Dues Allocations

This is a memo to the 2024 Board to explain the different approaches to dues allocations.

I recommend you start with the summary essay I wrote for all Owners on Oct. 17, 2023, Legal Foundations of Ownership In Las Mañanitas, especially the section on Dues.  That discussion was highly simplified for a general audience.  This memo will go deeper.

Let's start from the top.  We have three LEGALLY INDEPENDENT Regimes.  The three regimes have agreed to pool their activities into one operating budget, which for 2024 is $1.35m USD I believe.  The three regimes have agreed to share the cost of that operating budget in certain proportions, as specified in Appendix E of the Cross Sharing Agreement where the allocations are specified as 44.5485% (Phase I), 27.1559% (Phase II), and 28.2956% (Phase III).

Those percentages were derived by summarizing the square meters (hereinafter simply "meters") of privately owned residential spaces in each of the three regimes.  In 2022, when we finalized the Cross Sharing Agreement, Anne reported that those meters were "22,466.24 total meters of residential Units, composed of 10,008.38 meters (44.5485%) in Phase I, 6,100.91 meters (27.1559%) in Phase II, and 6,356.95 meters (28.2956%) in Phase III."

When nailing down the Cross Sharing Agreement last year, I wanted to extend Exhibit E (which is the dues allocation formulae) from the last step that currently shows -- deriving the "Phase Budget Share" -- and show how allocations ultimately fall on each Owner.   An earlier draft of the Cross Sharing Agreement (v.9) ended Exhibit E with the following:

1) Phase Budget Allocation Percentage.  Each Phase is allocated a share of the Budget based upon its proportionate share of the total meters of residential Units in all three Phases, not including garage meters nor any unassessed meters (such as common areas that are owned by LMHOA or Amenities). As of 2022, there are 22,466.24 total meters of residential Units, composed of 10,008.38 meters (44.5485%) in Phase I, 6,100.91meters (27.1559%) in Phase II, and 6,356.95 meters (28.2956%) in Phase III. Each of these percentages is that Phase’s “Phase Budget Allocation Percentage.”  Note: the meters measurement of each Unit is shown on its Deed.

2) Phase Budget Share. The total amount to be contributed by the Owners within a single Phase is calculated by multiplying the Budget Amount by the Phase Budget Allocation Percentage of that Phase. The result of the multiplication is the “Phase Budget Share.”

3) Unit Budget Share. Each Phase may allocate the Phase Budget Share assigned to that Phase among the Owners of Units within that Phase according to procedures specified by the Rules and Regulations governing said Phase. As of 2022, each Unit within a Phase is assessed a proportionate amount of its Phase Budget Share which corresponds to the size of the Unit in relation to all other residential Units in that Phase.

4) HOA Fees. The annual HOA fee assigned to the Owners of any Unit (as approved at the Ordinary Assembly for the Phase of which the Unit is a part) is the Unit Budget Share for that Unit. Fees are assessed semi-annually on January 1st and July 1st of each year and are due for payment within the first fifteen days of said dates, respectively, unless otherwise specified in the Assemblies.

Originally, I had said in paragraph 3 that the allocation to units was done by pro-rata meters, but Anne objected, saying "it's not that simple."  She showed me the spreadsheet she was using (which, to be fair to her was not meant for public consumption -- so it isn't well-labelled or easy to follow).   She took me through all the adjustments she was making, which were very hard to follow.

Darrell and earlier Presidents had relied on Anne's method, so I generalized the reference in paragraph 3 from "meters" to say "size of unit" (which could be either measured in meters or indiviso).  I wanted to publish that but Anne felt strongly that we were inviting trouble and she talked me out of including paragraphs 3 and 4.  She wanted to simply rely on the Regime Declaration for each Phase to take the "Phase Budget Share" and allocate it to each Unit for their annual dues contribution.  Last year was complicted enough; I acquiesced.

This year, I wanted to button down the SOURCE documents and calculations that Anne used for those numbers.  After studying her dues spreadsheet from 2022, I recapitulated it into an earlier version of my 2024 worksheet.   Here is the simplified version I used for the Assembly.  I won't burden you with the development of this spreadsheet --- I'll just share these, which I believe are 100% accurate.

Anne and I had basically two disagreements.  We agreed that the "Phase Budget Share" should be allocated among the Owners of privately owned properties within that Phase and the "size" of the property should determine the pro-rata allocation.  We disagreed on two things:

  1. Which "privately owned properties" should be the basis of the allocations?  Residential "Units" only or "Units AND Garages"?
  2. How should the "size of unit" be measured for the allocation?  By Indiviso percentage as defined in the Regime Declaration and each Deed -- which I call the "two-decimal place" indiviso?   Or an adjusted amount based on meters -- which I call the "four-decimal place" indiviso.

We debated both questions at Board meetings in September and October, with Anne very much in favor of "Units only" and her version of the "four decimal place" allocation.   I asked Gabriel for his opinion at the last minute, which he gave us informally but unequivocally in this  email thread: Opinion - Dues Allocations (read buttom up).

As you know, Anne circulated a competing legal opinion from Raul the night before the meeting.  I had Gabriel look at it over night, and he was prepared to argue that it was not correct legally. I agreed with his analysis, which he shared with me Saturday morning, Nov. 4.  We were prepared to argue, but ultimately I decided not to -- for reasons set forth below.

At the Assembly, Dale made a motion that the Dues "be allocated for next year, and all future  years, using the pre-existing method." To be fair, he also asked whether people wanted to hear the rationale for my proposal (although he did try to bias their response by saying "it would take a long time" ... which it wouldn't have).  There was silence from the crowd both times he asked.

By that time, while I firmly believed that I was correct (and could easily argue my point in a compelling way), I decided not to interpose an objection because:

  • people were burnt out, tired, cranky -- and we still had lots to cover,
  • many people were genuinely confused and weren't ready for a change,
  • to the extent I argued, I would create dissension, and possibly litigation, which would not be helpful to HOA expenses or our sense of community,
  • by that time, I knew that I did not want to serve further on the Board and couldn't lead the change,
  • while I think Anne was motivated by her self-interest in reducing HER dues and antipathy toward Unit B-1, the overall rationale for allocating by units-only and based on meters wasn't crazy or unfair ... it just was not legally authorized, and
  • for most (not all) people it wasn't a material number (a few hundred dollars plus or minus).

I thought it best to fold and not create dissention.

The way I interpret "use the pre-existing method" in Dale's motion is that Anne should use the spreadsheet she used in 2022 and allocated the approved budget (including the special assessment).  I think the Board should require her to send a copy of that spreadsheet to you for the Assembly files, along with a copy of what she sent Associa.

At some point, I believe it would be useful to evolve her spreadsheet into a cleaner version that future Board's can understand and that would withstand scrutiny if challenged.  My format is cleaner if you want to evolve toward that format; I'll advise if you want.

Also, I think we need to verify the "meters" and "indivisos" of ALL units and ALL garages in all Phases from the source documents directly.  The "cleaner spreadsheet" should use the "two decimal place" indivisos (from the deeds) and  "4 decimal place" indivisos (calculated pro rata from the meters) for all units and garages (private and HOA/Amenities AC/Unbuilt) as the same appear in the source documents (the Regime Declaration appendixes or deeds themselves).  Then you can "gross up" either the 2 decimal or 4 decimal indiviso per future Assembly resolution and be on firmer ground, unreliant on one person (Anne) with an opaque model.

If we can get to a "constitutional convention" to reform the Regime Declaration then we can conform the Regime Declaration to bolster the allocation method that uses the Units only (not Units + Garages) if that's what the Owners want.

PS -  There is another implication flow from allocating by Units only rather than Units + Garages, namely: What about Reserves?  Right now each Regime has two reserves -- one for the residential building and another for the garages.  This is not legally grounded or documented anywhere in the source doucments.  I believe it is not legal and is vulnerable to challenge when a "special assessment" for garages is assessed.