Rent Real EstatePassing The HOA Baton
Every time a condo sells, an angel gets its wings (Oops! Wrong story!). Every time a condo sells, the new owner inherits obligations passed on by the former owner or required by the HOA. There are the obligations to obey the rules, pay the homeowner fees and to volunteer for HOA service. But now and again, someone gets the bright idea that new owners should pay a special fee at closing as a contribution to working capital or reserves. This idea appeals to current HOA members because they are exempt from paying it, like a hotel tax foisted on tourists. It also seems fair since new members haven"t contributed to reserves. A newcomer contribution seems to level the playing field.
There are several fatal flaws with these rationales. Requiring new members to pay a special fee redefines the homeowner fee allocation. Redefining the fee allocation requires 100 percent approval by all members, not simply a majority vote. And even if you could get 100 percent agreement, unless the fee applies to one and all, present and future, it is neither fair nor legal.
Secondly, while new members have not paid into reserves is true, they don"t owe the money. New members are not responsible for reserves which should have been collected in the past. Reserves should be paid by those that are receiving the benefit. Reserve money is typically set aside each month to pay for repair or replacement of assets like roofs, paint and siding as they deteriorate. The reserve contribution should equal a month"s worth of that deterioration. In other words, current owners should pay for the portion of those deteriorating assets they just got the benefit from. New owners have received no benefit so owe nothing. If there is a current shortfall in reserves, it"s because past owners did not pay enough.
If your operating budget or reserve plan is inadequate, fix it and have current owners pay the freight. If you haven"t hired a Professional Reserve AnalystTM to perform a reserve study, do so as soon as possible. A Reserve Study is an indispensable planning tool that every HOA needs. It will provide a maintenance and funding schedule for the Board that fairly divides costs among all owners along the time line.
New owners should be asked to pick up the baton passed by the outgoing owner. There are obligations that go with that baton, to be sure, but one of them is not paying for the HOA"s past mistakes. Pass the baton. Don"t beat the newcomers with it.