Planning for the Unknown Condominium Borrowing

One of the fundamental truths about condominium life is that, eventually, your building will need extra money. A leaky roof, an inefficient boiler, busted pipes, elevators that don't elevate—the list is endless.

If your board has planned well and maintained a substantial reserve fund, it will probably have the cash on hand to deal with a broken boiler or leaky roof. But not all unit owners like to contribute today for what may befall the building tomorrow. What's more, some events are hard to anticipate. Lawsuits arise that can quickly drain a condominium's operating funds. Building systems often ignore their useful-life schedules.

When the unexpected does occur—or when existing reserves are inadequate to pay for needed repairs or capital improvements—condominium boards and managers often look with envy upon the co-op building next door. Co-ops, after all, have a fairly simple option available to respond to a cash crunch: they get a mortgage. But for cash-strapped condominiums, life isn't so simple. Condominium boards sometimes feel helpless, believing that they are prohibited from borrowing money for the first five years of their condominium's existence, and that they must obtain unit owner consent prior to borrowing. Too often, this leaves them with just two choices, neither of them particularly appealing: they must either forego needed repairs, or impose an invariably unpopular special assessment on the unit owners.

Good news: That's not true. Condominiums don't necessarily have to wait five years or get unit owner consent in order to borrow money. Here's why:

The Right to Borrow

The right of condominium boards to borrow money on behalf of the condominium is governed by Section 339-jj of New York's Real Property Law (otherwise known as the Condominium Act). The legislature added this section to the existing law in 1997.

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