QUESTION: I have an association that has variable assessments. Increasing the budget by 20% would cause one group of owners' individual assessments to be 30% over last year's. Is this allowable? Is the 20% limitation based on individual assessments or on the aggregate?
ANSWER: Not all associations use the same assessment methods. Variable assessments refer to "blended rates" which are assigned using a uniform rate for some budget items and a percentage rate for other budget items. These kinds of assessment formulas make it impossible to simply increase everyone's assessment by a fixed percentage since each unit must be individually calculated. Because of the formula, a 20% increase in the budget could result in some owners receiving a 15% to 20% increase in their dues while others receive a 25% to 30% increase. As provided for in Civil Code § 5605(b):
. . . the board may not impose a regular assessment that is more than 20 percent greater than the regular assessment for the association's preceding fiscal year.
Interpretation. There are two ways to interpret the statute. The statute says the "regular assessment for the association's preceding fiscal year" which indicates a 20% increase in the association as a whole, i.e., its budget, not on individual owners' assessments. Using this interpretation, it would be allowable for some owners to receive a greater than 20% increase as long as the overall increase did not exceed 20%. The second interpretation is to look at the impact on individual assessments. Using this approach the budget increase is limited by the owner with the highest variable assessment.
Recommendation: To avoid a potential legal challenge, boards should calculate budget increases so that no owner receives a more than a 20% increase. In addition, boards should amend their documents to eliminate variable assessment rates and implement a fixed or pro rata assessment schedule.
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