Budgets and shared costs – how are they set correctly?

These are two different questions: how high the shared costs should be, and how they are allocated. The amount is set by the board in a co-operative, and by the annual meeting or the board in jointly owned property. The allocation, by contrast, follows the law – the ownership fraction in jointly owned property, relative values in a co-operative – and cannot be changed by a majority alone. A different permanent allocation needs the consent of those affected.

What should the budget contain?

The budget should show what it actually costs to run the property – and how much money the housing company needs available. It should allow for interest and repayments on shared debt, insurance and municipal charges, electricity and energy for shared areas, cleaning, caretaking and other service agreements, the accountant and auditor, payroll and directors' fees, running maintenance, planned larger works, and an adequate liquidity buffer. Separate the result from the cash. A loan repayment is not a cost in the profit and loss account the way interest is – but the money still has to be paid. A budget looking only at accounting costs therefore gives a misleading picture of how high the shared costs have to be.

Who decides how high they should be?

In a co-operative, section 5-19 says the board sets how much each member pays each month towards the shared costs. In jointly owned property the monthly amount can be set by the annual meeting or by the board. But that does not mean the board can freely change how the bill is allocated between residents. The size of the payment and the allocation key are two different questions – and that difference causes the most conflict.

Allocation in a co-operative

The allocation rule is in section 5-19. The starting point is that the shared costs are allocated by the relative values of the homes, or by other guidelines set in the building and financing plan. Where changes to the homes or the property materially change the value relationship, the allocation has to be adjusted. Where there are particular grounds, certain costs can instead be allocated by the benefit to each home or by consumption. A wholly different allocation requires the consent of the members affected. So it is not open to the board or a majority to create a new allocation key because it seems simpler or fairer.

Allocation in jointly owned property

Here the general rule is clearer still: shared costs are allocated by the ownership fraction. Section 29 of the Ownership Units Act allows two exceptions. Where particular grounds support it, certain costs can be allocated by the benefit each unit derives from the measure, or by actual consumption. The threshold for using the exception is high.

Do you have to pay for a lift you do not use?

Not necessarily – but saying you personally do not use it is not enough. The Supreme Court dealt with this in HR-2013-2409-A (Rt. 2013 p. 1508). The property consisted of seven blocks, and only four had lifts. Owners in the blocks without lifts argued they should not pay for operating, maintaining and repairing them. The majority nonetheless held that the costs should be allocated between all the unit owners by the ownership fraction. The exception for allocation by benefit is to be used restrictively, particularly where the cost concerns an existing shared facility. The position can be different where the property is to establish a wholly new measure that only some parts can benefit from. That has to be assessed specifically.

Costs that can be measured by consumption

Actual consumption can in particular cases justify a different allocation – typically for certain costs of energy, hot water or other services where consumption can be attributed to the individual unit. But the rule is not that every measurable cost is automatically allocated by consumption. That something can be measured does not make it a consumption-allocated cost.

Can a majority change the allocation key?

No. Where jointly owned property is to write a different allocation into the articles from the one following from the ownership fraction and the statutory rules on benefit and consumption, the unit owners affected have to consent expressly. An ordinary majority – or a two-thirds majority – at the annual meeting is therefore not enough to impose a new permanent allocation on particular owners. In a co-operative a different allocation equally requires the agreement of the members concerned. That has to be separated from the decision to carry out a measure: a conversion beyond ordinary operation can require a qualified majority even though the costs are afterwards allocated by the ordinary key. Two different decisions, two different requirements.

Maintenance should be planned before the bill arrives

A roof does not last for ever. Neither does the façade, the pipes, the windows or the technical installations. A budget covering only next year's ordinary bills therefore gives artificially low shared costs. The board should see the budget alongside a long-term maintenance plan, so liquidity can be built up gradually instead of larger works being met with a sudden sharp increase or a large new loan. In jointly owned property the law expressly allows the monthly amounts to include provisions for future maintenance, improvements or other shared measures where the annual meeting has decided it. Note that setting money aside in a bank account is not the same as the accounting treatment of a «maintenance provision». Those are two different questions.

A worked example

A jointly owned property expects the following next year: Ordinary operation: NOK 800,000 Interest on loans: NOK 200,000 Loan repayments: NOK 150,000 Building up for a future roof project: NOK 100,000 The property therefore needs NOK 1,250,000 of liquidity through the year. That only part of that becomes a cost in the accounting result does not mean the rest can be ignored when the shared costs are set. The amount is then allocated by the lawful key – normally the ownership fraction.

Do not confuse shared costs with the tax reporting

For co-operatives there are separate tax concepts such as the rent fraction and the share fraction. Those are used to allocate taxable income, debt and wealth items between the members, and should not be confused with the Act's rules on how the actual shared costs are allocated and collected. Two different fractions, two different purposes – see Accounting and management

A good budget gives the board room to act

The aim should not be to keep the shared costs as low as possible from year to year. The aim should be that the payments bear a sensible relationship to the housing company's actual operation, debt, liquidity and expected maintenance needs. A realistic budget makes it easier to avoid large and unexpected increases later, and gives the board a better basis for decisions through the year – see The board's financial responsibility Greenleaf helps housing co-operatives and jointly owned properties with budgeting, bookkeeping, financial reporting and the year-end close.

This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.

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