To Pass Through, Or Not To Pass Though, That Is The Question . . .

Arizona's condominium associations are often confronted with the question of whether to pass through, or not to pass through, certain common expenses to particular unit owners. This question derives from Arizona law, which, at A.R.S. § 33-1255(C), provides:

C. Unless otherwise provided for in the declaration all of the following apply:

1. Any common expense associated with the maintenance, repair or replacement of a limited common element shall be equally assessed against the units to which the limited common element is assigned.
2. Any common expense or portion of a common expense benefitting fewer than all of the units shall be assessed exclusively against the units benefitted.

Those of us involved in Arizona's condominium association industry refer to this as the "pass through" statute. The pass through statute commonly comes up when condominium associations incur certain costs in response to homeowner requests, homeowner discontent, or casualty incidents involving at least one, but fewer than all units, to name a few scenarios. The condominium boards find themselves asking the question, why should all homeowners pay for this mess when it only involves one unit? Prudent condominium boards reach out to their association's legal counsel to ask the question: is there a way the association can pass this cost on to the homeowner?

The answer is many attorneys' favorite answer: it depends. As A.R.S. § 33-1255(C) tells us, the pass through statute applies, "unless otherwise provided for in the declaration." To determine whether a declaration "otherwise provides," we look for language that states or implies that all common expenses, including those that benefit fewer than all units, shall be assessed against all units in proportion to their common expense allocation. If a declaration lacks this type of language, then the pass through statute likely applies, and the condominium association "shall" pass certain common expenses through to those units benefitted. If the declaration does not provide otherwise, the pass through statute is mandatory; condominium associations must pass certain common expenses through to those units benefitted.

But was does "benefitted" mean? Merriam Webster defines "benefit," among other things, as "something that produces good or helpful results or effects or that promotes well-being."¹ If a homeowner requests approval for a particular improvement within a unit that will impact the building's infrastructure, the condominium association hires a structural engineer who determines that the improvement will not impact the building's infrastructure, and the association approves the request, can the association assess the cost of the structural engineer to the unit whose homeowner requested approval of the improvement? Arguably yes (depending on the Declaration language), because the structural engineer's determination benefitted this particular unit.

What about a homeowner who challenges a violation notice, and the condominium association hires an attorney to send the homeowner a response? Can the association assess the attorneys' fees to the homeowner? Did the homeowner's unit "benefit" from the attorney's efforts? Debatable.

And what about a casualty incident, such as a plumbing back up, that impacts only one unit. The Association tenders a claim under its insurance policy and pays a $10,000 deductible. Can the Association assess the deductible to the unit benefitted by the insurance claim and the payment of insurance proceeds to remediate the damage and repair the unit? Arguably yes (again, depending on the language of the Declaration).

Whether or not a condominium association must apply the pass through statute, and whether or not a particular common expense benefits fewer than all units, can be challenging questions that we are happy to assist your association in determining. If your condominium association would like an opinion on whether or not the pass through statute applies, please reach out to your favorite CHDB Law attorney.

Footnote

1. https://www.merriam-webster.com/dictionary/benefitted?utm_campaign=sd&utm_medium=serp&utm_source=jsonld

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.