Reduced Common Fees After A Fire?

J.S. from Pennsylvania writes:

Dear Mister Condo,

On October 5, 2012 in Wyncote, Pennsylvania the condo building where I was an owner and resident for the past 12 years had a 4 alarm fire and the building was condemned and deemed uninhabitable by the township. Luckily, I had homeowners insurance which covered the contents. The township reassessed and lowered the taxes drastically. However, all 55 owners of the building are upset because we did not get a reduction in condo fees. The fee includes heat, cooking gas, hot water, common use, snow removal, grounds, management salaries and insurance. They are saying it will take 2 years to rebuild. There are 3 other buildings in the complex that were unharmed. The management company is making a small fortune collecting all of these condo fees from displaced homeowners. As long as they collect these fees they seem to be in no hurry to have the building rebuilt. What can the 55 displaced homeowners do to obtain a reduction in our condo fees? We will gladly pay for the portion of the fees that we are using but should not have to pay fees where we get no benefit because we no longer live there. We do not want to wait for an abatement of funds 2 years from now because if they decide not to rebuild we will all be out of a lot of money.  How do we get the abatement now?

Mister Condo replies:

J.S., greetings to you, our Quaker State neighbor. I read about your disaster and watched the video at http://abclocal.go.com/wpvi/story?section=news/local&id=8837671. That was a horrific incident to be sure. It is a miracle that there weren’t more injuries or death from the fire. I am thankful that so many survived. I hope your neighbors were as wise as you as to have homeowner’s insurance in place to protect their belongings. Let me try to offer an explanation of the finances of your situation and explain why the abatement at problem resolution might be the best solution.

First off, common fees are the basis for the community’s annual budget which includes all of the amenities you describe and more. Common fees are generally arrived at by using the “Per Centage of Unit Ownership Rule” meaning that portions of the association’s debt are divided by per centage of square footage owned by the individual unit owners as described in the declaration that was filed when the condominium was built or declared. This formula is used as the basis for determining common fees, special assessments, and any other fees levied upon unit owners.

The money is collected by the management company but not owned by the management company. The money is owned by the association. More specifically, the money is in a bank account that the association controls but the management company likely administers. The management company is not making any additional money because of the fire. They likely have a contract in place with the association that states their fees per unit per month or per year. That is the only money they make off of the association, except for other fees as called for in the contract, such as managing a building improvement or providing landscaping or snow removal services if they offer such.

The association, on the other hand, may be able to renegotiate their contracts with the various service providers to provide displaced unit owners with some relief. However, that may prove challenging due to the nature of service contracts. Utilities that are billed monthly will undoubtedly see a decrease in cost. The damaged and unoccupied units won’t use things like heat, gas, or hot water which were previously budgeted for. The Board might consider a plan that would temporarily remove the responsibility for paying for these items from the fees of those affected. Keep in mind this is no easy task and might even require a rewriting of your condo’s documents or a change over to a metered utility distribution system to implement.

Other services that are paid for in common will continue. The snow will still be removed; the lawns will still be maintained; and so on. The insurance premiums will still need to be paid and the management company’s contract still needs to be honored. I am sure they are still providing service to all of the residents still in place and displaced. From the perspective of most of your service providers, nothing has changed. In fact, in the case of your management company, their work load may have increased because of this disaster. It is just an unfortunate series of events that has caused this debacle.

So, realistically, an abatement at the end of this process is the most logical choice. At that time, there would be enough historical data to show how much money the association “saved” by not providing utility service to the effected units. Using the “Per Centage of Unit Ownership” rule, an abatement could be offered for the monies saved. While I am not certain of how much that abatement would be, I’ll bet it would cover several months’ common fees for every owner. While it is possible for the association to estimate what the approximate savings would be, there is no mechanism in place for them to simply grant the abatement in advance. It would require a vote of the Board and/or association. It is a dangerous precedent for them to set and I would advise them to speak with association counsel before doing so.

Of course, all of this conjecture assumes the condo association will rebuild the damaged units. If, on the other hand, the decision is made to not rebuild, owners should immediately consult with an attorney to make sure they are made whole from the insurance proceeds. My guess is that once a decision is made to not rebuild, the displaced unit owners would stop paying their common fees altogether and that the Board would have to reassess the remaining owners using a new “Per Centage of Unit Ownership” formula based on the remaining units.

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