Determining percentage of ownership
Q. I believe percentage of ownership in the common elements in a condominium is based on square footage of the condominium units. Is that correct? Can you explain how percentage of ownership in a condominium is determined?
A. Initially, percentage of ownership is the basis for a unit's assessments, weighted vote and real estate taxes, among other issues. How a developer determines percentage of ownership for each unit varies; however, some sort of a formula is generally used.
The formula seldom has to be justified. Typically, percentage of ownership is based on the intrinsic "value" of the particular unit in relation to the value of the entire property at the time the developer prepares the condominium declaration. The developer has broad discretion in determining value; so, value is in the eye of the developer.
Associations have sought judicial reallocation of percentages of ownership, claiming that the original allocations were the result of a mistake or unfair. However, the dearth of case law reveals that absent fraud (very difficult to prove), a court in Illinois is not likely to change percentages of ownership.
Value, hence percentage of ownership, is most commonly based either on the offering price of units at the time the declaration is prepared, or on the square footage of the units. Some developers will actually include the square footage of units in the declaration; others don't. When "offering price" is utilized, percentage of ownership takes into consideration such matters as size and location of the unit, whether the unit has a balcony, patio, or maybe an assigned parking space.
Presumably, a unit with a lake view or a unit on an upper floor of a high-rise would have a higher offering price and, therefore, a higher percentage of ownership, than a comparably sized unit with a view of a street or parking lot or located on a lower floor. It is even possible, given the various factors that could be taken into account, for a smaller unit to have a larger percentage of ownership than a larger unit.
When the "square footage" approach is utilized, percentage of ownership is based strictly on the size of the unit. Many contend this is more equitable in that the size of the unit bears more of a relation to the unit's consumption of services than does offering price.
In any event, percentage of ownership often varies from unit-to-unit within the condominium.
Some of the potential inequity that results from allocating common expenses based on percentage of ownership can be overcome by the concept of limited common element chargeback. A "limited common element" is a portion of the common elements reserved for the exclusive use of one or more but less than all of the units in a condominium. Examples of limited common elements include patios, balconies, windows and doors in perimeter walls and parking spaces.
The Illinois Condominium Property Act permits a condominium declaration to give the board discretion to charge the actual cost of maintenance, repair and replacement of a limited common element to the owner of the unit or units benefiting from the limited common element. This generally affects large, infrequent expenses; however, the basic allocation of the annual budget is not affected.
For example, if windows are limited common elements, and there is a chargeback provision in the declaration, the board may be able to more "fairly" allocate the cost to replace the windows. That is, the board may be able to charge each unit owner on the basis of the number of windows serving the unit, rather than on percentage of ownership.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.