Among the many realities made visible (or more visible) by the COVID-19 crisis is the domino theory: when one falls, the others follow. Conceived (and largely disproven) as a political metaphor, the notion has proven more useful when applied to issues of the economy and public health. The co-op and condo community, unfortunately, is one of those dominos. As the pandemic spread and the threat of mass infection and death rose, the reality of an economic slowdown, or even a full shutdown, came into clearer focus for boards and community administrators. While cash flow is essential to the day-to-day operations of buildings and associations, the welfare of owners and shareholders and the long-term economic success of tenants are arguably more intimately linked to the decision-making process of residential boards than in some other segments of the economy.
Extraordinary Circumstances, Considered Responses
Scott Piekarsky is an attorney specializing in community law with New Jersey-based firm Phillips Nizer. “The biggest problem,” he says, “is that people are out of work and cannot afford all of their overhead, including community association maintenance fees. Owners are falling behind, and associations may begin to struggle to meet their monthly obligation in paying their vendors.”
The question is how elected boards of directors should react to this challenge as community leaders. Should they pursue legal remedies (like collection actions or late fees, for example) immediately, or show some restraint considering the current extraordinary circumstances? “We are taking all action that the courts permit us to take,” explains Piekarsky. “No one is getting evicted, and no sheriff sales are occurring regarding foreclosures. Some judges are entering money judgments, and others are not. It makes sense to start proceedings so you can get in line [for relief]. If you wait, there may be a much longer wait list and a time delay to get that relief. [Legal action] also may be used as a deterrent or tool to get people to try to get current.”
When it comes to commercial tenants, says Piekarsky, “They all need to be pursued—but restaurants and retail are in many cases also struggling. This pandemic is affecting everyone.” In making their decisions as to how to proceed with legal remedies, boards must take the long view. “Boards need to keep up with their regular delinquency policies,” advises Piekarsky. “However, reaching out by phone and offering payment plans versus getting nothing is a very sensible approach. At one site, we are making phone contact with owners, and we’re seeing positive results. I just got off the phone with a physician who did not understand the nature and urgency of his account delinquency. I think that perhaps by waiving some late fees, we will be seeing a large check very soon.”
One Hand Feeds the Other
Cash flow in co-op and condominium communities is a matter of survival, not profit. Communities pay their way by collecting revenue. That revenue comes from two general categories. The first is monthly payments from owners, known as maintenance in co-ops and common charges in condominiums and HOAs. These monthly charges cover operations—everything from salaries to upkeep of buildings to payments of real estate taxes, and in the case of co-ops, underlying mortgage payments. The second category of income comes from commercial tenants and other non-owner sources like laundry room concessions. Not all co-ops and condos have these types of tenants, but those who do may be experiencing a ‘double-whammy,’ with arrearages from both resident owners and commercial tenants.