Every Housing Society or Apartment Owners Association at its formative stages has to decide on the structure of Society Charges it will collect.
Step 1: As a first step, one has to decide the amount to be collected and the basis of the collection of Apartment Maintenance Amount. The Apartment maintenance charge which is to be collected from residents is calculated as the amount which is required for ongoing overall maintenance of the Society, an amount which is set aside for major repairs which might occur in future and investments made in the name of the community for financial sustainability.
Step 2: After arriving at the amount which is to be collected from all Apartments/Villas per month, the Association or Society has to decide on the basis on which the Society Charges will be shared by each Apartment.
Step 3: The last step is to decide how frequently to charge the maintenance amount from Residents.
We will cover each of the above 3 steps in detail in this blog.
Step 1: How much should be collected and under what Heads?
In India, the only Legislation that provides considerable guidance in this matter is from Maharashtra, approved by the Commissioner for Co-operation and Registrar, Cooperative Societies.
According to this legislation, the Regular Society Charges are to be apportioned under the following Bill heads:
1. Expenses on Repairs and Maintenance of the Building(s): At the rate fixed by the general body from time to time, subject to the minimum of 0.75 percent per annum of the construction cost of each flat for meeting expenses of normal recurring repairs. This implies, this can be charged on a sq.ft. basis, which is an indirect indication of the construction cost of the flat.
2. Service Charges (Housekeeping, Security, Common Area Electricity, Equipment): Equally divided by Number of Flats. This implies, this can be charged on a flat fee basis, where each Flat pays the same amount irrespective of its area.
3. Expenses on Repairs and Maintenance of the Lift, including charges for running the Lift: Equally by all the members, irrespective of the fact whether they use the lift or not. This is clearly a charge on a flat fee basis.
4. Sinking Fund: At the rate decided by the General Body, subject to the minimum of 0.25 percent per annum of the construction cost of each flat. This again implies a Sq.ft. based fee., as in Item 1.
Apart from the above charges, many Societies collect following Charges as part of their Regular Bill:
5. Non-Occupancy Charges: This charge is collected for Flats which are Rented, calculated @ 10% of Service Charges
6. Parking Charges: This charge is calculated by number of Parking Slots of each Member
7. Property Tax (this is not relevant outside Maharashtra as Property Owners pay this directly to the Municipality)
8. Water Charges: As per actual Consumption of each Flat, or Number of Water Inlets
9. Interest on Defaulted Charges: This is the late payment penalty. This amount is decided by General Body. Mostly a late payment calculation method of simple interest not exceeding 21% per annum is used. However, the General body can decide otherwise based on what works best for them.
10. Insurance Charges: Expense which is spent on insurance of building and equipment can be charged to the residents and made a part of the maintenance bill. There maybe flats/shops for which you may have to pay extra premium, you can pass on that extra amount to such flats/shops.
11. Lease Rent: This is charged based on per square ft of the built up area.
12. Other Charges: These are decided by the Association / Society from time to time as per their specific requirement.
The above may help you to design a Maintenance Bill which works best for your Society.
Step 2: Deciding on the Method of Calculating Maintenance Charges
Most debates centre around the decision of making the charges on the basis of sq.ft. of each Flat or on a uniform basis where every flat pays equal Society Charges. This debate gets more pertinent in Societies with high variation in the area of the Flats.
There are a few popular methods of calculating maintenance charges. They are as follows:
A. Per Square Feet Charge:
This happens to be the method which is most used for calculating maintenance charges for housing societies. As a part of this method, a fixed rate is charged per square feet of area of an apartment.
Say, the per square feet maintenance charge for an apartment complex is Rs. 3.0 per sq feet per month. Therefore, if one owns an apartment of 1000 sq. ft, then the maintenance charge is Rs 3000 per month. And by the same calculation, a person owning an apartment of 2000 sq. ft would pay a maintenance charge of Rs. 6000 per month.
Pros: This method is easy to calculate and maintain
Cons: This method is seen as unfair to owners of larger apartments or villas, as there are many facilities which are used by all residents irrespective of the size of the apartment they live in like Clubhouses, Lifts, Gardens, etc.
B. Equal Maintenance Fee:
This is a favoured method where the size of apartments are almost the same. The total maintenance charge which is to be collected per month is arrived at and then it is divided the number of apartments. The resultant amount is charged per apartment every month as maintenance charge.
Pros: Easy to calculate and implement in societies with same-sized apartments.
Cons: For housing societies where apartments are of various different sizes, this is seen as unfair and are usually not accepted by the members.
C. Hybrid Method
In this method, a part of the maintenance charge is charged equally among all apartment owners. The second part includes the area based charges.
The combination of bills into different heads is usually as follows:
a) SqFt Based charges: Items 1 & 4 of Society Bill Heads mentioned in Step 1 of this article. Expenses on Repairs and Maintenance of the Building(s) AND Sinking Fund.
b) Equal Charges: Items 2 & 3 of Society Bill Heads. Service Charges AND Expenses on Repairs and Maintenance of the Lift.
Pros: It is seen as a fair method of calculating maintenance charges
Cons: It is relatively complicated to calculate and there are usually a lot of differences in opinion on how to divide expenses in common expense category and area based expense category
Step 3: What should be the Frequency of the Society Billing?
Society Billing frequencies in India vary from Monthly, Quarterly, Semi-Annual and Annual. Frequency can be decided based on 3 criteria:Every Housing Society or Apartment Owners Association at its formative stages has to decide on the structure of Society Charges it will collect.
1. Frequency of Major Society Expense Bills.
2. Willingness of Members to pay in Advance.
3. Minimal Administrative Effort to manage the Billing & Collection.
While #1 & #2 above indicate a Monthly frequency most often, #3 may tilt towards Annual. Most Societies settle for a Quarterly frequency which is the middle ground.
Once you arrive on your Maintenance Billing Formula you can automate the same on your ADDA with the Automated Billing module. You can also activate the Integrated Payment Gateway so that Residents can easily pay online and get instant Receipt!
What is the Structure & Frequency of your Society Bill?