K Kanagasabapathy

Cost-sharing in housing societies

K. KANAGASABAPATH | Updated on August 13, 2011

Allocating charges becomes more complex when the areas of the flatsdiffer widely.   -  THE HINDU

BL05KAN3   -  THE HINDU

Model by-laws of housing societies should be so adapted that the society has the discretion to apply a suitable basis for allocating charges, keeping alive the spirit of cooperation and minimising the scope for litigation.

An apparently simple but a complex and contentious issue in co-operative housing societies (CHS) has for long been how to share some common expenses among the members. The model by-laws of CHS seem to differ among the Indian States but, for illustration, let us consider the case of Maharashtra.

While some costs of maintenance are sharable on proportionate basis according to area of ownership — that is, on a per square foot (PSF) basis — wherever quid pro quo can be established between the nature of cost and ownership area, there is a host of service charges listed in the by-laws that are sharable on a per flat (PF) basis.

PSF and PF charges

Chapter VIII, by-law numbers 67 to 69 deal with the levy of charges, according to which the charges allocable broadly on PSF basis would include: property taxes, as fixed by the local authority, water charges, expenses on repairs and maintenance of the building/buildings of the society, sinking fund, insurance charges, lease rent and non-agricultural tax.

The charges allocable on PF basis would include mainly expenses on repairs and maintenance of the lift, including charges for running the lift, and the service charges.

The service charges of the society referred would include a host of expenses such as salaries of the office staff, liftman, watchmen, malis and any other employees of the society, common electricity charges, all expenses incurred towards the office of the society and all running expenses and maintenance of common areas, including garden, park, etc.

While there is not much of a controversy regarding the application of by-laws to expenses allocable on a PSF basis, as regards the expenses allocable on PF basis, the practice in most societies seems to be in favour of a PSF allocation, in deference to the model by-laws. It should, incidentally, be noted that adoption of model by-laws in toto is not mandated and most societies have their own by-laws. Some deviations from the model by-laws, either in terms of prescription or practice, are therefore not out of place. But evidence shows that the issue of PF versus PSF allocation of some common expenses has led to considerable amount of litigation and debate.



Prescription vs practice

Simply stated, in societies where the flat areas are uniform, there is practically no issue. The problem becomes increasingly complex when the areas of the flats differ widely. This is because when the square foot areas differ, the PF basis allows for, in some sense, cross-subsidisation across flats in a regressive way.

The smaller flat owners are made to bear expenses disproportionate to their ownership area. The counter argument for the per-flat calculation is that the common facilities are uniformly available to all flats and, therefore, there is no justification for discriminating and levying the charges according to the size of the flats.

The fundamental question, therefore, is whether such allocation should be ‘equal' or ‘equitable'.

One difficulty in practice is defining what the proportionate ownership of flats among the members is. It can be argued that even if the facilities are common to all members, as long as ownership is unequally divided, then the cost should be shared on the basis of ownership. This measurement of owned area, including common areas, in a society is riddled with complexities. For instance, there are at least three ways ownership can be defined.

First, the carpet area, second, built up area and third, the super built up area. It is observed that the saleable area in modern flat construction is the super-built-up area, which includes common areas. In such instances, the proportion of carpet area may be only about 70 per cent of the super built up area and, hence, the owners of larger flats tend to have, by definition, a claim of larger ownership in common areas. Hence, the equitable principle will gain over equal principle in allocation of common expenses.

This perhaps explains the wisdom of most societies following the PSF basis uniformly for allocation of expenses.

The second, and foremost, objective could be the real spirit of cooperation. In a really democratic co-operative society, it should not appear that the larger flat owners with higher stakes, enjoy subsidised rates at the cost of smaller flat-owners.

Despite this common sense proposition, it is possible that in a few societies, the owners of larger flats, by virtue of their clout or strength in the management of the society, can take cover under the model by-law which, by itself, is iniquitous, to corner undeserved benefits in allocating charges in their favour.

Change the Model By-laws

A set of model by-laws should have flexibility in application. It cannot have rigid prescriptions, and perhaps that is the intention. But the model by-law of CHS in Maharashtra seems to weigh, willy-nilly, in favour of larger flat owners and thus creates an unwarranted non-cooperative environment, killing the spirit of cooperation.

Insofar as the PF and PSF bases of allocation of expenses is concerned, the model by-law should be amended to the effect that the society's management is left with the discretion to apply either basis of allocation of charges, keeping alive the spirit of cooperation among CHS members and to minimise the scope of unwarranted litigation.

(The author is Director, EPW Research Foundation. The views are personal. >blfeedback@thehindu.co.in).

Published on August 05, 2011

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