Majority Condo Owner As Condo Manager Creates Conflict of Interest

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.