The answer to the question of when are fees unreasonable is simple: when a court says they are. Fairfield Ridge Homeowners Association (association) is an HOA in Ohio. The association entered into a management agreement with Elite Management Services, Inc. (EMS) to manage the association, including providing closing certification letters to sellers just before the closing on a sale. EMS charged a unit owner $395 for these letters along with a $100 fee if they needed expedited service. The association declaration provided that a “reasonable charge” could be assessed to a unit owner for these letters. Ms. Barger viewed the $495 in charges as unreasonable and filed a class action suit against EMS.
In the case of Barger v. Elite Management Services, Inc., 2018-Ohio-3755, No. C-170322 (Ohio Ct. App. Sept. 19, 2018), the trial court dismissed the breach of contract and unjust enrichment claims of Barger and she appealed. The appellate court affirmed the dismissal of the breach of contract claim because the association was not a party to the case and Barger was not a party to the management contract. However, the court held that Barger could proceed on her unjust enrichment claim against EMS because in her complaint she had plead the required elements of unjust enrichment “(1) she conferred a benefit on EMS, (2) EMS was aware of the benefit, and (3) it would be unjust for EMS to retain the benefit” and facts necessary to support those allegations, including that:
- “EMS charged an exorbitant and unjustifiable fee (ten to twenty times a typical fee);”
- “Management companies typically charged $25 to $50 for such letters;”
- To sell her house “she had no choice but to pay;”
- “In order to close on the sale of the Property she had to provide a Certification Letter to the title company;”
- “The furnishing of the Certification Letter is a prerequisite to the closing of the sale or refinancing of a property governed by a HOA;” and
- The fee “is totally unrelated to the actual cost of the service [EMS] provides.”
Lesson. There is a fair amount of case law throughout the country relating to what is reasonable in terms of fines, but very little as it relates to fees. Presumably the standard is the same. Accordingly, if you want to know if what your association is charging is reasonable, review those cases. In addition, it seems much easier for a court to find unjust enrichment where a person is required to obtain information from a particular person (in this case only the association could provide the information). So if your association has this type of a duty (almost all do) and you assign it to your management company it would seem reasonable that you would also set forth in the management contract the fees or range of fees that could be charged for those required services.