Can Condominium Associations Charge Special Assessments? (Elevator Modernization Fees, Philippines)

Introduction

In the Philippines, condominium living has become increasingly popular, particularly in urban areas like Metro Manila, where high-rise buildings dominate the skyline. Condominium associations, often structured as non-stock, non-profit corporations, play a crucial role in managing shared properties and ensuring the upkeep of common areas. One common financial mechanism employed by these associations is the imposition of special assessments—additional fees levied on unit owners beyond regular monthly dues. These assessments are typically used for unexpected expenses, major repairs, or capital improvements, such as elevator modernization.

This article explores the legal framework governing special assessments in Philippine condominiums, with a specific focus on fees for elevator modernization. It delves into the authority of condominium associations to impose such charges, the procedures involved, limitations, and remedies available to unit owners. Understanding these aspects is essential for both association boards and individual owners to navigate potential conflicts and ensure compliance with the law.

Legal Basis for Condominium Associations and Assessments

The primary legislation regulating condominiums in the Philippines is Republic Act No. 4726, also known as the Condominium Act, enacted in 1966. This law defines a condominium as an interest in real property consisting of separate interests in individual units combined with an undivided interest in common areas. The Act mandates the creation of a condominium corporation or association upon the registration of the master deed with the Register of Deeds.

Under Section 4 of the Condominium Act, the master deed must outline the administration and management of the project, including provisions for assessments. The association's bylaws, which are part of the master deed, typically detail the types of assessments: regular assessments (for ongoing operations like security, cleaning, and utilities) and special assessments (for extraordinary needs).

Special assessments are explicitly authorized under the Act. Section 9 states that unit owners are responsible for contributing to the expenses of administration, maintenance, repair, and replacement of common areas in proportion to their undivided interest, as specified in the master deed. This proportional share is usually based on the unit's floor area or a fixed percentage.

Additionally, the Corporation Code of the Philippines (Batas Pambansa Blg. 68) applies to condominium corporations, reinforcing their authority to manage finances. The Revised Corporation Code (Republic Act No. 11232, effective 2019) further modernizes corporate governance, emphasizing transparency and accountability in financial decisions.

For elevator modernization specifically, elevators are considered part of the common areas (as per Section 2 of the Condominium Act, which includes building structures, facilities, and installations shared by all owners). Modernization—such as upgrading to energy-efficient systems, installing new safety features, or replacing outdated components—falls under capital improvements or major repairs. These are not routine maintenance and thus often require special assessments to fund them.

Authority to Impose Special Assessments

Condominium associations have the inherent power to impose special assessments, but this authority is not unlimited. The bylaws typically require approval from the board of directors or a majority vote of the unit owners, depending on the amount and purpose.

Board Approval: For minor or urgent repairs, the board may approve special assessments without a full membership vote, as long as it aligns with the bylaws. However, for significant expenditures like elevator modernization (which can cost millions of pesos), a general membership meeting is often required.
Membership Vote: Many bylaws stipulate that special assessments exceeding a certain threshold (e.g., 10-20% of the annual budget) need approval by at least a majority (or sometimes two-thirds) of the unit owners present at a quorum meeting. This ensures democratic decision-making and prevents arbitrary impositions.

In the context of elevator modernization, associations must justify the need based on safety, compliance with building codes, or obsolescence. The Philippine National Building Code (Presidential Decree No. 1096) and its implementing rules require elevators to meet safety standards, including regular inspections by the local government unit (LGU) or the Department of Public Works and Highways (DPWH). If an elevator fails inspection or poses risks, modernization becomes a necessity, not a luxury, strengthening the association's case for a special assessment.

Procedures for Levying Special Assessments

Imposing a special assessment involves several steps to ensure legality and fairness:

Assessment of Need: The association's board, often with input from engineers or consultants, evaluates the requirement. For elevators, this might include a technical audit showing wear and tear, non-compliance with standards like those from the Bureau of Philippine Standards (BPS) or international codes adopted locally.
Budgeting and Proposal: A detailed proposal is prepared, including cost estimates, timelines, and funding options (e.g., loans vs. assessments). Transparency is key—owners must receive itemized breakdowns.
Notice and Meeting: Unit owners must be notified in advance (typically 15-30 days) of any meeting to discuss the assessment, as per the bylaws and Section 11 of the Condominium Act, which requires proper notice for meetings.
Voting and Approval: The proposal is voted on. If approved, the assessment is allocated proportionally.
Collection: Owners are billed, with payment terms specified (e.g., lump sum or installments). Late payments may incur penalties, but these must be reasonable.
Documentation: All decisions are recorded in minutes and reflected in the association's financial statements.

Failure to follow these procedures can render the assessment invalid, exposing the board to legal challenges.

Limitations and Safeguards

While associations can charge special assessments, several limitations protect unit owners:

Proportionality and Reasonableness: Assessments must be fair and based on ownership shares. Courts have ruled that excessive or unnecessary fees can be contested (e.g., in cases like Sta. Lucia Realty & Development, Inc. v. Cabrigas, where proportionality was emphasized).
No Discrimination: Fees cannot target specific owners unfairly.
Reserve Funds: Associations are encouraged to maintain reserve funds for capital expenses, reducing reliance on special assessments. The Securities and Exchange Commission (SEC), which registers condominium corporations, may scrutinize financial practices.
Legal Compliance: Assessments must not violate other laws, such as the Consumer Protection Code or anti-usury provisions if financed.

For elevator modernization, if the building is under warranty or insured, associations should explore those avenues first. Additionally, government programs like those from the Department of Energy for energy-efficient upgrades might offer subsidies, potentially offsetting costs.

Rights of Unit Owners and Dispute Resolution

Unit owners have rights to challenge special assessments:

Access to Records: Owners can inspect financial documents to verify the need.
Voting Rights: Proxies are allowed if owners cannot attend meetings.
Petitions and Appeals: Dissatisfied owners can petition the board or call a special meeting.

If disputes arise, remedies include:

Internal Resolution: Through the association's grievance committee.
Mediation: Via the Housing and Land Use Regulatory Board (HLURB), now part of the Department of Human Settlements and Urban Development (DHSUD), which handles condominium disputes under Executive Order No. 648.
Court Action: Owners can file suits for injunctions or damages in Regional Trial Courts. Precedents like China Banking Corp. v. Court of Appeals highlight judicial review of association decisions for abuse of discretion.

In elevator cases, if modernization is deemed essential for safety, courts are likely to uphold the assessment, but only if procedures were followed.

Tax and Financial Implications

Special assessments have fiscal considerations:

Tax Deductibility: For individual owners, these may be deductible as necessary expenses if the unit is used for business.
VAT and Withholding: Associations must comply with Bureau of Internal Revenue (BIR) rules; assessments are generally not subject to VAT, but related services (e.g., contractor fees) might be.
Financial Reporting: Associations file annual reports with the SEC, including assessment details.

Best Practices for Associations and Owners

To minimize conflicts:

Associations: Conduct regular maintenance to avoid large assessments; communicate transparently; consider financing options like bank loans.
Owners: Participate in meetings; review bylaws upon purchase; budget for potential assessments.

In summary, condominium associations in the Philippines can indeed charge special assessments for elevator modernization, provided they adhere to the Condominium Act, bylaws, and due process. This mechanism ensures the longevity and safety of shared facilities, balancing collective needs with individual rights. Owners facing such fees should engage proactively to safeguard their interests.