Owning an apartment comes with regular monthly charges. While owning land or an independent flat only comes with regular mortgage payments, owning an apartment in a residential society also attracts maintenance fees.
Maintenance fees are also collected on commercial real estate. However, our focus today is on the maintenance fees for residential real estate.
What Are Maintenance Fees?
If you own an independent house, you will spend some amount of money, in a year, to maintain the land around your property. This could be in the form of maintenance of your garden area or whitewashing the outside of your property. If you divide the total money you spent in a year by the number of months, you will receive the amount you have spent as the monthly maintenance fees of your property. You are basically spending money to maintain all the facilities you are using.
Similarly, property taxes that your local municipal corporation collects is the maintenance fees for the social infrastructure that you use in your locality. It is used for the maintenance of roads, parks, pipelines, and other communal facilities.
Moving forward with the same concept we have the maintenance fees for apartments. When you have an apartment in a residential complex, be it a society or a building complex, there are communal infrastructure and facilities that get shared amongst all the residents in the residential complex. These could be elevators, lobbies or other common areas.
The liability to pay for the maintenance of these communal amenities lies in the residents using these amenities. Thus, maintenance fees for an apartment are your share of the costs to maintain communal amenities.
What Is Included In Apartment Maintenance Fees
It is always a smart decision to ask your society administration for a complete break-up of the maintenance charges you will be paying. Different societies can charge maintenance fees differently and might not include some common charges.
The following charges are generally included in the maintenance fees.
1. Contribution To The Annual Repair And Maintenance Funds
These are the recurring expenses to maintain the condition of the residential building. The annual repair and maintenance funds are used for regular repairs and are charged at a minimum of 0.75% annually on the construction cost of your residential unit.
Also Read: Maintenance Charges Meaning
2. Charges On Communal Utilities
Communal utilities are the electricity and water that is used in common spaces. For example, street lamps in your society, electricity for the elevators, or water for the swimming pool.
3. Service Charges
Service charges are the collective charges paid to any cleaners, security personnel, security company, installation of security cameras and their maintenance.
4. Repair And Maintenance Of Common Areas
This includes the maintenance of communal amenities like green spaces, elevators, staircases, lobbies, clubhouses etc.
5. Sinking Fund
The sinking fund is charged at a minimum of 0.25% annually on the construction cost of your residential unit. It is set by the society administration.
6. Non-Occupancy Fee
Non-Occupancy fees are charged at a maximum of 10% of service charges. It is applicable in the event that the apartment is not occupied by the legal owner, i.e. it is either rented out or just occupied by someone other than the owner like family or friends.
7. Parking Space
This depends purely on the number of parking spaces allotted to a flat and the charge per space.
8. Property Tax
Property Tax is included in the maintenance fee only in the state of Maharashtra.
9. Water
The water charge is calculated on the basis of either the usage per unit or the number of water outlets per unit.
10. Insurance
Any insurance paid on society equipment or construction is collectively born by the residents.
11. Interest On Any Defaulted Charges
The penalty is levied on the late payment of maintenance fees. This penalty is decided by the society administration and cannot exceed an interest of 21% per annum.
12. The Lease Rent
This is calculated on the basis of the built-up area of each residential unit.
While these are the normal recurring charges that get added to the maintenance fees, there might be some annual charges added to your maintenance fees from time to time. These could be charges like election fees for the HOA, or other charges to hold communal events etc.
How Are Maintenance Fees Calculated?
The maintenance fee is not decided per unit in the initial steps. The society administration starts by deciding the total maintenance fee that needs to be paid on a yearly basis to cover all the costs associated with the residential complex.
Once they have a lump sum amount, the maintenance fee is then divided using one of the three methods mentioned below.
1. Per Square Feet
In this method of calculation, the maintenance fee is charged on the basis of the built-up area of each residential unit. This means that units with more square footage end up paying more maintenance fees as compared to smaller units. However, this isn’t considered fair in situations when costs like clubhouse, swimming pool, and other amenities are factored into the maintenance charges.
2. Equally Divided
In societies with flats of approximately the same square footage, the maintenance fee is generally divided equally between all residential units. However, this becomes unfair in situations where the residential units vary significantly in size.
3. Hybrid
The hybrid method is considered the fairest method to calculate maintenance fees. It is, however, a bit more complicated than its counterparts. In this method, the maintenance fee is first divided into two sub charges, equal use, and per square foot. The charges under each head are then divided in the same manner mentioned above.
GST is also applicable on maintenance charges under the following circumstances:
1. When the monthly contribution of the apartment owners exceeds Rs. 7,500 will have to pay GST at 18%.
2. GST is also applicable when the total cost to the community exceeds Rs. 20 lakhs per financial year.
Both these conditions need to be met in order for GST to be applicable on the maintenance fee of a residential complex.
Guidelines In India Regarding Maintenance Fees
The following are the guidelines for charging maintenance fees in India:
1. The builder isn't allowed to make profits off of the maintenance fees charged to homeowners.
2. Maintenance fees needs to be deposited in an account separate from the builder’s or developer’s bank account.
3. The interest accrued in the bank account that holds the maintenance fee must remain in the same account and be used for maintenance purposes.
4. An audit must be conducted by a Chartered Accountant to ensure that the maintenance fees are being used for maintenance purposes only.
5. A builder or developer cannot charge maintenance fees from a property owner without providing occupancy.
In case you’re wondering, it’s absolutely possible to edit and re-assess maintenance fees charged by societies. During the pandemic, many societies chose to either waive or significantly reduce maintenance fees.
Many times, builders and developers have also been known to waive the maintenance fees for a certain period of time to attract buyers.
Also read: Easy-to-follow Tricks to Save Money on Property Tax Bill