April 2022
Communities can break down, or encounter severe resistance, dealing with the many tasks necessary to ensure smooth operation. Causes include personal disputes, physical problems in buildings and financial missteps.
Fiscal mismanagement is the root of most community problems.
Fiscal mismanagement is the root of most community problems
Money, or lack of it, is the most common problem. There is never enough to do what everyone wants. Residents desire more than a community can afford while preferring not to pay more. Management and directors try to do as much as possible. The gap between desires and what is affordable can be the greatest source of conflict and primary cause of distress.
Boilers, heating and air conditioning equipment, and pipes need to be maintained. Outer walls, windows and systems exposed to weather, moisture, sun, heat, cold and humidity eventually fail without proper maintenance and periodic replacement. As systems and equipment age maintenance costs increase until replacement is necessary. Failing to set aside sufficient funds to pay these expenses cause all types of problems. Management deals with more irate residents. Problems increase in frequency and scope. Boards spend more time deliberating about problems. With no easy solutions communications suffer and irate residents become angry, threatening and sometimes violent.
Boards may choose the wrong projects to spend money on or have poor timing. They may invest in a technology or system that fails to perform as expected. Or, after major investments, funds are not properly allocated for maintenance. Budgets failing to account for reasonably anticipated expenses result in too little collected from owners.
Deferring maintenance is a short-term approach guaranteed to create bigger problems someone else will have to address at greater cost.
Unresolved problems become emergency expenditures when walls or roofs fail, or a major internal system “unexpectedly” requires replacement.
Finances are inadequate to pay for necessary repairs. Reserve funds, intended to pay for many expenditures, are of limited use when accumulated funds are insufficient. A special assessment results and owners must come up with large sums of money to pay for what are now “unexpected” and “essential” expenditures. Owners unable to pay a special assessment could be forced to sell their home.
Conflict among residents and the board
Financial problems have a tendency to paralyze decision making. Management becomes unable to manage when boards disagree on how to resolve matters and fail to make decisions. Residents find work takes longer to be completed or receive no productive response to their concerns.
Role of management
Through all this it is up to the condominium manager to support and advise the board while communicating with residents. Residents fault management for failures rather than understanding constraints they are required to accept. A breakdown in communication results making a bad situation worse.
Struggling condo boards find it easier to blame management than accept responsibility for their actions or inaction. Communities that regularly replace management is an indicator of larger unresolved problems.
The best solution is to identify and address problems sooner so they don’t escalate out of control.
- Avoid treating budgeting as a theoretical exercise. Develop realistic and supportable budgets, then establish condo fees at a sustainable level.
- Board and management should be involved in the entire reserve fund study process rather than restricting themselves to accepting that details and dollar amounts are correct, then communicating the impact on condo fees to owners.
- Raise condo fees annually knowing that expenses always increase over time. Savings from specific initiatives should not be used to reduce condo fees unless there is certainty savings are permanent.
