Law to Limit the Amount of Condo Common Fee Increases?

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V.C. from Hartford County writes:

Dear Mister Condo,

Does Connecticut have a law that regulates how high HOA fees can be increased in one year? The HOA fees were raised 15% for 2015 with the promise that fees would not increase again for 3 years. Then an ‘adjustment’ was made from what the association claims was a clerical error in calculating the new fee which increased the HOA fees again mid-year 5-15% depending on unit size. Now for 2016, fees are increasing again 25%. Thanks for your help.

Mister Condo replies:

V.C., common fees are typically set at the Annual Meeting when the Annual Budget is adopted and ratified. While it is unusual for there to be mid-year increases, it is not unheard of. I am unaware of any state law that dictates common fees increases or decreases and, honestly, I can’t see any reason for one. When the Annual Budget is adopted, the expenses of the association for the upcoming year have been planned and the unit owners have had an opportunity to vote and ratify the budget. The budget preparation is a combination of historical data and a few guesses as to what the upcoming year will bring. If last year’s budget called for $100,000 in expenses, then next year’s budget is likely going to be $100,000 plus whatever projected or known increases are coming. Major capital projects should be paid for out of Reserve Fund contributions that have been accumulating over the years. My guess is your community was deficient in Reserve Funds and had extraordinary expenses occur without the money properly budgeted to pay for the expense. The only source for raising funds is the unit owners so the Common Fee schedule was adjusted so the association could meet the financial obligations of the community. Promises of “no fee increases” from Board members are just as valid as promises from politicians to not increase taxes. They are worth the paper they are printed on! In my experience, many community associations are woefully underfunded. This is a result of a desire to keep common fees low while not properly planning for future expenses. A few years ago, the FHA mandated that condominium association contribute not less that 10% of their annual budget to Reserve Fund or the FHA would no longer back mortgages written for unit owners within the association. Not wishing to lose the ability for units to be sold to new owners seeking FHA-backed mortgages, many associations complied. A 10% Reserve Fund contribution may satisfy the FHA requirement but it is in no way, shape, or form an indication that a community is saving enough for tomorrow’s repairs. For this reason, stories like yours are far more common than you might think. If you have the opportunity, take a long hard look at the association’s finances. If the budget preparation process is faulty, you can expect this financial chaos to continue. If the Reserve Fund is inadequate, you may also expect Special Assessments when major repairs are needed. It would be better for you and your fellow homeowners to get the Board focused on getting the association back on solid fiscal ground if you wish to avoid this chaos in the future. Otherwise, you can expect more of the same as the Board scrambles to find money to pay for upcoming expenses. Good luck!

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