When you’re buying a condo, you’re essentially buying an apartment, right? Yes and no. You’re actually buying more than just your living area. You also have an interest in all the common areas around your unit, like the hallways, the lobby and the grounds. Since you own a share of the building, you need to help maintain those areas yourself, if only financially.
But how? In other words, when there are 20 units in a building and only one parking lot, who’s in charge of getting it repaved? And who pays for it? The answer: The Condo Association. When you purchase a condo, you automatically become a member of that building’s (or development’s) Association. Here are the basics:
The Association is considered a (non-profit) business entity. This gives the Association the right to solicit bids for jobs around the building, pay contractors and hire a property management company (if it so chooses). It also means that the Association must register with its Secretary of State, and must have officers — often a President, Treasurer and Secretary for a small Association, and complete Board of Directors for a large Association.
Associations collect dues. An Association collects compulsory dues from its members, usually monthly or quarterly. These dues go into what are referred to as the Association’s “reserves,” or the amount of savings the Association has. The reserves pay for general maintenance and upkeep, as well as larger projects around the building.
All major decisions must be approved by (Board) members. Depending on the state you live in, the size of your Association, and the type of decision sought, the specific method for approval can vary. Usually, for issues such as whether to redo the roof, a decision is made on the basis of a vote of the Board members, while new bylaws and other broad changes are voted on by all members. Generally speaking, over 50 percent of members’ approval carries a resolution, though there can be exceptions where a higher proportion of approval must be received.
Associations can issue a special assessment. What is a special assessment? Let’s say that the roof of your building needs to be redone, and it costs $20,000. And your association, which has 10 members, has a reserve of $14,000. Since the Association doesn’t have the full $20,000, it can require each member to pay a “special assessment,” or an extra, one-time due, in order to cover the cost. In this instance, the special assessment is likely to be around $1,000 or so per member, since an Association can’t responsibly draw its reserves down to zero. So, in a nutshell, a special assessment is when you have to pay out of pocket to fix the building, above and beyond your basic dues.
The important thing to realize is that when you buy a condo, you’re also becoming entangled in the goings-on around the building, like it or not. You can’t avoid your Condo Association — you’re legally obligated to adhere to its decisions, pay dues and (if necessary) pay a special assessment. This level of responsibility is one major difference between renting and owning.
A co-op is managed by a board selected by the co-op’s shareholders at an annual meeting. The board runs the building according to the corporation’s bylaws. In a large building, the day-to-day management is usually done by a hired managing agent under the supervision of the board.