Fight Over $20,000 Special Assessment Illustrates Worst-Case Scenario for Community Association Financial Planning

A recent report by the Jacksonville, Fla., ABC network affiliate exemplifies the calamitous results that can ensue when condominium associations and HOAs are inadequately prepared to meet the long-term maintenance needs of their communities.  The station chronicled the battle that is taking place at the Fountain Gate Condominium, which is composed of a number of buildings that were originally built in the 1980s and now need their wood siding replaced.

According to the report, the association’s board of directors has approved the procurement of a bank loan for $1.5 million for the project.  It would be repaid by imposing a special assessment of approximately $20,000 per unit, to be paid monthly over seven years.

One of the directors on the association’s board, Jody Kilgore is against the special assessment proposal, which met with an immediate backlash by the unit owners.  She is quoted in the report saying that the owners, who are mainly retirees in their 70s and 80s on fixed incomes, “feel like we’re being railroaded.”

fgate-300x199She goes on to say that the unit owners are being left out of the decision-making process, explaining that Florida law requires the approval of 75 percent of the owners for material changes such as this repair project.  Instead, she notes that the board of directors alone voted to approve the changes.

The unit owners have not taken it lying down.  They have filed for a recall of the current board with the Florida Department of Business and Professional Regulation, which could result in replacing the directors and property management company.

The association’s attorney is also quoted in the story.  He explains that the board has a fiduciary responsibility to maintain the property, and this situation represents a serious challenge.  He notes that the repairs need to get done, and the board of directors has adhered to state law and its own governing documents by approving the project and special assessment via the board vote and without the approval of 75 percent of the entire association membership.

While the attorney may be correct, the disruptions and financial strains that this situation is causing at the community continue to take a heavy toll.  In order to avoid the friction that results from the impact of funding long-deferred maintenance projects such as the one in this case, associations and their property management should consider planning for the future by establishing and funding reserve accounts for major maintenance and renovation projects, and by annually assessing their financial position to adjust their long-term strategies as needed.

In fact, condominium associations are statutorily required to fund such reserves and may only waive them by a vote of the owners.  In many communities, owners vote to waive the required funding of reserves, resulting in the consequences encountered by the association in this case.  In light of such consequences, Florida statutes were revised to require certain disclaimer language on voting documents intended to be used for owners’ meetings at which a vote to consider waiving reserve funding would be considered.

In addition to the foregoing, association directors and managers should consult with highly qualified and experienced professionals to consider their long-term financial planning decisions and the impacts that may be felt as a result of a waiver of reserve funding.  These reports and discussions should take place during board meetings, and all association members should be encouraged to attend so as to stay informed and provide their input.

By applying these fairly straightforward best practices for associations to adequately prepare and plan for the funding of their future property maintenance and renovation needs, community association boards of directors and mangers may avoid the potential for serious outcries by the unit owners that may further spill over to public spats showcasing the discord in a community on the local evening TV news.

Click here to read and watch the report in the station’s website.