K.L. from Outside of Connecticut writes:
Dear Mister Condo,
Should repairs be paid for from reserves or special assessment? Our 30-unit condo is looking at a $200,000 bill to replace and reroute utility lines that apparently weren’t properly installed when the complex was built in the early 2000’s. We have a little over $400,000 in reserves. We have a board member who is pretty adamant that we do a special assessment to fund the repairs, while I think we pay for it out of reserves and rebuild the reserves over the next couple of years. Who’s right? Typically, we put $50,000 a year in reserves. Thanks for any advice!
Mister Condo replies:
K.L., the Board member is correct based on what you have shared with me. The Reserve Fund is in place to cover the everyday wear and tear on the association’s common elements – sidewalks, parking lots, building exteriors, and so on. The replacement and rerouting of utility lines is an extraordinary expense and just doesn’t meet the criteria for a Reserve Fund expenditure. While I find it highly unlikely that the association could go back and sue the contractor for the poor work almost 20 years ago, it might be worth a conversation with the association’s attorney. The reality is that it was a construction defect that wasn’t caught until now. The association signed off on the work when it purchased the common areas from the builder during the transition phase all those years ago. Unfortunately, today’s unit owners are left footing the bill to correct the error. That equates into a roughly $7K assessment per unit. It is possible that the Board could take out an HOA loan to cover the repair and allow unit owners the option of paying upfront or over time but they will still have to pay. Sorry I don’t have better news for you. Good luck!
1 thought on “Condo Owners Question Special Assessment When Reserve Fund is Available”
Interesting situation. “Mister Condo” is correct that replacing/re-routing underground utility lines does not pass the National Reserve Study Standard four-part test for a Reserve expenditure. But the possibility remains that the association could “officially” borrow the funds from the Reserves and establish a multi-yr payback plan. That zero-interest loan coupled with increased Reserve contributions over a period of years to rebuild the Reserve Fund may be more palatable than a one-time special assessment, and would likely be significantly less expensive than a institutional loan.