How Condo Corporations Get Into Financial Trouble

July 2015

It takes years of bad choices for a condo corporation to get into financial trouble.

Perhaps your condo corporation made some bad choices in past years. Condo maintenance fees were too low for too long. Reserve fund studies did not reflect all anticipated costs. Anticipated expenditures may have been deemed unrealistic thereby resulting in a modified Reserve Fund Study and reduced reserve fund requirements. Perhaps condo owner dissatisfaction over nominal annual increases created a reluctance to establish the higher maintenance fees necessary for covering costs.

“Too many Boards make decisions about the dollar amount of common fees based on political pressures from fellow residents to keep the common fees low.”

Ask Mister Condo; July 8, 2014

It may have been that condo owners voted in board members who promised to reduce maintenance fees.

Regardless of the reason, it became necessary to reduce expenses. This may have been done by delaying or eliminating regular infrastructure maintenance and repairs. Some components that should have been repaired or replaced years ago were allowed to remain in place but in substandard condition under the rationalization of budgetary restraint.

Eventually old infrastructure resulted in more system failures, water or other problems and increased insurance claims. Problems and costs continued to escalate until it was no longer possible to delay major expenditures. Monthly maintenance fees were increased to handle operating costs. Reserve fund contributions were also increased. Funds necessary for immediate repairs were raised through a special assessment.

It has been five years since these efforts yet funds are still tight.

Failure to undertake necessary building maintenance may appear to save money in the short term but nearly always ends up costing more

For a condo corporation that failed to undertake necessary maintenance for a period of five to ten years, one can reasonably assume that it will take at least as long to resolve all outstanding issues and will cost significantly more than if necessary work was undertaken at that time.