How is the amount of the Resident’s Association fee calculated?

We are often asked for our opinion on the correct way to calculate the Resident’s Association or maintenance and management fees. Section 58 of the Real Estate Law provides the method of calculation: 

“An apartment owner must participate in the expenses necessary for the standard maintenance and management of the common property and to ensure the services required by law or expected according to custom, according to the ratio of the floor area of ​​his apartment to the floor area of ​​all apartments in the shared building, unless otherwise stipulated in the building’s pre-agreed contract. For this purpose, “standard maintenance” – maintaining the condition of the common property as it was at the time of construction completion, including improvements made to it subsequently with the consent of the apartment owners”.

Firstly, this clarifies that in any case where there is a specific provision in the shared building’s pre-agreed contract, this provision overcomes section 58. Detailed regulations on how to determine the Resident’s Association fees can be found in many contracts

Some determine that a percentage is to be charged, making it very simple – the management fee is determined by dividing the total annual expenses between the tenants according to the percentage of each property owner, giving the annual amount each property owner must pay.

Others stipulate the calculation of the fees according to the area of ​​the apartment in relation to the area of ​​the whole property, in which case the Resident’s Association or management company must first calculate the relative share of each property owner’s area out of the total of the whole property area in a condominium (apartment area divided by whole building area). The result given is then multiplied by the total expenses of the shared building and this is the amount that each property owner must pay.

Other regulations require a more complicated method of calculation, for example, the total area of the apartment, plus half of the balcony area, half of the warehouse area and one-third of the parking area. In such cases, the share of each property owner in expenses will be equal to the area of ​​his apartment (according to the formula above) divided by the total area of ​​the apartments (according to the formula above), and the portion will be multiplied by the total expenses.

To conclude this point, note that in many buildings, the apartment owners divide the Resident’s Association fee according to the number of rooms in each apartment, based on agreements between the apartment owners, agreements that are not closed in the pre-agreed contracts (this is a custom mostly in small-medium old buildings). These agreements are only liable as long as the apartment owners agree to them and do not question their validity. Since these agreements are not stated in the contract, if even only one of the apartment owners requires that the calculation is to be made according to the pre-agreed contract or to the law, the previous agreements are no longer valid.

Secondly, it appears from section 58 of the Real Estate Law that where pre-agreed contracts don’t exist or where common rules apply, the Resident’s Association fees are calculated by the ratio of floor area in the apartments.

Having said that, how is the floor area of ​​an apartment calculated? Are additional private areas (such as parking and storage) included in this calculation?

Until 2005, the wording of section 58 of the Real Estate Law was different – a calculation was based on the relative share of an apartment owner in the common property, and this relative share included as a principle additional private areas (unless stated otherwise). In 2005, the law was amended and it was determined that the calculation will be according to the ratio of the area of ​​the floor space in the apartments only.

The explanation for this amendment, as expressed in the explanatory memorandum to the bill, was that the payment for the maintenance of the common property should not include the additional private areas for each apartment, due to the fact that these additional private areas do not require additional special maintenance that justifies additional payment and that it is an unfair financial burden for apartment owner who has additional private areas.

Until recently, the prevailing approach in the ruling was that in light of the amendment to the Real Estate Law in 2005, the area of ​​the apartment will not include additional private areas. For example, in file 5/121/2018 by the Supervisor of Real Estate, Tamar Ariel Zilberg, it was determined that ”the amendment changed the way of calculating each apartment owner’s share in the expenses of the common property and specified that the calculation will be made according to the floor area of each apartment without additional private areas”. Another example includes a determination in the District Court by the Honorable Judge created in ISA 58372-10-15, that “according to section 58 of the law, the distribution of the expenses of the common property among apartment owners will be in according to the ratio of floor space of each net apartment, without additional private areas”.

It was recently ruled by the Honorable Supervisor Oshrat Arfi Morai, Supervisor of Real Estate in Petah Tikva (regarding file 6/259/2018), that the floor area of ​​the apartment used to calculate the share in the holding expenses will include the apartment area and all additional private areas too. This determination, according to the Supervisor’s method, is based on sections 58 and 55 (c) of the Real Estate Law, which specifies that once a common area has been attached to the apartment, it is legally part of the apartment, together with section 58 of the law.

Respectfully, we believe that this latest determination by the Honorable Supervisor of Real Estate is a mistaken determination, which is mainly opposed to the history of section 58 of the Real Estate Law and the explanatory memorandum to the proposed amendment to the law, as well as to a higher court ruling – the appeal on the Supervisor of Real Estate, District Court.

Even after this new ruling, the recommendation remains as it was: where there is no additional provision in the common house regulations (which overrules), the way to calculate the apartment owner’s share of Resident’s Association fees or maintenance and management expenses is by calculating the ratio of the apartment area, without additional private areas, out of the whole building area, multiplied by the total of annual expenses.

(The above should not be taken as legal advice or a substitute for legal advice, all rights reserved to Gavor Law Firm)