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 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 up to 100% approval by all members. And even if you could get the required vote, 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. So, part of the monthly fees are reserves to pay for repair or replace things like roofs, paint and siding as they deteriorate.
The reserve contribution should equal a month’s worth of that deterioration. In other words, current members should pay for the portion of those deteriorating assets they just got the benefit from. New or future owners have received no benefit so owe nothing to reserves. If there is a current shortfall in reserves, it’s because past members 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 Analyst (PRA) credentialed reserve study provider to perform a reserve study, do so as soon as possible. See www.apra-usa.com’s Member section for a list of PRAs.
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.
So, current members, pay your fair share. New members, pick up the baton passed by the outgoing members. There are obligations that go with that baton, to be sure, but one of them is not paying for the HOA’s past mistakes.
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