When buyers purchase condominium units, they also purchase access to the condo’s shared amenities. Depending on the scale and financial demographics of a building, those amenities can be substantial; during the real estate boom of the early 2000s, free continental breakfasts and in-house pet spas weren’t unheard of.
Even in more modestly-appointed condos, pools, gyms and the like were often part of the package marketed to buyers. In a post-recession economy, however, some boards are asking themselves whether the popularity of deluxe amenities really justifies their expense, while others may be faced with amenities that are costing them money, but are not getting much use. Scaling back or even eliminating a service or an amenity can potentially save money, but it’s a tricky process that may have legal ramifications.
Once upon a time—and not very long ago at that—condos did not offer amenities at all, unless one was to consider basic necessities like elevators, working heat, and functional windows to be amenities. Since the dawn of color television, properties have ramped up their amenities with each successive economic boom. After the go-go ’80s and the subsequent dot-com explosion, amenities became a way for smart developers to make their buildings stand out, and then every building had to have a fitness center, or pool, or staff masseuse. With the collapse of Lehman Brothers in 2008 and the ensuing recession, however, the pendulum began to swing in the other direction, and associations began to ask themselves if all the bells and whistles were really necessary—because they certainly weren’t free.
Now, as markets begin to recover, associations find themselves at a precarious time in regard to amenities. Budgets are still limited and caution is paramount, so, while pocketbooks can be loosened somewhat, the value of each specific feature of a property needs to be gauged for its individual worth. And when an amenity is deemed to be no longer of use, a board needs to be meticulous in its effort to remove it.
According to Paul J. Barresi, an attorney with Marcus, Errico, Emmer & Brooks, P.C. in Braintree, Massachusetts, “state law (MA General Laws chapter 183A, section 18[b]) requires a 75% vote of the ownership interests to add an ‘improvement’ to the condominium.” The removal of an amenity, such as the filling of a swimming pool or the elimination of a tennis court, would be what’s considered a “negative improvement,” and thus the 75% vote of ownership stands.
As Howard Goldman, a partner with Goldman & Pease in Needham, Masschusetts, explains, many amendments to the condo documents—whether master deed or declaration of trust— require a simple majority of 51%. Therefore, the super majority necessary to effectively remove an amenity is no small feat.
In all cases, associations should closely adhere to the rules set forth in their condominium bylaws. Veronica Viveiros, an attorney with Goodman, Shapiro & Lombardi in Dedham, Massachusetts, says that “any improvement requires a vote of unit owners, and the percentage required to pass the improvement depends on the particular condominium’s governing documents.” In certain cases, as in when a court determines that doing away with an amenity is a “removal or change of a common element,” such an action would require a unanimous vote of all unit owners, because the move would affect all of their individual and collective percentage interests.
Simply put, before removing an amenity, a board should gauge the temperature of the community, as almost everyone must be on the same page before such an action is legally feasible, regardless of its potential financial benefits.
Given the weight of the decision to remove an amenity, it stands that a board should regularly monitor those that it has. If the board proactively ensures that everything stays on the up-and-up, it won’t have to deliberate upon removing anything.
“The board should constantly be reviewing all common areas of a property, including the amenities,” says Justin Gargiulo, senior vice president and director of corporate operations at Great North Property Management, which has offices throughout New England. The board has a fiduciary responsibility to the rest of its membership to see that the property is maintained and that nothing goes into serious disrepair. “Owners buy into communities for a number of reasons, and having amenities is certainly one of them.”
Unfortunately, even the most upright board may find itself inheriting an existing problem. “If a prior board has made the decision to allow an amenity to fall into disrepair and then a new board is elected, that board should review the costs and weigh the pros and cons of bringing what was once a viable amenity back to use,” continues Gargiulo. “This could include having an engineer review the amenity, which would give them a true understanding of exactly what it’s up against. Certainly, meeting with and obtaining bids from qualified experts that specialize in the repair of that particular amenity would be a step in the process as well. Once the facts are known, the board should present them to the membership in a special meeting, so that everyone has the opportunity to understand the situation and discuss their feelings. At that point, the final decision rests with the elected board members.”
In certain instances, a developer will install a luxury amenity when the real estate market is flush. As Goldman explains, “in order (for a developer) to sell his property, he or she is going to install amenities, and they’ll guesstimate what that cost may be down the line.” Because it costs a lot of money to fix a major problem, if the market shifts between the installation and said problem occurring, the conversation can change to, “Do we really need a pool? Who’s using the pool?”
The developer installs the amenity, but from that point forward, it’s up to the board and unit owners to maintain it and approve it. Should they be dealing with a leaky roof, the board may choose to take care of that more pressing problem rather than maintaining a dormant pool.
It’s worth noting, as Viveiros points out, that “even though an amenity is ‘barely used,’ it may still make the community attractive, and it may still be a factor in keeping property values high. “Thus, the amenity, even while idle, stands to benefit unit owners as it assists both in resale and in appraisal valuations for unit owners when applying for refinancing on their mortgages.”
Call the Banker
Speaking of mortgages, because condos strive to be Fannie May/Freddie Mac compliant, in a case when the removal of an amenity may decrease the value of a property, it’s imperative that an association seek consent from its bank. Fortunately, as banks are extremely busy and deal with innumerable requests of this ilk every day, a well-prepared board can present its case in a way that should seem favorable to all parties involved.
Goldman explains how this is best done: “An association should prepare a letter to its bank, saying that it has decided to eliminate this amenity and turn it into X, because of budgetary issues and any other reasons that may make the maintaining of said amenity prohibitive.”
It’s important to provide a plan as to what an association intends to do in the dormant amenity’s stead. This will help relieve both residents and mortgage holders of any fears that the property value will diminish once the amenity is removed. Goldman suggests that, should the association not have a specific amenity in mind to replace its old one, than it should draft positive and firm language that speaks to its intent to hold meetings in effort to decide on an adequate substitute.
Once an association has prepared its letter of consent, it should send the letter to the bank via certified mail. In Massachusetts, if an association sends a request to remove an amenity to a bank via certified mail and then waits 30 days without response, the bank is deemed to have approved that change. According to Goldman, a large majority of such requests are ignored. “Banks are busy, and they aren’t going to micromanage this type of thing if you have an appropriate explanation as to why it’s being done,” he explains.
While clear communication and careful deliberation are always imperative when making major decisions in a condominium community, this holds doubly true when considering the removal of an amenity, as the legalities surrounding such an endeavor are so specific. It may seem like common sense to think, “no one is using this dumb thing. Let’s get rid of it.” But regardless of whether or not that’s true, an association needs to take into account that said ‘dumb thing’ was a part of the original condominium documents, that certain residents may be emotionally attached to that ‘dumb thing,’ and that the bank or owners or both can view the ‘dumb thing’ as a boon to the property value. Only once all of these variables are considered should an association begin the elaborate process of moving on.
Michael Odenthal is a staff writer at New England Condominium. Freelance writer Greg Olear contributed to this article.