Condominium associations come in all sizes and shapes. They can contain hundreds of units, or as few as two. While many of the issues faced by associations are universal regardless of size, small condominium associations do face some unique challenges that set them apart from their larger cousins. Those challenges touch all aspects of life in these communities, from legal to management to social issues.
A Cozy Alternative
Not all prospective condo owners are seeking the same type of living environment. Some prefer a large, all-inclusive community with tons of amenities and activities to choose from, while others prefer a smaller, cozier and more intimate community. That type of vibe is often found in smaller properties – typically walk-ups and brownstones – and often in urban settings. Small associations are not unusual, and indeed dominate the available housing stock in certain locations. For example, “if you want to live in Jersey City or Hoboken,” says Joseph Rosenberg, Chief Operating Officer at Atlantic Management in Secaucus, New Jersey, “that’s pretty much what you’ve got!”
Small condo associations also make up a sizable portion of the market in parts of New York and in Chicago’s Lincoln Park. According to Frank Lombardi, a Principal with the law firm of Goodman, Shapiro and Lombardi, which has offices in Massachusetts and Rhode Island: “Small associations under six units are [also] very common in New England. In fact, they may constitute as much as a third of all associations in the region.”
According to Kevin McIntyre, a real estate operator in Chicago: “People who buy in small associations are usually drawn to the low common charges. Carrying costs in larger buildings are much higher, due to those buildings offering more services. They may be looking for a more traditional neighborhood as well, something more personal,” like the aforementioned Lincoln Park, where brownstones are the order of the day.
“There’s no particular profile of a typical owner in a small association,” says Ariel Fox, a property manager with Cornerstone Management Systems in New York City. “It has more to do with the type of building. We manage old-style tenement buildings where the units are smaller, and the owners tend to be single, perhaps buying their first unit. We also have conversions of old mercantile buildings where you may have say, eight floor-through lofts on eight floors. Those buildings attract families and investment bankers.”
To Hire, or Self-Manage?
David Abel, a property manager in Boston with national firm FirstService Residential, says: “Many small condo associations are mostly the result of conversions of our old housing stock. The apartments are worth more as individual units than the property is as a whole.” Put another way, three condominium units are worth more individually than a three-family house.
“The problem with small associations,” Abel continues, “is that they’re small. They often can’t afford proper management. A four-unit association has the same ‘moving parts’ as a 150-unit association – but in a larger association, management responsibilities are not usually undertaken by the board.” In a small association, the few members may be responsible for everything from day-to-day maintenance, to tax filing, to conflict resolution between neighbors.
Florin Nenciu owns two condo units in Chicago. He lives in one located in a 16-unit building, and leases the other in a three-unit property. In the 16-unit building, the association itself owns a unit that is leased to a building custodian and handyperson who does maintenance and things like snow shoveling in return for the living space and a stipend. In the three-unit building, the cost of hiring people to do chores and maintenance is just too high to be easily absorbed by three owners, so they pitch in themselves to help. Owning a unit in a micro-association is like living in a private home; if it snows, you better grab your shovel.
Abel lived in a six-unit association at one time. He told his neighbors that while he wasn’t offering to take over the management of the property, he would be willing to oversee certain aspects of day-to-day upkeep and maintenance. “The catch-22,” explains Abel, “is that small associations can’t afford the cost of management, and managers can’t work for the fee that a small association can afford. That often leads to self-management, or to one or two people assuming the bulk of the responsibility,” which Abel likens to being one’s own attorney. “As the old adage goes, a man who represents himself has a fool for a client.”
“From a manager’s point of view,” says Abel, “it doesn’t pay to handle small associations. The manager has the same responsibilities as in larger associations; they have to produce financial statements, arrange and attend inspections, monitor compliance requirements, set up and attend meetings, and handle communications with and between board members. The management model to tackle this problem of scale is to ‘bundle’ several small associations together.”
He further explains: “Let’s say you have four or five client buildings located on the same street, or within a couple of blocks of each other. On the same street, you can cover all [of those associations] with the same cleaning service or lawn maintenance. There are a couple of management firms in Boston who do this.”
“Typically the problem with small associations and corporations is that they don’t have full-time staff,” says Fox. “That can be challenging, because what would normally fall under the responsibility of the super, like meeting a contractor, for instance, is then assumed to be done by the manager – which isn’t the case.”
Fox’s firm doesn’t formally bundle properties for more efficient management, at least not in the sense of going out looking for those types of arrangements. But, he says: “We do have areas where we’ve picked up a number of properties on the same block, and that makes things more worthwhile for us, because one agent can handle a number of buildings at the same time.”
À la Carte Services
Rosenberg explains that for some small associations, the cost of full-time management is just too high on a per-unit basis, so they offer an alternative: à la carte services. “Recently, we began offering bookkeeping services,” he says. “We collect the monthly charges and pay the bills. Everything is done online. If it works well, we will expand the program.”
The cost of keeping an attorney on retainer is far too high for most small associations, so in most cases legal services are procured on an as-needed basis. Professional services such as lawyers, accountants, and architects are treated similarly to contract services such as lawn work, snow removal, building cleaning, and minor maintenance. The association seeks those services only when they’re needed.
Potential Legal Issues
Jeffrey Turk, a Partner in the Braintree, Massachusetts-based law firm of Turk & Quijano, says: “People buy a condo so they don’t have the headaches of a home. Someone else mows the lawn and shovels the snow. But in a small condo, you don’t have that. Who is going to do those tasks? You. There are no economies of scale.”
Financial considerations can be even more pressing. “If someone doesn’t pay their condo fees in a 100-unit condominium association,” Turk continues, “there is likely still enough money to keep operating. In a four-unit condo, that might not be the case. The problem is that condominium associations are true democracies. Everyone has an opinion and a vote. Who wants to spend money and who doesn’t? There may be three members; two want to pay for lawn maintenance, the third does not. What then? Sometimes documents in small associations require a unanimous vote, and one member can hold up the whole process. You need a good set of condo documents specifying that the association must hire professionals to do the necessary tasks. These people are your neighbors. It’s just easier to put it in the docs so there’s no other choice.”
Turk describes one situation where there was a two-unit condominium association. “One owner was completely irrational. He wouldn’t pay for anything to get done, and wouldn’t do it himself. This ended up in litigation, which was prohibitively expensive.”
Ultimately, one owner sold to someone else. “They were lucky to find a buyer,” says Turk. “If the buyer had looked at public records and seen the lawsuit, they might not have bought. That brings up another consideration. You never know who your neighbors may be in the future.” While that’s true in any multifamily environment, one unhinged neighbor in a 100-unit property may be less impactful than in a five-unit property.
Words of Advice
Abel has lived in a small condo association in Boston and says the experience was a positive one. But as a property manager, he offers the following observation about micro-associations: “Lack of professional guidance is the biggest problem. Owners tend to make things up as they go along, since they don’t have guidance on how to enforce rules, hire properly insured contractors, etc.” Rules need to be put in place, respected, and enforced.
Fox adds: “One of the challenges of small buildings is that the entire building may be on the board. In a small building that can be challenging, as often the members are inexperienced with respect to the ownership and management of real estate. On the flip side, it can be very gratifying because when you as a manager do something well, everyone knows about it and recognizes it.”
Small association living may not be for everyone. McIntyre cautions potential owners. “The buyer often isn’t thinking about this when they’re looking for a place,” he says, “and often doesn’t realize the responsibilities they’ll have until they’re in and have to participate.”
So, if you’re thinking about living in a small association, go in with your eyes open. When it snows, someone has to shovel – and that may be you.
A J Sidransky is a staff writer/reporter with New England Condominium, and a published novelist.