Page 12 - New England Condominium February 2020

12 NEW ENGLAND CONDOMINIUM -FEBRUARY 2020 NEWENGLANDCONDO.COM BUDGET & FINANCE Maintenance Fee Increases Navigating a Rising Tide BY COOPER SMITH In life two things are assured: death and seeable future, they taxes. In condo and HOA life, there’s a may take that into third constant: annual increases to main- tenance or common charges – but many vance, and raise main- shareholders and owners question why tenance or common this is the case. In times of relative stabil- ity with inflation at record low levels, why they’re funded well in do their monthly charges increase like advance of the project. clockwork every time the calendar flips to Remember, the pur- a new year? Why Do Monthly Charges Increase? Monthly charges, known as common the budget, including charges in condos and HOAs and main- tenance fees in co-ops, are the pro rata ing feels are necessary share a vested resident pays for their share in light of past work of the community’s annual operating ex- penses. “The operating budget includes recur- ring expenses such as payroll, taxes, utili- ties, insurance and day-to-day mainte- nance and operations,” says Marcy Kravit, law firm of Becker a property manager located in Aventura, and Poliakoff in their Florida. She explains that the extent to Morristown, New Jer- which these items or others are a por- tion of your monthly charges depends on ing to him, “There whether you live in a condominium or is no set standard” a co-op, and what items you may be re- sponsible for individually. Any of these trustees can base fee expenses may increase over time, which increases. “The real will lead to an increase in monthly costs. “Even in the best of economic times,” on the particular fi- Kravit continues, “managers and board nancial situation your members are responsible and held ac- countable to scrutinize, dissect and as- similate the many challenges that the bud- get process presents.” Needless to say, the in common expense fees on an annual ba- larger and more complex the community sis. Even where the board can reasonably bor, and so forth. Without any other fac- and its amenities, the more overwhelm- ing this process can seem to the trustees be about the same as the year prior, they pairs, lawsuits, etc., I would recommend incomes who now must suddenly come tasked with it. According to Mark Hakim, an attor- ney specializing in co-op and condomin- ium law and director of the Co-op and not to increase their monthly common present an extreme hardship for the own- Condo Department at the Ronkonkoma, expense charges in a given year, the best ers.” New York-based law firm Chaves and practice is to slightly increase your fees Perlowitz, “The board, having a fiduciary each year – again, to account for inflation communities believe that the goal of community. By contrast, consistently and duty, is obligated to ensure the solvency and other unanticipated increases in the their governing board should be to draft predictably increasing fees by two or three of the operation of the building. When budget. This will also help to avoid a more a budget that never results in a common percent each year is much more palatable a board determines that there are insuf- ficient funds available for the payment of from choosing not to raise fees for several maintaining the same level of common financial profile prospective buyers see its operating expenses, while taking into years. No community wants to see a sud- account future costs and projects, an in- crease is necessary. Excepting for emer- gency situations, a board will customarily rule, and it’s dependent on the specific tal to a community. determine to increase its charges based economics of the building. Obviously, a on the proposed budget for the upcoming board’s goal should always be to balance ally mandates at least a slight increase in es, I feel that the pride is misplaced,” says fiscal year. Obviously, if a board projects the budget while simultaneously plan- that the building will undergo major capi- tal improvements or projects in the fore- account years in ad- charges to ensure that pose of the increase should be to balance any reserves the build- and future projects.” When to Raise Charges? Martin Cabalar is an attorney with the sey offices. Accord- timetable upon which answer is, it depends community is in,” he says. “Typically, we tion is one that does not artificially keep raise fees for several years, you will very recommend that our clients anticipate costs low, but is realistic and tries to keep likely find yourself in the position of hav- that there will be some necessary increase up with inflation and increased operating ing to suddenly increase the fees by 15- anticipate that their expenses are likely to tors to consider like major unexpected re- should at least consider a small increase annual increases of 1.5% – 2%. That helps up with an additional chunk of change to account for inflation. While it may not to delay the imposition of the larger, and every month, or risk being forced into de- be unusual for an association to decide ever more unpopular increases that may linquency. Calabar also warns that both drastic, sudden increase that may result expense fee increase. While consistently – both for current residents, and for the den, massive increase.” Hakim agrees, “There’s no steadfast run on, in reality it can be very detrimen- ning for the inevitable increased operat- ing costs and reserves. In my opinion, the munity is in strong financial shape over- sign of a fiscally well-managed associa- costs such as real estate taxes, repairs, la- Calabar also points out that “Some decrease the value of the homes in your expense fees charged to the community when considering purchasing a unit in seems like a great platform for a board to your building or HOA. For example, simple inflation virtu- fees every year. Holding fees steady for a Hakim. “And you’re going to see the ex- year might not do any harm if your com- all,” says Calabar – but if you opt not to 20% all at once. That is a tough pill for the community to swallow – and could be financially ruinous for residents on fixed sudden, large increases and inflating fees past what the market dictates can actually “Absent extenuating circumstances, when a board prides itself on never in- creasing maintenance or common charg- tremely large assessments or increases continued on page 17