While condo associations in many parts of the country occupy towering high-rise buildings or sprawl across vast suburban acreages, small condominium associations—those consisting of 10 units or fewer—are more the norm in New England; indeed, up to a third of associations in Massachusetts and Rhode Island fall into this category. 

While small associations have a lot going for them, they also pose unique challenges for their members, including the often-stressful task of self-management and lack of purchasing power. Jen Barnett, an attorney and partner with the Braintree, Massachusetts-based law firm of Marcus, Errico, Emmer & Brooks gives us some insight into both the challenges and the rewards of keeping things on the small side.

New England Condo: As an attorney representing condo communities, what do you see as the unique challenges for smaller associations?

Barnett: “Lack of formality is a big one. Smaller associations tend to operate less formally than larger associations, without regular meetings or established protocols and procedures for decision making and record keeping. It’s not uncommon for members to designate one person to be primarily responsible for handling the association’s affairs, or to assign each member a separate task, like paying bills or carrying out repairs or maintenance work. Unfortunately, this haphazard approach can be problematic and expose the association to liability if a member doesn’t follow through with the task they were assigned, or does so in a negligent manner.

“Financial issues is another one. Smaller associations typically have fewer amenities and fewer budget line items than their larger counterparts. That may help to keep monthly common expenses lower than they would perhaps otherwise be in a larger development, but because small associations typically do not have large reserve accounts, an unforeseen expense or expenditure, such as having to replace a roof, can have a devastating financial impact on the owners. Similarly, small associations are also more likely to be adversely impacted by delinquencies. For example, if two owners in a 300-unit development fail to pay their share of assessed common expenses, the association would likely still have sufficient funds to operate, thanks to the funds being collected from the other 298 owners. But if two owners in a six-unit association fail to remit payment for their share of common expenses, the association may lack sufficient funds to operate and to pay its bills.

“Further, under the current FNMA and FHA lending guidelines, no more than 15% of units within a condominium project can be delinquent on their payment of common expenses. So if this threshold requirement isn’t met, owners may find it difficult to secure financing when seeking to sell or to refinance their unit.”

NEC: Along with those more quantifiable financial challenges, what are some other, maybe less concrete issues that can arise in smaller associations? 

Barnett: “Owners can become deadlocked. In larger associations, decisions are usually made by an odd-numbered board acting as a majority, at a duly called meeting. Conversely, in many small associations, board members often cannot act without unanimous consent, which can result in deadlocks and frustrate the effective operation of the association. 

“Social issues are another one. In a small association, the units are located in close proximity to one another, and there’s frequent interaction amongst owners.  While this may promote collegiality and foster a strong sense of community, it’s also conducive to conflicts. What began as a simple disagreement between owners over the noise of a radio being played can quickly escalate into a disruptive and volatile interpersonal dispute. Further, as small associations don’t typically hold regular meetings, members will often conduct association business via email, text or some other form of communication at various times of the day and night, which can lead to burnout and resentment. 

“Small associations may also find it difficult to enforce the rules against an owner who violates the association’s governing documents. When this happens in a large association, the notice of violation is typically issued by the managing board acting as a collective body, or by the association’s management company. In small associations, that intermediary often does not exist, and members can be loath to issue a notice of violation to a neighbor in light of the potential for conflict and controversy.”

NEC: What special approaches should these associations take in structuring themselves to avoid some of these pitfalls? Should the board be smaller? Should unanimous votes be required to make decisions, or to change or amend governing documents? And if so, why?

Barnett: “The provisions contained within an association’s governing documents should reflect the needs of the community, regardless of its size. What may be appropriate for the members of a large association may not suit the needs of a smaller one. 

“For example, in many associations board members are elected at a duly called meeting. In small associations however, it’s important that each member has an opportunity to participate equally, so rather than hold an election, each unit should be permitted to appoint one trustee to the governing board. 

“I would also encourage associations to consider amending their documents to allow their board to act by a majority of its members, except with respect to two-unit associations. In those cases, decisions should still be made by unanimous consent of both owners. If there are an even number of board members, the governing documents should provide a mechanism for resolving stalemates, such as by having each member vote in accordance with their beneficial interest assigned under the master deed.

“Small associations should also consider amending their documents to establish a procedure for resolving conflicts and disputes that may arise between members of the association.” 

NEC: Smaller associations, especially those under five units, rarely have outside management. Do you recommend that very small associations hire professional management? Why or why not? What do you perceive as the drawbacks of self-management?

Barnett: “In self-managed associations, the members of the community must work together to operate the association. While this may help keep costs down and foster a strong sense of community, individual members often lack the knowledge and experience to manage effectively. It’s important to understand that self-managed associations aren’t excused from compliance with all applicable laws, rules and regulations in effect, and they may be exposed to liability for any breaches or violations. Members may become overwhelmed by the amount of time required to undertake the myriad tasks associated with the job. 

“Since it can be cost prohibitive for many small associations to hire a full-time property manager, some have adopted a hybrid approach and engaged outside third parties, such as an accountant or part-time management company to assist just with specific tasks, such the association’s financials, paying bills, collecting common expenses, reconciling bank statements, producing periodic financial reports, etc.”

NEC: Should small associations consider approaching other small associations to partner in obtaining goods, services, or management? Suppose there are two or three small associations located within a few blocks of each other, or on the same street. Should they pool their buying power to purchase supplies?  Hire a manager? Hire support staff like a cleaning person, etc.? 

Barnett: “In areas where a number of small associations are all located within the same general vicinity, some management companies may be willing to ‘bundle’ management services, and to coordinate services like landscaping, cleaning, etc., which may result in cost savings based on an economy of scale. However, I would caution individual associations from jointly contracting directly with any vendor or service professional, because of the lack of control that each association has over the actions —or inactions, as the case may be—of the other.”

NEC: Can you share any relevant success or disaster stories about small associations with our readers?

Barnett: “It’s important to preface my response by stating that there are plenty of small associations that are properly managed and operated. That said, when issues do arise in a small association, they can quickly become acrimonious and lead to protracted litigation. 

“For example, several years ago I represented the owner of a unit in a three-unit association in which the other two units were owned by a mother and her adult daughter, respectively. At the time, the condominium had no functioning board, and no common expenses had ever been assessed or collected from the owners during the nearly two decades that it had been in existence. The owners simply took turns paying various bills for the building as they came in—but at some point, the mother and daughter stopped contributing, and my client was left having to pay for all of the association’s operating expenses on her own. Every time my client had tried to raise these issues with the other owners, she was ignored. This soon became untenable, and by the time I was brought in, the building was suffering from deferred maintenance and was in desperate need of repairs, the electricity had been shut off, the water was about to be shut off, and the master insurance policy was in danger of cancellation. 

“We ultimately had to proceed in filing suit to seek the appointment of a receiver. That’s generally considered an extraordinary remedy, because it divests control of the association from its members to an outside third party appointed by the court— but in this circumstance it was necessary to prevent waste and loss.

“In a separate case involving a two-unit association, I was retained by one of the owners to compel the other to contribute towards the costs of necessary maintenance and repairs, provide access to the condominium’s bank account, remove unauthorized modifications and alterations they’d made to the common elements, and to cease and desist from preventing my client from accessing those common areas. My clients made countless efforts over the course of several months to facilitate a resolution to these issues, to no avail. Ultimately the dispute was submitted to binding arbitration, which took place over multiple days. It wasn’t long thereafter that my clients decided to sell their unit and move into a single-family home located in a different town entirely.”

NEC: Any last thoughts on how the members of a small association can manage their shared property effectively and be good neighbors to each other?

Barnett: “As far as key takeaways, I would caution associations from making one person primarily responsible for handling the association’s affairs. In addition, in self-managed association, tasks should be fairly divided among the individual owners, and each member should be kept apprised of each other’s efforts in that regard so that alternative arrangements can be made if necessary. 

“As unforeseen expenses can have such a detrimental financial impact on the members of a small association, I recommend establishing—and funding—an adequate reserve fund based on a budget for long-term maintenance and repairs.”