Home > Knowledge Centre > Sharing of Common Expenses in a Housing Society

A Co-operative Housing Society has to collect various charges from its Members which normally are termed as Maintenance Charges. The standard Bye Laws of Society provide for three characteristic of the collection of charges as under:

Firstly, the Composition of the charges which has 15 items where in last entry is Residuary Entry. Secondly, break up of service charges of Society which has 13 items wherein last entry refers to any other charge approved by General Body of Society.

However, the charges under last entry have to be within the Provisions of The Maharashtra Co-operative Societies Act, 1960 and The Maharashtra Co-operative Societies Rules, 1961.

Thirdly, the sharing of Society’s Charges by Members in the given proportion or the ratio of various charges is to be collected from Members. The Maharashtra Co-operative Societies Rules, 1961 enables any Society to frame Bye Laws for method of appropriation of payments made by Members.

The Societies are the mutual associations and there is ceiling to the interest that can be charged to Member who is defaulter. The maximum Rate of Interest is simple Interest @ 21% p.a. Under the circumstances, the equity demands that the payment be first applied by Society towards principal else the charge of interest may turn out to be cumulative interest which will be against the Laws.

The Managing Committee has to decide the charges for each flat as per the Resolutions passed by General Body.

(A) The Society shall have to collect the followings from its Members:

(i) Property Tax (ii) Water Charges (iii) Common Electricity Charges (iv) Contribution to Repairs and Maintenance Fund (v) Expenses on repairs and maintenance of the lifts of the Society including charges for running the lift (vi) Contribution to the sinking fund (vii) Service charges (viii) Car Parking Charges (ix) Interest on the defaulted charges (x) Repayment of the instalment of the loan and interest (xi) Non-occupancy charges (xii) Insurance Charges (xiii) Lease rent (xiv) Non-agricultural tax (xv) Any other charges.

Item (vii) in the above list is the Service Charges. The Service Charges have to be collected equally from all the Members of Society irrespective of the area of the flat.

(B) The service charges as mentioned in clause (vii) in (A) above include the followings features:

(i) Salaries of the office staff, liftmen, watchmen, gardeners and any other employees of the Society; (ii) Where the Society has independent office, the property taxes, electricity charges, water charges etc. for the same. (iii) Printing, Stationery and Postage (iv) Travelling allowance and conveyance charges to the staff and the Members of the committee of the Society; (v) Sitting fees paid to the Members of the committee of the Society; (vi) Subscription to the Education Fund of the Maharashtra Rajya Sahakari Sangh Ltd. (vii) Annual Subscription of the Housing Federation and any other cooperative institution to which the societies affiliated (viii) Entrance fees for affiliation to the Housing Federation and any other cooperative institution; (ix) Audit Fees for internal, Statutory and construction work re-audit, if any. (x) Expenses incurred at meeting of the general body, the Committee and the Sub-Committee, if any; (xi) Retainer fees, legal charges, statutory enquiry fees; Common electricity charges (xii) Common Electricity charges. (xiii) Any other charges approved by the General Body at its Meeting. However such charges should not contradict the provisions of the Act, Rules and bye-laws of the Society.

(C) The Managing Committee shall apportion the share of each member towards the charges of the Society on the following basis.

(i) Property Tax: As fixed by MCGM.

(ii) Water charges: Based on number of inlet in every flat.

(iii) Expenses on repairs and maintenance of building of Society. These charges may be decided by General Body subject to minimum 0.75 percent (0.75%) of the cost of construction of flat/shop.

(iv) Expenses for lift repair, maintenance and for running the lift: Equally from all Members of the building where in lift is provided.

(v) Sinking Fund: As may be decided by General Body subject to minimum of 0.25% of the cost of construction of flat.

(vi) Service Charges: To be equally divided by number of flats.

(vii) Parking charges: As may be decided by General Body of the Society.

(viii) Interest on defaulted Charges: As decided by General Body subject to simple interest not exceeding 21% p.a.

(ix) Repayment of instalment of loan and interest. Principal and interest as may be decided by financial institute.

(x) Non Occupancy Charges (NOC): To be charged as per circular issued by government/ Commissioner of Co-operation. As per this circular the NOC can be maximum 10% of the service/ maintenance of flat. The NOC cannot be charged if the licensee is family member(Family Members includes husband, wife, father, mother, brother, sister, son, daughter, son in law, daughter in law, sister in law, brother in law, grandson and granddaughter). The NOC also cannot be charged to a flat purchaser who submits information about such purchase of flat.

(xi) Insurance Charges: In proportion to built up area of flat. Extra premium charged by insurance on account of storage of specified goods in flat/shop should be collected from those flats/ shops whose storage of specific goods was the reason for extra premium.

(xii) Non-Agriculture Tax: As per built up area of flat.

(xiii) Lease Rent: As per built up area of flat shop.

(xiv) Any other charges: as may be decided by the General Body.

An evidently simple but a complex and contentious issue in Co-Operative Housing Societies (CHS) has for long been the basis of sharing some common expenses among the Members. Let us discuss the latest Model Bylaws, 2009 governing the Housing Societies in the State 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 Bylaws that are sharable on a PER FLAT (PF) basis.

Chapter VIII, Bylaw No. 67 to 72 essentially 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 PER FLAT basis would include mainly expenses on repairs and maintenance of the Lift including Charges for running / maintenance of the Lift employing the liftman etc.

The Service Charges of the Society referred would include a host of expenses such as salaries of the Office Staff, Liftman, Watchmen, Gardeners 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 Bylaws 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 Bylaws. It should, incidentally, be noted that adoption of Model Bylaws entirety is not mandated and most Societies have their own Model Bylaws. Some deviations from the Model Bylaws 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 Court Proceedings and debate.

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. The smaller flat, the 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 equivalent 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 questioned with complexities. For instance, there are at least three ways ownership can be defined.

First is the Carpet Area, second is the Built up Area and third is 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 a claim of larger ownership in common areas. Hence, the principle of equitable will prevail over principle of equal 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 Bylaws which, by itself is unfair to corner undeserved benefits in allocating charges in their favour.

Model Bylaws should have flexibility in application. It cannot have rigid prescriptions and perhaps that is the intention. But the Model Bylaws of CHS in Maharashtra seems to be in favour of larger flat owners and thus creates an unwarranted non-cooperative environment thereby, killing the spirit of cooperation.  

Insofar as the PF and PSF bases of allocation of expenses is concerned, the Model Bylaws 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 Members of CHS and to curtail the scope of uncalled-for litigation.

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