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How to Split Service Charges Across Units
Heshan Fernando
Co-founder & COO
The committee proposes splitting next year’s budget equally across 24 units. The owner of the largest apartment thinks that is fair. The owner of the smallest, at half the floor area, does not.
Neither opinion matters, because the basis is set in the governing documents and has been since the building was converted.
The basis is not a committee decision
Apportionment is normally fixed by the deed, lease or scheme establishing the development. Common bases:
Equal per unit. Simple, and it means a studio pays the same as a penthouse.
By floor area. Proportional to square metres, which most owners regard as the fairest and which is common in newer developments.
By rateable or assessed value. Historically common, and it can diverge substantially from floor area.
Fixed percentages stated per unit in the original documents, sometimes with no stated logic at all.
Changing the basis usually requires amending the governing documents, which typically needs a substantial majority or unanimity and sometimes a legal process. It is not something a committee can decide because it seems fairer.
That is worth knowing before a meeting spends two hours on it.
| Basis | 84 m² unit of 24 | Effect |
|---|---|---|
| Equal | 1/24 of budget | Small units subsidise large |
| By floor area | Proportional | Generally seen as fairest |
| By value | Varies | Can diverge from area |
The reserve is where the real question is
Operating costs are largely known — cleaning, insurance, grounds, management. The contentious part is the reserve, and the reason is that its benefit is invisible and its cost is immediate.
A reserve fund accumulates for major works: roof, lifts, external decoration, windows, plant replacement. These are predictable in kind and roughly predictable in timing, and they are large.
Two approaches:
Fund the reserve properly, based on a survey of what needs replacing and when, spread across the years until it does. Dues are higher and there are no surprises.
Keep dues low and raise a special assessment when something needs replacing. Dues are lower and every owner faces an unexpected five-figure bill at an arbitrary moment.
The second is not cheaper. It is the same money with worse timing, and it lands hardest on whoever owns the unit when the roof fails rather than on everyone who lived under it.
A reserve study is what makes the number defensible
Setting the reserve contribution as a percentage of the budget is a guess. Setting it from a schedule of major works is a calculation.
A reserve study lists each major component, its expected remaining life and its replacement cost, then derives the annual contribution needed to fund each replacement when it falls due.
That produces a number that can be explained to owners, which matters — reserve contributions are the line owners resist most, and “18% because that seemed reasonable” is much harder to defend than “this figure funds the roof in 2034 and the lift in 2031”.
Publish the budget, not just the demand
The single most effective thing a committee can do about service charge disputes.
Owners resist a number they cannot see the basis for. The same number, broken into lines with the reserve contribution identified and the major works it funds named, gets far less resistance — not because owners like it more, but because they can see what they are paying for.
Most governing documents require accounts to be provided, and there is usually a right to inspect the underlying invoices. Providing the detail proactively is easier than responding to individual requests.
It also improves the decisions. An owner who can see that insurance rose 30% may know a broker; one who sees only the total cannot help.
Common mistakes to avoid
- Treating the apportionment basis as changeable by vote.
- Setting the reserve as an arbitrary percentage.
- Keeping dues artificially low, which defers rather than avoids the cost.
- Excluding inflation from a reserve schedule covering fifteen years.
- Not communicating what the reserve is for, which makes it look like hoarding.
How to do it with HOA Dues Calculator
The HOA Dues Calculator apportions the budget and shows the reserve line.
- Enter the annual operating budget and the number of units.
- Choose the allocation basis your governing documents specify.
- Set the reserve contribution against a schedule of works rather than a percentage.
- Show owners which future works the reserve line is funding.
Other property tools are in the tools directory.
Frequently asked questions
Who decides the allocation basis?
The governing documents — the deed, lease or scheme. It is generally not something a committee can change year to year, and altering it is a legal process rather than a vote.
How much should go to reserves?
Enough to fund the schedule of major works without a special assessment. That requires a survey of what needs replacing and when, not a percentage rule.
Why do special assessments happen?
Because the reserve was underfunded relative to the works needed. Keeping dues low does not save money; it converts a planned contribution into an unplanned bill.
Final thought
Fund the reserve from a schedule, not a percentage. A special assessment is the same money arriving at the worst possible moment for whoever happens to own the flat.