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What Are the Duties of Condominium Boards?

What Are the Duties of Condominium Boards?

  • Posted: Feb 06, 2023
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What Are the Duties of Condominium Boards?

Condominium boards have complete management responsibility for their community. Even if they outsource some duties to a professional management company, boards still retain these responsibilities. Since individual homeowners, who may not be well-versed in real estate management and legal issues, serve on these boards, all members should understand their duties and responsibilities. Condominium boards should also retain experienced legal counsel and/or accountants to be information resources and advisers.

Condominium Association Bylaws

Board members must become intimately familiar with their condominium association bylaws. Management of all condominiums is governed by the association bylaws. Board members must understand all items addressed in the bylaws, often called the “condo docs.” Further, boards must learn all state statutes that relate to bylaw subjects and strictly follow the letter of state laws to avoid legal problems.

Common Areas and Building Exteriors

The condominium association board must maintain–and keep in good repair–all common areas and building exteriors. Common areas are those used by all unit owners who have deeded title to small percentages of these areas. These areas include building lobbies, open land or parks, tennis courts, pools and other amenities available to all residents. Whether a high-rise style, townhouses or cluster housing, building exteriors require maintenance and repair, particularly the siding and roofs.

Condominium Association Budget

Creating and managing the association budget is a critical duty for condominium boards. The most common reason for condominium problems is mismanagement or misuse of the budget. Association boards without an experienced accountant as a member should consider getting advice from an outside CPA to ensure that their budget is reasonable and complete. Condominium budgets should be built like those of nonprofit corporations. By estimating expenses, including insurance, landscaping, trash removal and similar operating costs for the coming year, the association board determines the amount of monthly individual homeowner assessments, commonly called “condo fees.”

Maintenance and Repair Reserves

Along with operating expenses, the association must carefully consider the funds needed as “reserves” for maintenance and repair. As part of the budgetary process, establishing realistic reserves is often overlooked by association boards, sometimes with dire consequences. For example, picture a 48-unit high-rise condominium, with each unit having a suspended wooden deck for relaxing and entertaining. Decks need periodic staining and water protection applications. Further, on older condominium projects, deck replacement would be needed at some point. Neglecting to build reserves into the annual budget for deck maintenance and replacement could result in “special homeowner assessments” of thousands of dollars. Condominium boards must diligently add these to annual budgets to build up cash to make these repairs.

Collecting Assessments

Monthly homeowner assessments–condo fees–must be collected by condominium boards. While most condominium bylaws permit boards to place liens on individual units for unpaid condo fees, liens do not equal money. Unit owners may not refinance or sell their homes for many years, leaving the condominium association short of funds to meet budget and reserve demands. Boards have a duty to establish an effective collection policy, much like a bank, to ensure consistent monthly cash flow into the association account to meet operating expenses.

Fiduciary Duty

Condominium associations must fulfill their fiduciary responsibility to manage the project in a businesslike and conservative manner. Depending on the size of the condominium project, association boards may manage many dollars and complex business issues. Fiduciary duty is typically measured by evaluating the actions of individuals or groups that “reasonably prudent” persons would take. For example, neglecting to collect condo fees, putting sufficient reserves in the budget or not completing necessary repairs is a breach of fiduciary responsibility. Condominium boards usually have individual and collective fiduciary responsibility and could be subject to serious lawsuits from unit owners for failing to act prudently.

 

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Its Budget time

Its Budget time

Its Budget Time, and that means it is that time of year for boards of community associations everywhere to prepare next year’s association budgets. A good budget is reflective of good financial planning. In practice, it is anything but an exact science.

When examining the community association budget process, there are a few subtle nuisances and a couple of glaring distinctions between those budget related laws set out within Chapter 720 that governs homeowner associations (HOAs) as compared to Chapter 718 that governs condominium associations (CAs). Let’s take a look.

 

Notice Requirements:

• HOA board meeting notices must include a statement that assessments will be considered and, as per statute, “the nature” of the assessments. There is no definitive advance HOA board budget meeting notice requirement set out in Chapter 720, so be sure to check your HOA’s bylaws for any specific requirements. (As an aside, please do not confuse this with the special assessment procedures where it is required for any meeting at which special assessments will be considered that written notice mustbe mailed, delivered, or electronically transmitted to the members and parcel owners and such notice must be posted conspicuously on the property or broadcasted on closed-circuit cable television not less than 14 days before the meeting.

• At least 14 days before any CA board meeting at which a proposed annual budget of an association will be considered, the board must hand deliver to each unit owner, or mail to each unit owner at the address last furnished to the association by the unit owner, or electronically transmit to the location furnished by the unit owner for that purpose 1) a notice of such meeting and 2) a copy of the proposed annual budget

 

Committees and Workshops:

• The HOA’s notice requirements apply to the meetings of any HOA committee or other similar body, when a “final decision” will be made regarding the expenditure of association funds.

• Meetings of a CA committee to make recommendations to the board regarding the association budget are subject to the Notice Requirements, above.

Providing Copies:

• The HOA must provide each member with a copy of the annual budget ORa written notice that a copy of the budget is available upon request at no charge to the member.

• The CA must send a copy of the proposed budget (showing reserves fully funded for the year) with the board’s budget meeting notice. Limited proxies for unit owner vote must include a statutory proscribed disclaimer regarding the inherent financial risk in rendering such a decision.

Budgetary Considerations:

• The HOA’s budget must reflect the estimated revenues and expenses for that year, along with expected deficits (bad debt) and surpluses. The budget must also set out separately all fees or charges paid for by the association for recreational amenities, whether owned by the association, the developer, or another person.

• The CA’s proposed annual budget of estimated revenues and expenses must be detailed and must show the amounts budgeted by accounts and expense classifications. The CA can only assess for such items as authorized by statute or the CA’s own governing documents.

 

Reserves:

• HOA reserves are not mandatory but can be mandatorily required only IF they were initially created by the developer orwere voted on, and approved, by a majority of the total voting interests of the community. Both of these types of HOA reserves are loosely referred to as “statutory” reserves. If your HOA assesses for “statutory” reserves, then the assessment revenues collected must only be used for authorized reserve expenditures unless their use for other purposes is approved in advance by majority vote at a meeting at which a quorum is present. If your HOA assesses for “non-statutory” reserves, (meaning that the budget may have a line item called “reserves”, but they are not “statutory” reserves), then there are no limitations on the board’s expenditure of these monies.

• CA reserves are initially mandatory in that all residential CA boards must pass the budget with reserves included. After, the unit owners can vote to waive or reduce the reserves. CA reserves can only be spent for their designated purpose unless otherwise approved by a majority of a quorum comprising the voting interests.

 

PRACTICAL TIP 1: Compare last year’s actual expenditures to last year’s budget, and also compare it to what is set out in the upcoming year’s budget. This simple comparison can be most illuminating.

PRACTICAL TIP 2: Take a look at the existing “bad debt” and see how aged it is. Determine whether it is time to “write it off”. In practical terms, this means that the dues paying members in good standing have to make up that shortfall as required to meet the ongoing expenses of the association. In the event that your community association budget does not include a bad debt line item, then consider adding a “bad debt” line item at this time.

 

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ARE CONDO FEES BAD?

ARE CONDO FEES BAD?

  • Posted: Oct 29, 2021
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ARE CONDO FEES BAD?

by Steven J. Weil, Ph.D., EA, LCAM, President

Royale Management Services, Inc.

 

Your maintenance fees cover many of the same things you would need to pay for as a homeowner.

What’s included?   As a condo owner, it’s useful to know how your maintenance fees are determined. No one is profiting from these fees. They are determined by the board of directors who are elected by the owners and charged with responsibility for operating the association. They represent your share of the common expenses as agreed to in the governing documents.

What you pay is determined by estimating the costs for operation and maintenance for the budget year. These costs include controllable costs — those over which the board can exercise control, e.g., wages of association employees, improvements, along with the cost services offered to owners and residents — as well as non-controllable costs, e.g. insurance, water, garbage collection, electricity, repairs, and existing long-term contracts such as bulk cable agreements.

Each year the board and management review the prior year’s costs and do everything in their power to project the cost for the coming year. These costs become the budget’s expense line items; and once they are calculated, any income from other sources (such as laundry and outside rental income) is taken into account. The total projected expenses are then reduced by the outside income, and whatever is left becomes the maintenance for the coming year. After that, it’s a simple matter of calculating each unit owner’s share of this amount based on the formula set forth in the governing documents.

 

In many associations, non-controllable expenses make up the majority of the expenses, with insurance often being more than a quarter of the total expenses. Add to this, utilities (which varies), long-term contracts, and required repairs and upkeep, and you can see that the expenses the board can control can be limited often to less than 20% of the total expenses.

The board must also fully fund reserves based on the current replacement cost of reserve items. Reserves may not be waived or reduced by the board. They can, however, be reduced or waived by a vote of the owners. Reserve funding is added to the cost of the maintenance fees already calculated and becomes part of the regular maintenance payment.  Reserves cover the wear and tear on items with a useful life of more than one year, such as roofs, painting, and paving, along with other major items that will wear out over time.

Each association’s budget is different. Accordingly, maintenance fees generally reflect things that are unique to each association. For example, associations with 24-hour security personnel, bulk cable contracts that include the internet, and expensive-to-maintain lobbies will have higher maintenance fees than those that provide fewer services and amenities.

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The opportunity an HOA can capitalize on is negotiating a cell tower lease agreement that ensures consistent rent for years, often decades, to come.

The opportunity an HOA can capitalize on is negotiating a cell tower lease agreement that ensures consistent rent for years, often decades, to come.

  • Posted: Jan 24, 2019
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HOA can capitalize on is negotiating a cell tower lease agreement that ensures consistent rent for years, often decades, to come.

Companies like AT&T, Verizon, T-Mobile and Sprint continue to explore options to meet their wireless customer demands, and part of this search includes the construction of new cell sites across the United States. Cell sites come many sizes, from a traditional tower that is big enough to climb, to an antenna that sits hidden on a rooftop, only seen by those flying over.

 

Cell phone usage has skyrocketed to the point of near saturation in the US. According to Pew Research Center, 95% of adults have a cell phone & a growing share of Americans now use smartphones as their primary means of online access at home. In 2016, wireless subscribers’ connections hit 377.9 million, with over $1.4 trillion (yep, trillion with a “t”) having been invested globally in the last 18 years. This is BIG business & there are opportunities for landowners to capitalize.

The opportunity an HOA can capitalize on is negotiating a cell tower lease agreement that ensures consistent rent for years, often decades, to come. There are certain pros and cons that an HOA or Condo Association must ponder if a cell tower company or wireless carrier approaches them about putting a tower on their property.

 


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