A.S. from Hartford County writes:
Dear Mister Condo,
With the inception of our new budget and an increase of 18% increase in monthly condo fees, the board of our condo association, stated arbitrarily that there will no longer be special assessments and that such issues would be rolled into the budget as line items. Does that mean such items will stay in the budget and the residents will continue to fund these items? Or if when these items are paid for and removed, will the residents monthly fees be adjusted downward accordingly?
To sum up my question can our board due this and is it legal? Thank you!
Mister Condo replies:
A.S., I am not an attorney but I don’t think your question really has to do with legality as much as budget process and ratification. I have to assume that your association has been subject to special assessments in the past and that the Board is now trying to remove special assessments by incorporating a large enough contribution to the Reserve Fund to handle those items which were being paid for by special assessments in the past. Is that correct?
Two things come to mind to answer your question. The first is that all unit owners have a say in the Annual Budget when it is presented for ratification at the Annual Meeting. If unit owners like the budget and it is passed, the Board is then bound by that budget for the next 12 months, until the next Annual Meeting. There could still be an emergency of some sort that required extra funds to be raised and they still have the special assessment at their disposal if the need arises. However, as you know, special assessments don’t just automatically happen. The Board must still go through a set procedure to levy the special assessment and, if it is large enough to set off certain rules, unit owners have to approve the special assessment with another ratification vote.
Special Assessments should not be the norm at any community association. There are lots of reasons for this but, most importantly, they can create a real hardship for unit owners who aren’t prepared to pay the extra money on top of their mortgage and regular common fee expense. There is also the concept of fairness. Today’s unit owners are benefitting from all of the items that are wearing out. If they leave the community before the funds needed to replace those wearing elements have been collected they are not paying their fair share of the depreciation. Future unit owners will be left to pay for this in the form of special assessments. Seems a bit unfair to me, wouldn’t you agree?
Well-managed and well-funded community associations use important tools like Reserve Studies to properly fund future capital repairs. They know that the roof will need replacing in 20 years so they set 5% of its expected replacement cost in Reserve every year. That way in 20 years, the new roof gets paid for and everyone who used the previous roof has paid their fair share. What a great idea! The same is true for all of the other common elements that are going to wear down and need replacing.
It sounds to me like your Board is committed to doing it the right way. They are going to include a healthy contribution to the Reserve Fund each year as part of the Annual Budget. That should assure that special assessments are rarely needed, if at all. As an added benefit, the Reserve Fund may earn some interest that, over time, the contributions can be adjusted. The Annual Budget will still get voted on every year so unit owners will have a say on how much is contributed to the Reserve Fund. Sounds like step in the right direction to me, A.S.. Good luck!