Condo Media - June 2018 - 51
hit with a very large special assessment.
While these owners may have been
pleased over their low monthly fee, they
will be irate over the $10,000 bill that is
due in 30 days. The key to avoiding situations like this is proper planning. Board
members and managers want to properly
budget so that the association is putting
aside funds via reserve contributions
so that the reserve can pay, or at least
reduce, the direct costs to owners for
large-scale capital projects.
RESERVE STUDY IS
A PLANNING TOOL
Proper planning requires an examination of all the common elements to
determine the useful life and costs of
replacement. Elements such as the roof,
siding, parking areas, HVAC equipment,
elevators, pool, clubhouse, and tennis
courts. The list goes on and on. Most
individuals do not have the expertise to
properly estimate the useful life left in
the various common elements of their
building as such expertise is simply not
commonly possessed. The best way to
plan for the future is through use of a reserve study. A reserve study by a qualified
engineer will predict the useful life of all
common elements and create a plan for
funding the future replacement of each
such element. The study will allow the
board to raise funds sufficient to cover
their condominium's particular needs in
a thoughtful and well-planned way.
Let's go through a very simple example. In a 10-unit building, a new roof
will cost $25,000. The roof will need
to be replaced in five years. If planning
starts now, each owner must contribute
$41.67 extra each month for the next 60
months in order to raise the full $25,000.
The reserve study will thus allow the
board to properly budget the upcoming
roof cost into the annual budget for the
next five years.
SPECIAL ASSESSMENT REALITIES
Will condominium fees increase after a
reserve study is done? Almost certainly,
yes. But it is far better to pay a bit more
per month over a number of years rather
than come up with thousands of dollars
at once. A recent study showed that only
39 percent of Americans have enough
money saved to cover a $1,000 emergency. Such a finding should give pause
to boards who wish to rely on special
assessments to fund capital projects.
Special assessments are difficult to collect given that the Massachusetts Condominium Statute specifically excludes
them from the priority lien. Unpaid
special assessments can therefore wreak
financial havoc on the condominium and
result in owners having to pay more to
cover their neighbors' inability to pay.
Going back to the roof example above,
would you prefer to pay $42 a month for
five years or $2,500 in 30 days? Almost
certainly the majority of owners will
prefer the monthly charge due to the
inability to come up with the lump sum.
Imagine an even better option, however.
For those boards planning ahead from
day one, that $25,000 roof charge can be
planned for and paid over 15 or 20 years,
not five. The increase to the monthly fee
over 20 years is a mere $10.42.
Whether or not your particular association needs a reserve study, the board
should annually discuss future projects
and make sure that funds are being set
aside to fund them through the annual
budget. As the saying goes, an ounce of
prevention is worth a pound of cure.
There is one possible safety net if
your association does not have sufficient funds for major repairs and
that is through an association loan. I
would encourage you to contact your
legal counsel regarding the ability of
your association to borrow money
from a lender paid over five, 10, or 15
years, or more.
n DEAN T. LENNON, ESQ., IS A PARTNER WITH THE LAW FIRM MARCUS,
ERRICO, EMMER & BROOKS, P.C.
Secure Residential Services, LLC
Secure Residential Services, LLC is an independent consulting firm
specializing in security and liability issues in the residential property
We provide general physical security risk assessments, security
technology, staffing and full program assessments as well as related
project management services. We also provide policy and procedure
review and development services, Director of Security services "by the
hour", incident follow-up and many other related services.
We are both property management & protection professional certified
with 30 years of experience.
Christopher R. Lanni CPP, CMCA, AMS
Secure Residential Services, LLC
300 Baker Avenue, Suite 300
Concord, MA 01742
Office: (978) 405-3388
Fax: (978) 405-3301