At Harlem Property Management, we understand the unique challenges of managing mixed-use properties in New York City. These properties, which often include both commercial and residential units, require careful attention to ensure all units are billed fairly and equitably.
Recently, our Senior Property Manager, Greg Poverelli, was featured in Habitat Magazine where he shared valuable insights on this very issue.
Understanding the Issue
The Problem with Discrepancies in Mixed Use Buildings
Mixed use buildings can be a significant source of revenue for condominiums, especially when commercial units contribute to the building’s operational costs. However, as Greg Poverelli highlighted, discrepancies between the offering plan and the legally binding declaration often result in unfair billing practices.
These discrepancies arise when the offering plan includes provisions that do not appear in the declaration, which is the governing document for the property. For more details, you can consult the New York Condominium Act.
Key Points of Discrepancy:
1. Offering Plan vs. Declaration:
The offering plan, a sales disclosure document, sometimes allows commercial units in a multi-use building to be charged less than what the declaration requires.
2. Reduced Costs for Commercial Units:
The offering plan might suggest that commercial units only cover expenses related to their space, excluding shared costs such as staff payroll, security, or elevator repairs. This puts an unfair burden on residential owners.
3. Legal Authority:
The declaration is the legally binding document that should govern how costs are distributed. If it does not allow reduced costs for commercial units, they should be paying their fair share based on their percentage ownership.
The Financial Impact on Mixed Use Properties
Billing discrepancies can have serious financial consequences. If commercial units do not contribute fairly, residential unit owners will likely end up bearing the extra costs.
Potential Financial Strain:
- Higher Costs for Residential Owners: Residential owners might cover the shortfall created by undercharged commercial units, which places an unfair financial burden on them.
- Increased Operational Costs: Over time, this imbalance may result in higher common charges for residential units, making the multi-use building less attractive to potential buyers or tenants.
How to Ensure Fair Billing in Mixed-Use Properties
Review and Correct Discrepancies
To protect the financial health of your mixed-use property, condominium boards and property managers must regularly review the building’s governing documents. At Harlem Property Management, we implement the following steps when onboarding new clients:
- Document Review:
- Ensure that the declaration and bylaws, not just the offering plan, are used as the guiding documents for billing practices in the mixed-use property.
- Verify that commercial units are being charged according to their percentage ownership in the property.
- Identify and Correct Discrepancies:
- If discrepancies are found, work with the board to amend the declaration. While challenging, this is essential for long-term financial stability in the mixed-use building.
The Importance of Amending the Declaration
Amending the declaration to correct any discrepancies is critical, though it can be time-consuming and complex. It typically requires a supermajority vote from unit owners and, in some cases, agreement from the sponsor or developer.
Challenges of Amendment:
- Supermajority Vote: Securing enough votes to amend the declaration can be difficult, especially in larger mixed-use properties.
- Sponsor Agreement: In some cases, sponsor approval is also required, adding another layer of complexity.
Why It’s Worth the Effort:
Despite the challenges, amending the declaration is a worthwhile effort. Ensuring that commercial units pay their fair share will lead to better management of your mixed-use property, promoting fairness and financial stability for all owners.
Why This Matters for Mixed Use Property Owners
If you’re a board member or property owner in a mixed-use property, it’s essential to take proactive steps to ensure fair billing practices. Here’s what you can do:
Actionable Steps for Condo Boards:
- Review Governing Documents: Regularly review your condominium’s declaration and offering plan to identify any discrepancies.
- Consult with Experts: Work with experienced property managers. At HPM Property Management, we ensure that your billing practices align with legal requirements.
- Consider Amendment: If discrepancies exist, consider amending the declaration to ensure fair billing.
Benefits of Fair Billing:
- Financial Stability: Ensuring commercial units in a multi-use building pay their fair share helps maintain the building’s financial health.
- Equitable Cost Distribution: Proper billing practices prevent residential owners from bearing an unfair portion of the costs.
*Read the full article in Habitat Magazine
Get in Touch
At HPM Property Management, we’re here to help you navigate these complex issues. Our deep expertise in managing both residential and commercial properties ensures that your building is managed fairly and effectively.
Based in Upper Manhattan, HPM Property Management is the authority on co-op and condo building management and a member of the Real Estate Board of New York. We specialize in managing condos, co-ops.
