a project includes both attached and detached units, a cost center can be created to provide for the exterior maintenance of the attached units. Additional maintenance costs for special benefit facilities/ services or exterior maintenance of certain product types within the project may be managed through a cost center or a sub-association.
Separate Budget. During the budgeting process, a separate budget is created for the benefitted lots or units to address the additional costs. Examples of cost center budget items include:
- front yard landscape maintenance,
- shared private access,
- gated neighborhood within a community, and
- roof deck for top story units.
Legal Fees Cost Center. Legal fees are not a cost center. In an unpublished case (Coley v. Eskaton), the Association’s CC&Rs defined a cost center related to a portion of the development. The Board decided to create a cost center to cover legal fees. The court concluded it could not because the CC&Rs limited the use of cost centers to "allocate the expenses incurred or to be incurred by the Association to operate, maintain, repair and replace a particular Common Area Improvement(s) or maintenance areas.” Because legal fees do not fall within maintenance activities, the trial court and the court of appeal concluded that the board erred in creating a cost center to cover legal fees.
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