by Bruce L. Dorner
Londonderry has seen a significant increase in the number of condominium units over the past few years. Owners report that they enjoy the freedom from mowing lawns, painting buildings, and handling general exterior maintenance. Ah, the joys of not having to shovel snow – especially for this winter!
At the same time, each unit owner is responsible for what happens on the inside of the unit. Rarely do buyers read that massive document generally called the “Condominium Declaration, By-laws, and Rules and Regulations.” It’s usually about an inch thick and filled with lots of legal jargon which is required by New Hampshire law.
If you did take the time to read it, you probably learned that there are many things you can’t do to your condominium unit and a few things you might be able to do if you get permission of the Board of Directors. There’s also the problem of that monthly item called a “condominium assessment.” It’s not much different from the tax bill you pay to the Town. The monthly assessment is how the condominium association raises money to paint the buildings, plow the parking lot and cut the grass. So, what are the procedures for raising this money? There are a number of variations on how to collect funds and you need to refer to the Declaration for your association.
In my years of working with condominium owners and associations I’ve found a great conflict between charging enough to handle the ongoing repairs and maintenance and the need to set aside adequate money for longer term goals. After all, the septic system will need to be replaced at some point and the roof will need to be resurfaced down the road. So, don’t be surprised if there’s a portion of your monthly fee that goes to a fund for capital improvements. In reality, you’re probably living in a better managed condominium complex if they have a large capital reserve fund.
Why is this important? Consider the following example. Joe has lived in his condominium unit for 10 years. He’s paid his monthly assessments as required. Last week, Bob purchased the unit next to Joe. When he bought the unit, he was told that his monthly fee would be $180.00 each month.
A month after Bob moved in, the septic system for the four units in their building takes an unscheduled vacation. The Declaration says that the unit owners of the building serviced by the septic system have to pay for the repairs. There is no capital repair or replacement fund. It turns out the repairs will cost $10,000. Each unit owner is assessed $2,500 and is required to pay. Is this fair? For Bob, it’s an insult since he didn’t cause the septic system to fail — he didn’t even live there while the problem grew. For Joe, it’s a cost of living, since he’s been resident for 10 years. To both of them, it’s clearly a financial burden that must be paid.
Now, let’s take this to a higher level. Since Bob just purchased his new home, he’s tied up all his money and his credit. He can’t come up with the $2,500. The Condominium Association can place a lien against Bob’s unit, but they can’t get blood from a stone. The septic system installer really doesn’t care who pays, but he’s not starting until the check is in the bank. The rest of the unit owners only want to flush their toilets. So, Bob’s neighbors may have to front the cost and Bob will pay off his debt with interest over some period of time. This is only one example and there are other possible outcomes. I use this model only to demonstrate the importance of having an adequate capital reserve fund. If the money is in the association account, no one gets hit with a major assessment. The cost is allocated over time. Those who live there now and use the services and amenities are paying for the future repair so that subsequent buyers don’t have to pay for the sins of the past.
Enjoy your condominium unit, but take some time to participate in the government of the association. After all, it is your community!
Another tip for condominium living deals with insurance. The association has insurance on the buildings and amenities. They do not have insurance on what is inside your unit. Based on definitions in the Declaration, you, the owner, may have to pay to repair major components of the unit in the event of damage by fire or otherwise. To avoid conflicts between your insurance carrier and the carrier for the master policy for the association, consider buying your insurance from the same company that insures the complex. This way, the insurance company can’t try to point the finger at someone else and say it’s their responsibility to fix some particular component.