For residents on fixed incomes, or those who are already struggling to make ends meet because of a job loss, illness or divorce, any hit to their already-stretched-to-the-max budget can be devastating. So when a board levels an assessment on the residents of a co-op, condo, or HOA because of an emergency repair, an unforeseen tax bill, or some other outlay not otherwise budgeted for, it can spell financial ruin for those who can’t afford to pay their share of the bill.
“Smaller associations run into this situation more than larger ones because they typically do not have as much money in their reserve account,” says John Powers, associate attorney with the Girard Law Group in Chicago.
Regardless of the size of your building or association, how can your board be sensitive to residents’ financial constraints while still upholding the board’s fiduciary duty and maintaining a safe, solvent, well-kept community?
Your Community Piggy Bank
Think of a community’s reserve fund as a savings account. Each month, when residents pay their maintenance charges, a portion of the fees collected is supposed to be put into a special reserve fund to pay for the unexpected.
“The right way for the board to do this is to forecast what the building’s needs will likely be in the next five, 10 or 20 years,” says Steven Troup, partner and chair of the co-op and condominium group of New York City-based law firm Tarter Krinsky & Drogin LLP. “For example, if the warranty on the roof is beyond its life and the roof will go in the next few years, the board has those few years to get ready and build up money from a smaller assessment.”