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Unrealistic common area maintenance fee could harm condominium in the long term.
When purchasing a condominium in Thailand, purchasers are required to pay an annual common area maintenance (CAM) fee which is used by the condominium to secure, clean, maintain and manage the property. The fee is originally set by the developer when registering the condominium as a Juristic Person and based on what the developer perceives as the amount needed to run the condominium. There comes a classic question: What is an appropriate CAM fee?
Generally CAM fees range from 30 baht per square meter per month to 80 baht per square meter per month. There are obviously some condominiums which fall outside this range but in the main, most condominiums fall within that bracket. Most of the condominiums in the lower end of the range are typically older developments, whereas new condominiums, particularly in Bangkok, are moving up to the higher end. Many of the new Bangkok developments start their common fees at 45-50 baht per square meter per month.
While CAM fees vary greatly from property to property, they depend largely upon the running costs of the property, which are driven by a number of factors.
The first aspect to consider is the size of the development. There are parts of any condominium, large or small, which require unavoidable maintenance. The cost of the maintenance does not change depending on the size of the building, which governs that the proportionate total of common fee income spent on these costs is higher in smaller buildings, than it is in larger properties. Examples of this could be annual maintenance on the main distribution board or transformer. This is one reason why typically the required CAM fee on smaller buildings is often higher than on larger properties due to the lack of economies of scale they may have.
Developers build condominiums to a varying degree of standard and facilities. This can affect the necessary CAM fee expenditure. In buildings with a large amount of extra facilities or features in the common areas, it is likely that the running costs of these developments be higher than a basic condominium. Examples of these could be where there are concierge style services or shuttle bus services, large water features or any other specific service that a condominium provides over and above the standard. All of these would incur additional cost and would need to be factored into the CAM charges.
Unrealistic common area maintenance fee will become a real problem
As mentioned earlier, the CAM fee is originally set by the developer, based on what it perceives as running cost of the development. However, some developers may set a too low CAM fee either because they underestimate the running cost of the property or because they intend to use the low fee as a selling point to attract buyers of units in the project. Unfortunately, this wrong approach to condominium management could put the development at risk in the longer term.
Low CAM fees can work in the primary years of a development, when the majority of machinery and building issues are under warranty from the developer or the contractor. However, after the warranty expires and the condominium juristic person has to be fully responsible for any expenses incurred in relation to maintenance and management of the property, an unrealistically low CAM fee can often lead to the detriment of the building.With an inadequate budget, the condominium management team will need to make tradeoffs on works that need to be done. This can lead to increased capital costs both fixing and even replacing equipment which could have had a longer and more efficient life span had proper maintenance been undertaken.
Raising common area maintenance charge is a big challenge
In order to amend the CAM fee of a condominium, it is necessary to hold a general meeting to consider the increase or decrease of the amounts paid. Typically the condominium committee will assess the ongoing management needs of the condominium and from time to time may wish to ask other co-owners to consider adjusting the fees (usually upwards) to pay for the management of the building.
The committee is supposed to invite co-owners to attend the general meeting by giving not less than 7-day notice of the meeting, including providing the agenda, time, location and any supporting document required to assist co-owners in making an informed decision. In the general meeting it is a requirement that not less than 1/4 of the total co-owners be in attendance to form the quorum to open the meeting, and to approve an adjustment of the CAM fee. The fee adjustment must be approved by not less than 1/2 of the total number of co-owners (not 1/2 of those present in the meeting).
If the quorum of not less than 1/4 is not present in the general meeting, the committee can call a second meeting within 15 days, again giving the appropriate documentation and agenda to co-owners at least 7 days before the meeting. In the 2nd meeting, there is no quorum to open the meeting, but to approve the adjustment in CAM fee, not less than 1/3 of the total co-owners must approve the resolution.
At present there is no contingency for increasing the CAM fee other than in a general meeting, and if the building cannot run on the original fee, it may be necessary for the committee to consider cost cutting exercises until a resolution can be passed.
Get things right
The aforementioned CAM issues can be avoided if the developer sets an appropriate charge at the outset. However, when an inadequate amount is charged to manage the building properly, it relies on the co-owners’ wish on the standard of management and maintenance of the property they require as to whether they would be willing to accept an adjustment in CAM fee to fund it.