Condo Living Can Be Ideal Until … New Owners Take Over the Board

I’ve lived in a condominium for over 15 years, and overall, it has served me well.  The building has great views, a perfect location, and spacious apartments.  For the most part, my neighbors are congenial and the convenience and security that Doorpersons provide is welcomed.

From time to time, new owners buy into the building, they volunteer to serve on the association’s Board of Directors, and then — without any real warning— they decide the building needs a complete (top-to-bottom) renovation. New gyms, redesigned Lobbies and hallways, new furniture and wall coverings, that will lead to expensive (even excessive) “special assessments,”  for everyone.

Fortunately for owners, most condominium documents contain a clause which requires that a majority of owners (often 80%) must approve any major expenditures that are not deemed to be “necessary or essential for the maintenance or repair of existing components” of the property.

Other assessments, however, may not require owner approval. The Board of Directors has the responsibility to set the annual budget, and decide how the income received from the owners (condo dues) will be spent. The Board has a fiduciary duty to balance the budget and often when there is a deficit (they spend more than they take in) the Board levies a “special assessment” to make up for the shortfall

Once a year, the Board will distribute the year-end budget and annual financial statement for the association.  Conscientious owners may be alarmed when they notice — what they perceive to be — several extravagant or excessive expenditures. The owners may question the Board and wonder: do they have any “real” power to rein in Board spending habits in the future?

The short answer is “no.”   An association’s  governing documents, referred to as Covenants, Conditions and Restrictions (CC & R’s) or “condo docs,” give the Board of Directors broad-sweeping powers — not unlike the authority given to the government–to manage and govern citizens or “members” ( in the condo association), as they see fit.

Well-run associations will take care to maintain an adequate “reserve” account–money that is set aside for large expenses that will (inevitably) occur over time. Most condominium documents specify how — and for what amount — the account must be funded.

Big-ticket items — such as a new A/C or heating system, an elevator overhaul, generator upgrade, outside paving, pool repair, new roof or other major building components — will be assigned a “useful life” (often 10-20 years) to estimate when future repairs or replacement will be needed.

The Board then works with the association accountant to come up with a realistic long-term schedule of reasonable cost as well as a time line for the repairs. In some instances, the owners may vote on whether to a) fund the reserve account each year, or b) wait until the repair needs to be made, and then pay a one-time assessment.

Short of running for the Board, owners don’t have much — if any — say in the final decisions that the Board makes.  Concerned owners can volunteer to serve on committees (such as the decorating or budget committee) and make recommendations, but ultimately even that commitment won’t give the owners the power to out-vote a Board’s ultimate decision.

Least owners think that they can withhold the payment of their monthly dues (in protest), think again. Homeowner associations’ have the right to place a lien on the delinquent owner’s apartment, and if not paid, eventually foreclose on the property. In addition, in several states (nearly20) condominium liens have “super lien status” which means that the lien can take a higher priority over the first mortgage.

Owner involvement — meeting participation–and continual surveillance are the best means to prevent unsuspected and unwanted assessments that result from costly over-spending or large capital improvements.