The Three Cost Allocation Rules

Most lawyers would caution against sticking with the “doing nothing” option because, sooner or later, the need will inevitably arise to hold someone accountable or to make a binding decision when an impasse is reached. But in a classic case of “do what I say, not what I do,” a good number of those same lawyers co-own law firms that lack any shareholders’ agreement. That five statement tip sheet is more than they themselves have in place to establish their own co-ownership obligations. Were you to point out the hypocrisy of this to these lawyers, they would likely employ the same reasoning that Microtopian owners who favor just staying the course employ: “We work hard to maintain a strong bond between co-owners, which enables us to work out our disagreements without throwing punches; and, besides, trying to get everyone to sign a shareholders’ agreement now would be next to impossible, so there is no point in trying.”

Just for fun, let’s assume all co-owners would sign on for either creating a maintenance agreement or for creating a homeowners association. Which of those two approaches is better?

It depends on the specific facts and circumstances of each specific Microtopia. (Of course it does and, being a member of the bar, I am ethically bound to state the obvious.) So, now that we’ve got this out of the way, which approach is better?

You split costs with the relevant “other(s)” by application of one of these three rules:

1. By mutual agreement of you and the relevant “others(s)”

2. Equally among you and the relevant “other(s)” or

3. Equitably (i.e. your portion of the total square footage of the thing repaired)

It is a close call, but I for one would think long and hard before super-imposing a homeowners association on a group of co-owners that did not really need it. The law takes a more or less “one size fits all” approach with its homeowners association legislation and appellate decisions. The compliance requirements that accompany the formation of a homeowners association may make the homeowners association any overkill solution to what needs fixing. I would tend to explore the maintenance agreement option first and turn to the homeowners association option if the maintenance agreement option just was not addressing everything the co-owners wanted or needed to address.

The Five Maintenance Allocation Levels

You share maintenance obligations with the relevant “other(s)” in each level:

1. Your home – (none “other”)

2. A party wall you co-own with the neighbor next door – (one “other”)

3. The roof and siding encasing the building you share with three others – (three “others”)

4. A walkway easement that benefits most, but not all, of the owners – (less than all “others”), and

5. A drainage system and entry sign that benefits all owners – (all “others”).

Note, though, that getting owners to unanimously agree on something as important as imposing after the fact obligations upon each other and their properties borders on the impossible. There is a good chance that you could end up with near unanimous agreement and one hold out. If that happens, it still might be worthwhile having all who are of one mind sign a mutually binding agreement to fill the most glaring gaps. Yes, that leaves that one owner off the grid, but mutually binding the rest is still worth a lot. And besides, that stubborn holdout might one day have a change of heart and sign on. Or, better still, might one day sell to a new owner with a more open mind.

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