Would a Property Manager Have Prevented an Underfunded Reserve Fund?

N.G. from New Haven County, Connecticut writes:

Dear Mister Condo,

I recently purchased a condo in a 35 unit association that has no manager. I have been told that the reason for this is to keep the monthly common fees low. However, I have been informed that there is going to be a special assessment for repairs needed for the parking areas because the Board failed to save enough money over the years. I like the idea of low common fees but I am not happy about the special assessment. Wouldn’t it be better to have a professional manager that would make sure things like this don’t happen?

Mister Condo replies:

N.G., regardless of whether a condo association chooses to manage itself or contract the services of a professional property manager, fiscal shortcomings that require special assessments are the responsibility of the community as a whole and a direct reflection on policies and procedures by the Board for the years that have passed without enough money being collected. In fact, it is quite possible that your current Board members weren’t even unit owners back when the real problem began. Let me explain.

From the moment the foundations is laid and the parking lot is paid, deterioration and aging begin. It is not a question of “if” these common elements will fail but, rather, “when”. Forward thinking community association employ Reserve Studies to keep track of their common elements, their likely usable lifespan, and what it will likely cost to replace them. They then budget monthly contributions to their Reserve Fund as part of the common fees. Truly, that makes sense as the unit owners who are in place as the common elements age are the ones who are benefitting from them the most. As the common elements age, the Board can arrange for their timely replacement and know that there is enough money in the Reserve Fund to cover the repair or replacement. When the common elements fail and there is no money in Reserve, the current Board is faced with finding a way to pay for the needed repair. They may choose a community association loan or they may choose a special assessment.

Hiring a professional manager may help the Board get a handle on this problem sooner rather than later as a professional manager who recognized inadequate money in the Reserve Fund might encourage the Board to increase common fees in anticipation of the coming need but the Board is under no obligation to take that advice and the manager cannot simply raise common fees without the Board’s approval. When a community places its desire to keep the common fees low in lieu of taking a realistic approach to budget preparation and adequate Reserve Fund contributions it is all too common for a community to find itself in the same fiscal situation as yours. I wish you and your fellow unit owners all the best!