A Law-and-Economics Perspective on Cost-Sharing Rules for a Condo Elevator

Abstract

How to enhance the maintenance, repair and improvement of condo buildings? We address this issue by focusing on the case of an elevator installation whose benefits are not uniform across units. We examine the link between majority approval and cost sharing. Relying on a cooperative game theory approach, we prove the coalitional stability of any cost allocation which is such that the unit shares are a non-decreasing function of the floor level. Second, we show that the two surplus allocations induced, respectively, by the de facto cost-sharing rule used in France and the equal cost-sharing rule may fail to be coalitionally stable. By insisting that the cost sharing must depend on the relative individual advantages provided by an improvement, French law increases the risk of disputes between neighbors, compared to other sharing rules.

Condominium Co-Owners and their Typology Based on their Engagement in the Process of Decision-Making

“…Their results imply that, for any given voting rule, there will be a set of potential consumers with distinct characteristics who will consider that rule to be optimal. The link between voting rule and cost-sharing was also examined, for example, by Lujanen (2009), and Crettez and Deloche (2019).…”

“…In most European countries, the purchaser of an apartment acquires individual ownership of this apartment, together with co-ownership (joint ownership) of the common areas of the building, and becomes a member of the co-owners' association. Membership of the co-owners' association entitles each co-owner to participate in the process of collective decision-making (Crettez & Deloche, 2019).…”

On egalitarian values for cooperative games with a priori unions

“…In this section we consider an example where the owners of apartments in a building have agreed to install an elevator and share the corresponding costs. This example is inspired by a problem analyzed in Crettez and Deloche (2019) from the point of view of French legislation. The French Law on Apartment Ownership of Buildings does not provide a precise method for sharing the cost of an improvement but indicates that the co-owners must pay "in proportion to the advantages" they will receive.…”

“…The French Law on Apartment Ownership of Buildings does not provide a precise method for sharing the cost of an improvement but indicates that the co-owners must pay "in proportion to the advantages" they will receive. In the case of elevators in France, Crettez and Deloche (2019) indicate that there is a de facto sharing method that they call the elevator rule. The elevator rule associates a parameter i = 1 + (i − 1)∕2 to each floor i and distributes the total cost among the floors proportionally to those parameters; then the cost allocated to each floor is divided equally among its apartments.…”

“…However, Crettez and Deloche (2019) explain that in other European countries the legislation is based on principles of egalitarian character. For example, in the Netherlands each of the owners of the apartments must "participate for an equal part in the debts and costs which are for account of all apartments owned pursuant to law or the internal arrangements, unless the internal arrangements provide for another proportion of participation.…”