Monthly Archives: March 2016

Condo Association Selling Common Area to a Unit Owner

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I.M. from outside of Connecticut writes:

Dear Mister Condo,

We have an opportunity to buy some common area from our condo association to add to our condo. The common area available for sale is a back staircase. We are wondering if there is a commonly accepted rule for the price per square foot of such area. What we are thinking of offering is the market price for our area minus the cost of adding floor and ceiling to make a livable space from a staircase. Does this make sense? Thank you.

Mister Condo replies:

I.M., in my experience, it is extremely rare for a condominium to sell off any of its common area. Additionally, if the staircase services only your unit and is for your exclusive use, it is a limited common element and there would be no need for you to purchase the staircase. It sounds like what you are talking about doing is actually putting an addition on to your condo, which you will need written permission from the Board to do before you even consider purchasing the extra land from the association to do so. Finally, there is the question of the association’s existing by-laws giving the power to the Board to offer the land for sale. It would not be unusual for such a sale to require a full vote of the association as it is selling off an association asset. My best advice to you is that you speak with an attorney who is verse in such transactions before you enter into any agreement. It is entirely possible that you could spend a great deal of money improving the property only to find out the association didn’t have the authority to sell it to you in the first place. As for the selling price of the actual property, market price makes sense but I wonder how you would determine what the market price is. Unless your association has a history of selling off bits of the common area in the past. If that is the case, I would look at the previous sale records for an indication of what you should pay. Good luck!

Failing Condo Staircase May Reveal a Failing Reserve Fund

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H.O. from Florida writes:

Dear Mister Condo,

I own a condo in Florida and all the units on the 2nd and 3rd floors have spiral staircases made of wood that lead from the back patios to the pool area and bike parking. The stairs are becoming very old, unstable, loose, and downright scary. I have complained to the HOA several times but keep hearing they are fine and that there isn’t enough money in the budget to repair/replace them, yet the boat dock – which was in much less disrepair- was repaired last winter. I am at the point where I want to report the spiral staircases to the state. Am I allowed to do that and if so, who do I contact to actually get someone to inspect the staircase and tell the HOA with authority that the stairs must be fixed and an assessment may need to be made on all the owners to bring the stairs into compliance and safety. I don’t want anyone to be hurt on the stairs, and I fear it will happen if I don’t push this issue.

Mister Condo replies:

H.O., I am sorry for your unfortunate situation of having to deal with decrepit stairs that are potentially unsafe. I am not an expert in Florida condominium law so please accept this advice as friendly. If you need a legal opinion, kindly seek out local and qualified legal help. The State of Florida does have a Department of Business and Professional Regulation (DBPR) that might be able to assist you and will allow certain complaints to be filed against your condominium association. However, they limit their investigations and the amount of manpower available can make that a very slow and ineffective process. You have already begun a dialogue with the Board of the HOA, which is a proper first step. Their response is a bit concerning because “there isn’t enough money in the budget” is hardly going to suffice if the staircase fails and there are injuries. A lawsuit caused by negligent maintenance of the stairs will drain the budget in ways they never thought possible! A better approach would be for the Board to have the staircase inspected by a property engineer who could give a professional opinion on the soundness of the staircase and even suggest what can be done to strengthen the integrity and prolong their useful life. If the staircase is already too far gone, the repairs should be made even if that means a special assessment is necessary to cover the cost. The bigger question here is why there isn’t enough money to maintain the staircase in the first place. Are common fees too low? Is there a Reserve Study and Reserve Funding plan in place? These are the questions that need answers so that you and other unit owners know the Board is providing good fiscal guidance in properly preparing the association for other expenses that lie ahead. You can’t defer maintenance too long or you can end up with failing common elements that can lead to real tragedy. Your failing staircase may just be the tip of the iceberg. Good luck!

No Minutes Taken at Condo Board Meetings!

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A.V. from outside of Connecticut writes:

Dear Mister Condo,

How would I write a letter, stating, our condo did not take minutes? Who would I report to?

Mister Condo replies:

A.V., when a condo association does not keep meetings of their minutes, it is as if their meetings never happened. Any decisions or actions taken by the Board in such meetings can be called into question by any unit owner who wishes to do so. This is done by filing suit against the Board at your local court of law. Depending on your state, you may also be able to file a complaint or report to the Secretary of State or the Department of Consumer Affairs. Not all states have a formal bureau to report condominium malpractice but those that do usually allow you to file your complaint for action by the proper authority. Keep in mind that there are no governmental agencies watching over condominium Boards to make sure they are performing properly. By and large, it is up to the individual unit owners to take action when malfeasance occurs. In your case, it the Board is functioning just fine and everyone is happy, it is unlikely a complaint would be made about the lack of Minutes. However, not taking Minutes is a huge mistake for so many reasons. Minutes are the legal record of votes and actions taken by the Board and even the unit owners at the Annual Meeting. Without Minutes to reflect those votes and actions, it would be almost impossible for a Board to defend itself in Court when asked to produce copies of votes and actions. Minutes are a vital part to due process and transparency. Board that seek to serve well should know how important they are. Good luck!

Do Condo Documents Have to Be Updated When Laws Change?

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J.W. from Fairfield County writes:

Dear Mister Condo,

What are the implications for a condo association or Board of Directors if the association’s documents have not been updated to comply with the 2010 changes to CT condo law?

Mister Condo replies:

J.W., that is a great question with a few different answers. The short answer is that federal law trumps state law and state law trumps your condominium’s governing documents, regardless of what provisions they actually contain. If your condo documents have not been updated or amended to reflect the changes in the 2010 revisions to the Connecticut Common Interest Ownership Act, the association is still bound to observe and respect the provisions of the law or it could find itself in some hot water with unit owners who seek to exercise their rights under the law. That being said, there can be a significant cost and effort to revising condominium documents and many communities simply keep their existing documents in place and either observe the laws as a matter of practice or have a less expensive treatment called a document overlay as an amendment to their current documents. This method saves the association money and also allows for compliance with the CIOA revisions as   part of their governing documents. Whether the documents are updated or not, the state law supersedes and must be observed. All the best!

Larger Condo Unit Pays More But Uses Less

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E.D. from outside of Connecticut writes:

Dear Mister Condo,

I live in a two-story townhome built into a condo building. The condo building has a separate entrance, interior hallways, trash collection, elevators, and a covered parking garage that I cannot access or use. The community declaration gives me a large percent interest in the building common elements due to my square footage, which means I pay more in assessments to maintain the condo only amenities than the people actually putting wear and tear on the building. Is there anything I can do to make my percent interest reflect my actual cost footprint in the building?

Mister Condo replies:

E.D., in a word, “no”. The percentage of unit ownership you alluded to in your question is the defining document that describes which unit owners pay which percentage for common fees. The formula is part and parcel of what is purchased when you buy your particular unit within the association. It is the only formula prescribed in the governing documents. It is unfortunate that you are getting tagged with a larger fee for portions of the property that you do not use but the liability of those items is substantial and if they were not properly maintained, your liability would also be greater. It is ultimately in your best interest that these items are properly maintained even if you don’t see a direct benefit from their use and maintenance. On the up side, it sounds like you have a nice, large unit to enjoy. All the best!

Is Condo Reserve Fund Needed for Catastrophes?

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N.M. from New Haven County writes:

Dear Mister Condo,

Our property manager says we need $50K – $60K in our Reserves just for catastrophes. Is he correct?

Mister Condo replies:

N.M., Reserves (more commonly referred to as the Reserve Fund) are not for catastrophes! In fact, by their very nature, catastrophes are rare and should be mitigated by insurance so as not to cause the association too much risk because of a lack of coverage for an unforeseen catastrophe. My guess is that your Property Manager is cautioning the association that not having adequate Reserves is a dangerous business practice in general and leaves the community quite vulnerable in many areas, most importantly in the ability to maintain the common elements of the association as they wear down. Many condominiums are in the 25- to 30-year age group and they need a lot of their original elements replaced. If you read my column regularly, you know how many associations just don’t have adequate funds saved when the time comes to make those major capital improvements. That leads to financial distress for the unit owners when they are hit with large special assessments or are asked to take on additional debt in the form of a loan to handle the repairs, which can cause common fees to jump significantly. Ask your Property Manager for clarification of the Reserve Fund needs of the community. If the Reserve Fund is low or empty, it is time to have the Board put a better plan in place. All the best!

Condo Unit Owners Asked to Borrow Their Way to Financial Stability!

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J.D. from Hartford County writes:

Dear Mister Condo,

Our Association Board has told us that we need to borrow our way to financial stability. It will be proposing Special Assessments for attic insulation ($110K), patio railings ($178k) and aluminum wiring remediation ($500k). This is in addition to a $3 million special assessment approved last year for general improvements. We are a 132-unit association with a $600k operating budget. Are there any guidelines for what constitutes reasonable borrowing amounts? Can you really borrow your way to financial stability?

Mister Condo replies:

J.D., like you, I am skeptical of a phrase like “borrow your way to financial stability”. However, I appreciate the salesmanship skills of your Board in trying to get the association back on track in order to meet its fiscal responsibilities. It would appear that your association has not done a particularly good job over the years of setting aside adequate funds for the long-term needs of the community. I did some quick math and it looks like your association has had to raise almost $29,000 per unit in just the last year for costs that would have likely been identified with a proper Reserve Study and funded through Reserve contributions by the unit owners of record over the years. Instead, many of those unit owners took advantage of artificially low common fees and were not asked to contribute their fair share towards the eventual replacement of the common elements which they enjoyed the use of during their years of ownership.

As far as reasonable borrowing limits, I am not aware of any hard and fast rules. I will say that in my years of speaking with other association leaders, expenses like yours are not uncommon and that assessments can easily run well above the $29,000 per unit that your community is experiencing. The banks that issue loans to condominium associations and HOAs have their own guidelines for what is reasonable. Suffice to say, when the money is needed, there is only one place that the money can come from and that is the owners. They will either get hit with special assessments or face substantial increases to common fees to handle the debt service on a loan. Both methods of raising funds have their drawbacks and it is ultimately the Board and the association who have to decide what is best for the owners. As far as my opinion on whether or not your association can “borrow its way to financial stability”, I will say that the sourness of increased common fees may be preferable to the bitterness of a special assessment. Either one is going to leave a bad taste in your mouth. Good luck to you and your association.

More Condo Financial Transparency Sought

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A.H. from Pennsylvania writes:

Dear Mister Condo,

I belong to a Condominium complex in Pennsylvania (approx. 426 units) and according to the By-Laws we are to receive copies of the audited financial statements – which are useless because the auditor cites in the report that the Board basically has decided to release selective information in the report. They refuse to offer a line-by-line copy of the operating budget because unit owners would then know exactly what the salaries of the staff are…I am paying their salaries. Why can’t I know the amount? There are two dozen items with fairly substantial amounts, but no breakdown. We were advised they don’t even give the Council a breakdown, they just sign checks based on invoices! I’m concerned something is going on, but searching online hasn’t yielded any clear results in terms of what is/is not acceptable financial reporting (we are not FHA approved) and what the condo does or does not have to disclose to owners. We are just becoming concerned that our exorbitant HOA fees are going to fund a very lavish retirement for office staff….

Mister Condo replies:

A.H., generally speaking, the standards for financial reporting are left up to the Board and the preparer of the condominium association’s auditor or statement preparer. After all, the auditor/preparer is hired by the Board and reports only to them. Additionally, some property management firms include basic financial statement preparation in their management fees and provide the service as part of their management contract with the association. Unless your governance documents specifically state the level of detail to be provided in these statements, you are largely at the mercy of the preparer to provide accurate and easily to understand financial statements and audits. That does not mean you are powerless to see how and where the association’s money is being spent but you may have to do some extra footwork to get the information you seek.

As a member of the association, you are able to inspect any and all records of the association. You may need an appointment to do so and you may be charged a fee for inspection of such records but you do have a right to see just about whatever you want. Further, you are free to petition the Board to update their reporting methods or answer any specific questions you have although the Board is not required to answer your request. If you and other unit owners are still concerned that there is a mismanagement of association funds, the ultimate solution is to seek a seat on the Board where you can see what’s happening first-hand. Board members are democratically elected volunteers from within the community that are charged with protecting the association’s assets, which includes keeping an eye on how association funds are spent. If they aren’t doing that job, it is time for some new Board members. Good luck!

Condo Board Chooses Not to Enforce Rules

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D.H. from outside of Connecticut writes:

Dear Mister Condo,

Who do I call when too many people are living in a 2-bedroom unit in my condo complex and the Board won’t do anything?

Mister Condo replies:

D.H., enforcement of the rules and regulations are the responsibility of the Board of your condo. If your rules and regulations define how may people may reside in one unit and you are aware of a violation to that rule, you should contact the Board. Whether or not you should call them is another story. For most associations that have Property Managers, a phone call, email or letter to the manager is usually all that is required to report the violation. If your association has no manager, then a letter to the Board is in order. At their next scheduled meeting, the Board should review your violation report and take whatever action they deem suitable. Keep in mind that the Board is not under any obligation to take any action. In fact, there are many instances where Boards have decided not to enforce select rules of the association for a variety of reasons. If the Board doesn’t take action to your satisfaction, you have a few options. First is to elect new Board members who are more committed to enforcing the rules of the association. Second would be to bring suit against the Board for not enforcing the rules. Neither solution is particularly simple but that is really all you can do, D.H.. Good luck!

Majority Condo Owner As Condo Manager Creates Conflict of Interest

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K.G. from outside of Connecticut writes:

Dear Mister Condo,

I am a member of my condo board. We recently discovered that our management company has not been paying the city water/sewage bill since 2011. They made a few payments but the current outstanding balance is $85K. They’ve entered into an agreement with the DEP to get on a payment plan to pay off the debt, which also carries a 9% interest each month on the outstanding balance. The condo is majority owned by one owner (~52% stake) and he also owns the management company. He has offered to pay off the outstanding balance in full so that it does not incur additional interest. But, he has requested that the condo pay him back the money. My question is, why should the condo owners be responsible for this debt after all these years when we have been paying our monthly maintenance each month, which includes heat, water and general property maintenance/management? This unpaid $85K amount was never disclosed to us in our review of the financial statements under “Unpaid bills”. What is our right as owners to refuse to pay this bill? To me it is a mismanagement of the accounting and expenses and should have been shown as a carry over expense each year with budget set aside for this purpose. Thank you.

Mister Condo replies:

K.G., the condo association is responsible for the water/sewage bill. The management company is responsible for accounting to the Board if that is what their contract calls for. It would appear, from your letter, that they were negligent in their timely payment of the bill and reporting to the Board. Depending on the association’s contract with the management company, that act may be grounds for terminating the management contract. Since the management company is owned by a 52% owner of the association, I think that is unlikely to happen although, majority ownership does not make the owner bullet-proof. The remaining Board members could agree to take action against the management company and terminate the agreement (if the contract has been violated). Before anyone goes firing anyone, the association’s attorney should be consulted. The last thing you want is to add insult to injury by firing the management company only to find out this accounting error isn’t sufficient grounds for termination. In my opinion, the owners have no right to refuse to pay this bill (unless you want to take on the city over your water and sewage – good luck with that!)  Your grievance is with the management company, not the water/sewer folks. And, as soon as possible, get a new management company. Unless the association is under declarant control, the Board is empowered to make that decision. Encourage them to look around before continuing with the current company. Clearly, there are better ways to go. Good luck.