H.D. from Shelby County, Tennessee writes:
Dear Mister Condo,
I live in a condominium that is made up of only 2 units. The dwelling was classified previously as a house as a was former family property that had 2 dwellings – side by side with separate entrances-similar to a duplex. The property was sold by the heirs of the property. The percentage of ownership is split 62/38 per the master deed. A small reserve fund was turned over at the time of sale. Both units closed within days of each other. My question has to do with ownership of the reserve fund. Is that considered to be divisible by the percentage of ownership or would it be 50/50 as neither one actually contributed to this fund prior to it being turned over? There is nothing in the bylaws, master deed, nor meeting minutes from the meeting where previous owners transferred management duties and all documentation for the fund to new owners. I am handling all of the condominium management duties due to lack of participation from the other member. I am just curious. The other member wishes to wipe out the reserve fund to pay the first exterior insurance payment due to lack of funds and I am unsure how the fund would be owned at this point- no condo fees have been added to the reserve fund yet.
Mister Condo replies:
H.D., unless your documents state otherwise, a Reserve Fund is 100% owned by the condominium association, not the individual unit owners, regardless of the percentage of unit ownership rules. In other words, the Reserve Fund is only to be used for items that the association decides to pay for and is managed by the Board of Directors of the association. In this case, that means you and the other owner. Since the other owner has a majority of the votes as described in your governing documents, the other owner is the ultimate decider of how the Reserve Fund (or any other monies of the association) is spent. While this seems inherently unfair to you, the minority owner, giving you a say greater than that of the majority owner would be even more unfair. All that being said, you might want to speak with an attorney familiar with Tennessee community association law just to make sure that you fully understand your rights as a unit owner in this 2-unit association. Needless to say, I am no fan of these types of associations because as soon as Party A disagrees with Party B, there are many problems that may require legal remedy and suing each other or the association is typically pointless. My advice would be to go along with the majority owner on this item and decide if you will be happy in this arrangement in the long run or if it would be better to sell your unit and take on a different kind of home ownership where your voice will matter and you will have a say in how your money is spent. All the best!
The only thing that I can add to Bob’s comments is that if one owner owns 68% and the other 32% the contributions should be as such should you consider continuing contributing to the reserves. I would also assume that this is how the assessments are being collected (68/32) and how the voting goes in the board meeting.
I too cannot see this as a good use of the condominium concept. Only two owners leaves room for a lot of issues at the end of one of these days.