Monthly Archives: April 2012

How Much Does a Certified Audit Cost?

D.J. from Fairfield County writes:

Dear Mister Condo,

What is the average cost of a certified audit?

Mister Condo replies:

D.J., my gut feel was that there is not an average cost for a certified audit but I wasn’t certain so I asked Sam Tomasetti, CPA of Tomasetti, Kulas & Company, P.C. to give us a proper answer for questions like yours. Here’s what Sam had to say:

I would not trust a price that was given as an average cost to perform an audit as it creates false expectations.

There are no rules of thumb to follow on your question because no two condominium associations are alike.  There really is no way around looking into the financial and accounting aspects that make each association unique.  For instance an association that has 25 units could have a budget of $250,000 or $500,000.  It could be self-managed or professionally managed.  It could have sound accounting practices or substandard practices.  The Board could be very involved or completely hands off.  In performing an audit many factors need to be considered before stepping in and doing the work and all these factors have an impact on the price of the audit.

Who is Responsible for Common Area Repair Bills?

S.M. from New Haven County writes:

Dear Mister Condo,

I noticed some damage to a common area that adjoins my condo. I contacted a contractor to come out and look at the job. The contractor refused to do the work but is now charging monies for trips out to unit. The management company wants me to pay the contractor bill. I don’t think that’s fair. What can I do?

Mister Condo replies:

S.M., I don’t have enough information to fully answer your question. Let me give you two scenarios and you can decide which one applies to you.

If you contacted the management company to complain about the damage to the common area and they contacted the contractor, then it would seem only reasonable that the association would pick up the bill for the job estimate, even if the contractor refused to do the work once they estimated the job. If you contacted the contractor directly and without the express authority of the Board and/or the management company, then I am afraid that you may be stuck with this bill. I hope the bill isn’t too high if that is the case.

Either way, I hope you will treat this experience as a learning opportunity. When you live in a condominium, it is important to realize that proximity to the common element does not affect responsibility. That is to say, common elements are maintained by the association exclusively. You should never hire anyone to do any work on the common elements. That is the responsibility of the Board or management company, acting on behalf of the association. They are the ones who negotiate, hire, and pay for maintaining the common elements.

Chiminea… Decorative Accessory or Fire Hazard?

M.C. from Middlesex County writes:

Dear Mister Condo,

Can you have a 20 inch fire bowl or chiminea on your porch? I have noticed several of my neighbors have them and I am concerned that this is creating a fire hazard for me and the rest of the condo.

Mister Condo replies:

M.C., fire bowls, chimineas, grills, propane heaters and many other accessories have caused (pardon my pun) “heated” debates at condominiums for years. Many condos have a ban on any device that uses fire or combustion to produce heat in common areas. Further, many municipalities have specific rules about these devices as well. For instance, in my town, gas and coal grills are not allowed on decks so residents here who wish to grill their foods outdoors have purchased electric grills.

You will need to check two places to get your answer. The first place to look is your condominium documents which may or may not spell out what types of appliances can be used on decks and porches. If your documents prohibit the use of chimineas or fire bowls, you could report the offenders to the Board or Property Manager so corrective action can be taken. If your documents don’t address these types of appliances, you could contact your City or Town Hall to inquire if there are rules or ordinances about them. If both are silent on the subject it could be inferred that they are allowed.

If you are still concerned about fire safety, you might want to review this expert article written by Simon Davies. You’ll find it online at http://ezinearticles.com/?Chiminea-Safety—What-You-Need-to-Know&id=3773205. I would recommend that you print a copy and send it off to your Board for their consideration in banning these potentially dangerous appliances in your condominium. At the very least, they should consider the safety factors and impact to the association’s insurance policy if one were to ever cause a fire or a severe burn to a resident or guest.

Much Ado about Mezuzah!

I.S. from Fairfield County writes:

I read a newspaper story about a woman in Stratford being denied the right to display a mezuzah on her doorway at her condo. Why would a condo have a problem with someone displaying something as small as a mezuzah? Isn’t that just being petty?

Mister Condo replies:

I.S., petty or not, this story made newspaper headlines, TV news, and had heavy exposure on the internet in blogs and other websites. Here’s why?

Every common interest community has an elected Board of Directors. By and large, these are very well-meaning individuals who volunteer their time and talents to govern the community in accordance with its declaration, covenant, and/or by-laws. In addition to those rules local, state, and federal laws must also be observed. Even the best educated volunteers can find themselves in over their heads when it comes to enforcing every provision.

If an association’s rules dictate that unit owners can decorate their doors in whatever manner they see fit then no one is going to have a problem with a decorated door. If those same rules state that doorways are common elements and that they cannot be decorated then it is understandable that when someone violates that rule, the Board may feel it needs to take action.

Here’s where it can be a little tricky. All citizens have rights that are protected by rules beyond those of the association. Enforcing the rules of the association is the charge of the Board. They were elected to do so by a majority of unit owners. However, they are volunteers and not necessarily experienced in all areas of local, state, and federal law. I can only assume this Board had the best intentions when they initially chose to enforce the rule that bans decorating a common element like a doorway. Unfortunately, items of a purely cultural, or in this case, religious nature, are often protected by rules that supersede the rules of the association.

Here’s the good news! Once the Board learned of these rules, they quickly reversed themselves and apologized! The unit owner gets to display her mezuzah and everyone who followed the story learned that there is plenty of room for a happy ending once cooler heads prevail. I am proud of the homeowner for standing up for her rights and I am proud of the Board for taking action to correct itself once the facts were learned. I love a happy ending, don’t you?

Paying an Unfair Share

R.E. from Litchfield County writes:

I just got a letter from the President of the Board of my condo informing me that a 20% increase in common fees is going to be necessary because more than 20% of the unit owners were currently more than one month behind in paying their common fees. This delinquency in common fee collection has caused a budget shortfall and the association can’t pay their bills without the increased to common fees by the folks that are paying. I always pay my common fees on time. This isn’t fair. I never agreed to pay for deadbeats who aren’t paying their share. How can I avoid paying extra for people who aren’t paying their fair share?

Mister Condo replies:

R.E., common fee delinquency is far too common a problem for common interest communities all over the country these days. We are not immune from the epidemic here in Connecticut. Your Board President is likely going to take a lot of heat for bringing the issue to the forefront of the community but that is his job. I am sure that your sentiments are similar to others in your community that pay their fair share in timely fashion. It is a shame that your fellow unit owners are not as conscientious as you when it comes to paying their common fees on time.

Having prepared numerous annual budgets, I can offer a little insight into the factors that are leading to your situation. Common fees are derived by taking the association’s annual expenses based on history and factoring in likely or known increases in the coming year. It is part science, part math, and part crystal ball. No one can foresee every expense but an experienced budget preparer can get a good feel for what is likely to occur in the next twelve months. Once the total amount of likely cash outlay for the year is determined, it is time to look at the income side of the equation. The most likely source of income is common fees. Using a fairly simple formula, the suggested common fee is derived. Your fair share is your per centage of ownership multiplied by the projected annual expenses divided by twelve to arrive at your monthly common fee. When everyone pays their fair share on time, it really is that simple.

Delinquency occurs when the common fee payment obligation is not met by the individual unit owners. Delinquency needs to be taken into account when preparing the annual budget or there can be dire consequences to the community. If your community is experiencing a 20% rate of delinquency, then it is not unreasonable for the Board to request an extra amount in common fees from the paying members to make up for the delinquency. Otherwise, when the bills come in for the commonly paid for items the association will not be able to pay. That could lead to major disruptions in service and far worse.

Imagine your association not having the money to pay for its insurance policies. Imagine no grounds keeping services. Imagine no routine maintenance or snow removal. These items cannot go unpaid so the Board is being diligent in assuring that the association has enough money on hand to pay for common services as called for in your by-laws.

As for the delinquent unit owners, you may find some consolation in knowing that their delinquency does not come without a cost to them. Often, they are burdened with the additional costs of the association hiring a collection firm to pursue the delinquent unit owner for payment. In the worst case scenario, the association can foreclose on their unit to collect delinquent common fees. Once those monies are recaptured you may receive relief in your common fees or even a refund. That may not make the sting hurt any worse today but it may give you some repose in knowing things can and do get better. This challenging economy has directly impacted condo associations in our state. I hope that your association survives this fiscal challenge and that this increase to your common fees is only temporary.

Taxation and the HOA

M.C. from Hartford County writes:

Dear Mister Condo,

I am one of the board members of a small PUD HOA, we usually file 1120-H for federal income tax return.  Is the HOA exempt from paying state taxes or do we have to pay sales and use taxes on goods or services purchased?  To my knowledge we are not a 501(c)3.

Mister Condo replies:

M.C., questions like yours really tax my brain. Fortunately, I have friends who specialize in understanding the tax codes and laws that apply to common interest communities in our state so I asked Marsha Elliott, Accounting and Auditing Supervisor of at the CPA firm of Tomasetti, Kulas & Company, P.C. for an answer that makes cents as well as sense! Here’s what Marsha had to say:

First, you are correct, you are not a 501(c)3 organization.  A 501(c)3 nonprofit organization has met certain criteria as required by the IRS and has received a federal determination letter indicating that it is exempt from federal taxes.

Secondly, you indicate that you usually file an 1120-H annually.  Although this election is important, it does not influence your liability for sales and use tax.  Each year, a homeowners association elects to file an 1120-H or an 1120 for federal tax purposes under IRC Section 528 (1120-H) or IRC Section 277 (1120).  If a homeowners association, as in your case, elects to file an 1120-H, the election may provide you with certain income tax benefits as well as exemption from Connecticut corporation income tax, but your election for purposes of filing your federal tax return, once again, has no impact on your requirements to pay Connecticut sales and use tax.

Now let’s look at your sales and use tax question.  There are two questions to consider when addressing sales and use tax.  The first is what types of services can be subject to sales and use tax and the second is will your homeowners association be charged?  The state requires that you provide a CERT 103 form to any contractor who provides services to any common elements of the association.  The CERT 103 form provides the service provider with a breakdown of the percentage of units which are being occupied by the owner and those which are being rented by a unit owner; the form is filled out annually.  Services such as roofing, siding and carpeting are only taxed based on the number of rented or non-owner occupied units.  For example, there are 10 units in your association and 2 of them are non-owner occupied and are being rented.  Well, if you are getting roofing work done at the association for a cost of $10,000 then 20% (2 of 10 units) of the cost or $2,000 is subject to sales and use tax.  On the other hand, if there are no units being rented, then you should not be charged sales and use tax.  Other services such as carpet cleaning, power washing and exterminating are taxable to both owner and non-owner occupied units so if the association is having carpet cleaning done for $10,000 then 100% of the cost would be subject to sales and use tax.  As you have read, I hope that you can see how important it is that your association obtains and provides the CERT 103 form to ensure that the association is not being under or over taxed.  For more detail on taxable and nontaxable services please see the reference guide, Building Contractors’ Guide to Sales and Use Taxes, to obtain a CERT 103 form and to get answers to more detailed sales tax related questions, visit www.ct.gov/drs or contact the Department of Revenue Services (DRS) Taxpayer Services Division by phone or email.

Upstairs, Downstairs, Noise, Noise, Noise!

W.Y. from Hartford County writes:

I live in a 15 story condo building. My problem is that there is a tremendous amount of noise that comes through my ceiling whenever my upstairs neighbor walks around. It sounds as if the ceiling is going to come crashing down on me. I’ve complained to the property manager but I was told that nothing can be done. I don’t really know my upstairs neighbor so I haven’t spoken to him about the noise. Do you have any ideas on how I can get the noise to stop?

Mister Condo replies:

W.Y., multi-story buildings are often noisy. Unfortunately, that is the nature of living below or on top of someone else. Chances are that if you are having noise problems, so are many of your neighbors. That could be good news when it comes to getting the community to take action to lower noise within your condo. I don’t have an easy solution for you but I do have some suggestions that you could try.

The first thing to consider is why you are hearing so much noise. The problem is usually thin flooring or walls and/or a lack of sound insulation. Depending on when your condo was built, sound insulating technologies may not have been taken into consideration. You might want to ask your Board to consider installing sound insulation throughout the building. This can be expensive so don’t be surprised if the idea isn’t very popular.

Another thing to consider is a “Quiet Campaign”. This would encourage all residents to be mindful of noise. No yelling or screaming allowed; walk softly inside your unit; remove high heels or other potentially loud shoes; and so on. You could petition the Board to get behind the campaign and hang posters, publish reminders in your newsletter, put up signs, whatever it takes to get the community to be quieter. Don’t expect overnight results. It takes time for a community to embrace a Quiet Campaign and there is no guarantee it will.

What’s The Dish on Dish?

F.T. from Fairfield County writes:

I am a huge sports fan and an admitted addict to watching soccer matches. For years, I have been able to enjoy fantastic sports programming from all over the world using satellite TV. I just moved into my new condo and was prevented from having my satellite dish installed because it’s not allowed here. My satellite TV contract isn’t up for another 6 months so I am paying for it even though I can’t use it. How can I make the association allow me to install my satellite dish antenna?

Mister Condo replies:

F.T., I can’t imagine your frustration. Let’s see if we can’t find a TV-style happy ending for you…

First off, if you haven’t already done so, review your condo’s documents so that you have a clear understanding of what is and what isn’t allowed with regards to antennas or anything else that might attach to your building exterior. Also, contact your satellite TV provider. Chances are you are not their first customer to have this problem. Finally, contact your property manager to explain your situation. Again, you are likely not the first resident who has had this issue.

As you can imagine, attaching an object to any common element of a condominium is generally not allowed. The reason is that the association is responsible for the maintenance of the building exterior and is required to keep general architectural compliance. In the past, many satellite antennas were large and considered unsightly so they were routinely banned at condos. The Federal Communications Commission (FCC) has issued certain rules that your condo must comply with. Provided they have complied with the rules, you will have to rely on the solutions provided by your property manager or your satellite service provider. I am sure you’ll be rooting for your favorite teams again before long. I’ll be rooting for you!

Double Taxation!

D.W. from New London County writes:

Dear Mister Condo,

As I understand it, my condo common fees are used, in part, for taking care of lots of things that regular homeowners get taken care of by their local municipality. I’m talking about repair and maintenance of the roads, including snow removal and items like trash removal and street lights within the condo. Yet, I still get taxed the same as any other homeowner in my town. That doesn’t seem fair to me. It’s like I am being taxed twice. Is there a way my condo can get the town to take care of these items like they do for other residents?

Mister Condo replies:

D.W., I feel your pain. Nobody likes paying for services they aren’t receiving. However, most municipalities have ordinances that deal specifically with condominiums and the services their residents are entitled to under law. In most cities and towns in Connecticut, the condo association is responsible for many services that other residents receive from the municipality. There are a lot of factors that go into how these rules came into place but it usually dates back to when the condominium was first built. An agreement was made between the developer and the municipality that the area within the condominium complex would be private roads. Since the municipality does not own the roads, it cannot be expected to provide service. These details should be included in your condominium documents you received when you purchased your unit.

Some condominium associations have challenged these ordinances and a few have even had positive outcomes. They haven’t had their tax rates changed but they have had their local municipality provide some service like trash removal. If you feel there is enough interest in your community, you could try organizing a group of condominium owners to address your local government. All of the positive outcomes I am aware of began with a conversation between condo residents and their local leaders. Good luck!