Condo Board Special…

-Your condominium was created under what’s called the Condominium Act, the legal framework for how a condominium is structured and operated. Under the act, a condominium has three governing documents:

•a declaration
•the bylaws
•the rules and regulations, commonly called the “house rules”

The declaration defines those parts of the property that make up the common elements, the limited common elements and the units themselves. It also sets forth limits on the ability to sell and lease units in the condo, contains floor plans for each unit and sets forth what’s called “the allocation of common interest”: the percentage of ownership that each unit has in the common elements.

A declaration in a mixed-use condo — one that has both residential and commercial units — lists those parts of the property that comprise “residential common elements” and those that are considered to be “commercial common elements.”

The bylaws establish the governing structure of the condominium. This includes, among other things, the number of members needed for the board of managers; the procedural requirements for having board meetings and unit-owner meetings; the powers of the board; the obligations of unit-owners to pay common charges and assessments; rights and limitations concerning alterations and repairs to units and to the common elements; the procedures for conducting sales and crafting leases of condominium units; and the remedies available to the condominium in the event of unit-owner defaults.

The house rules lay out everyday “quality of life” issue. House rules typically cover such items as limits on harboring pets; prohibitions on the use of common areas for the storage of personal property; the requirement to cover a certain area of an apartment with carpet or other floor covering; and permissible hours for performing work or for playing musical instruments. If the condominium has amenities such as a gym, playroom or lounge, the house rules may set forth the regulations on using them.

House rules can be changed by a vote of the board. However, the declaration and bylaws can only be amended by a supermajority (usually between 60 and 80 percent) of unit-owners at a meeting called for that specific purpose.

Let’s apply the information about the governing documents to some typical challenges.

Arrears

A condominium’s bylaws empower the board to fix the amount of common charges to be paid by unit-owners. Generally, these charges are based on the amount of money required to run the condo every year. Most often, the lion’s share of the annual budget consists of fixed expenses that include payroll, insurance premiums, management fees and utility costs.

The bylaws require that unit-owners to pay common charges in a timely fashion, and that failure will often result in the imposition of a late fee and, in some cases, interest. If the bylaws don’t expressly specify the amount of a late fee or interest, they will generally vest the board with the power to impose fines against unit-owners who fail to comply with their obligations.

In the event of a continuing delinquency, most condo bylaws require a board to enforce remedies — namely the start of a lawsuit for breach of contract (the bylaws are considered a contract between the condominium and the unit-owner) or the filing of a lien and, if necessary, a foreclosure action.

So when arrears come up, you should:

1.review your bylaws
2.determine what, if any, late fee is allowed
3.instruct its managing agent to impose the fee and to follow up with the delinquent owner.
If the unit-owner is more than 60 days behind, the board should strongly consider consulting with the condo’s counsel about pursuing legal action.

Lobby Renovation

Many condo bylaws contain restrictions on the amount of money a board may spend on capital improvements and non-emergency capital repairs (i.e., roof or façade repair) without first having to obtain unit-owner approval (usually a simple majority). Accordingly, even if the lobby hasn’t been redecorated in 25 years and its furniture is in tatters, if the cost of renovation exceeds the threshold amount that the board is permitted to spend,  then you’re going to have to call a special meeting of unit-owners and obtain their approval for the expenditure.  The steps for calling a special meeting are also in the bylaws.

If there’s no set limit on the amount, you’ll need to consider how to fund the project. Are the board’s capital reserves sufficient to cover the expense? If so, what will be the plan for replenishing the funds? Will there need to be an assessment and, if so, for how much and for how long?

Before engaging in any major capital project, a prudent board will consult with its managing agent and possibly its accountant for input on how to fund the project. If there is any question as to whether unit-owner approval or some other procedural step may be required before starting the project, you should also consult the condominium’s counsel.

Sale and Leasing of Units

Unlike the sale or sublet of a co-op apartment, which is subject to the approval of the board, a condo board is far more limited in its ability to “reject” the sale or leasing of an apartment.

With regard to sales, most condos provide the association with a right of first refusal, which must be exercised within a certain period of time after the unit-owner gives the board notice of his/her intention to sell. In other words, the only way a board can “reject” or otherwise block a sale from proceeding (assuming proper notice is given) is by having the condominium association itself purchase the unit on the same terms and conditions as the prospective sale. The “waiver” of the condominium’s right of first refusal must typically be exercised within a specified period of time (i.e., 30 days), or else it will be considered waived.

Needless to say, the exercise of the right of first refusal is no easy feat to accomplish and, indeed, many governing documents require that a board must obtain the approval of a majority or even supermajority of unit-owners before exercising the condo’s right of first refusal.

Similarly, other than limitations on certain short-term leases (i.e., less than six months), a condominium unit-owner enjoys a very broad right to rent his or her apartment, so long as the board is notified in accordance with established procedures and is offered a right to rent the unit on the same terms and conditions. Again, a board that fails to act on a rental application within the time frame specified by the governing documents will usually be deemed to have waived its rights in this matter.

A prudent board will require that a potential buyer complete a purchase application containing some information about the proposed purchaser/tenant, and will review such “packages” and assent to the condominium’s waiver of its right of first refusal.

These are only a few of the myriad issues you will confront during your tenure on a condo board. Issues regarding unit-owner disputes, alterations, capital repair projects and governance-related matters are also likely to rear their heads.

In each of these instances, your first stop for guidance should always be your governing documents.