We always recommend to begin capitalizing (amassing) “replacement reserves” immediately. New residential properties often start out with a low monthly replacement reserve contribution, about $50/month/unit. This amount is typically too low, eventually resulting in the dreaded “special assessment” which always incenses (or impoverishes) at least a few residents. Reserves should be at least $100 per month per unit or more if your property needs frequent upkeep (e.g. painting) or is only partially renovated.
Paying the Rent
One key aspect of a shared space is the process of paying and collecting rent. Rent computations and payments can result in confusion which can create lease-threatening problems. Here are a few simple approaches:
- Establish a cooperative bank account separate from any one individual’s bank account. Each co-op member should pay one month’s security deposit and thereafter deposit monthly rent payments well in advance of the due date to allow checks to clear.
- Rotate bookkeeping responsibilities to help all members understand the importance of finances and paying rent on time. Doing so may also deter unfair practices among floormates. The books should be accessible all to keep clear of the status of the finances and avoid surprises.
- Devise a clear and equitable rent formula. In many cases, rent is pro-rated based on the actual square footage of studio space. For example, if the total usable amount of studio space on a floor is 10,000 s.f. and you occupy a 1,000 s.f. studio, then you should pay 1/10th of the rent.
- Also consider having a different formula for common improvements or repairs. For example, if the group decided to build a new, common bathroom, should a single artist who has a 2,000 s.f. studio pay twice as much as two artists who share a 1,000 s.f. studio pay? Probably not.
Paying for Utilities
Artists who live and/or work in industrial or commercial buildings are required to pay business rates for electricity and telephone service. These rates higher than residential rates.
Utility payments can be handled through floor cooperative accounts or paid directly to the tenant if the utilities are in one tenant’s name. Some groups divide costs equally whereas others prefer to get exact prices per appliance from the utility company.
In either case, equipment like power tools, kilns, etc. that use a great deal of power might warrant a separate meter. The landlord might agree to pay for one.
Paying for Trash Removal
Most cities and towns do not pick up trash from commercial buildings. In some cases, landlords are not responsible for trash removal either. It is helpful to coordinate trash removal with floormates and, ideally, other businesses in the building. Compare prices from several trash disposal companies. Look into the cost of renting a dumpster and make sure it can be locked.
Setting a Fixture Fee Formula
Establish a clear policy for determining “fixture fees” to be obtained by floormates when studios change hands. The value of fixtures varies from studio to studio, depending on the work done, appliances, and whether sweat equity or contract labor was involved. These figures should be the basis for setting the fixture fees.
Determining the fixtures fees might be complicated. Consider the following:
- Number of months left on the lease and the likelihood of renewal
- Cost of materials and labor
- An inflation factor for materials since the work was done
- A depreciation* factor (meaning that the initial owner of the improvement and subsequent users of that improvement have benefitted from the improvement over time. The improvement should therefore be valued at less than the original cost.)
- Determine the life expectancy for the fixture or improvement.
- Establish the cost of the fixture or improvement.
- Divide the cost of the fixture by the life expectancy and arrive at the amount of annual depreciation.
(E.g., fixture/improvement: new walls; life expectancy: 20 years; cost of new walls: $10,000. Annual depreciation equals $500 per year)