Monday, November 22, 2010

Important Information for Condo Unit Landlords

In this time of economic turmoil, more and more unit owners are leasing out their units when they have to move and are unable to sell. If you are an owner who leases your unit, you can make the leasing experience successful and positive for everyone by understanding your responsibilities. This will help preserve your property value specifically and maintain the association’s property value in general.

Your tenants may not be familiar with common-interest community living. Please take a few minutes to explain to them that living in a community association is very different from living in a rental apartment community. Specifically, your tenants, like all residents, are subject to the rules and regulations of the association, and it’s up to you to educate them and see that they comply. Your association normally will assist you in this area, but the responsibility lies with you. It is recommended that you provide your tenants with written copies of all policies and rules and advise them on the proper use of the association’s facilities. You can obtain copies of these and other useful documents from the Board or property manager.

It is also strongly recommend that you have a written lease agreement with your tenant. As a lessor (landlord) of a home in a community association, the lease you use must require tenants to comply with the association’s governing documents. Typically, in the event your tenant fails to comply with these documents, including the bylaws, or its rules and regulations, a representative of your association will first contact your tenants in an attempt to remedy the problem.

If your tenant does not correct the violation, the association will then contact you and expect you to remedy the violation using the recourse available to you through your lease agreement. If you are unable to correct the violation, the association may pursue appropriate legal action against the tenant, and possibly against you.

It is important that you provide the Board and property manager with the names and contact information of your tenants. This information is necessary if the Board or management company needs to contact your tenant for any reason and of course in case of emergency.

Follow these simple steps and you, the tenants and the association will all have a positive community association living experience:

• Provide your tenants with copies of association rules.

• Educate tenants about the need to follow association rules, and see that they comply.

• Advise tenants on the proper use of association facilities.

• Use a written lease agreement.

• Make sure your lease requires tenants to comply with all association governing documents.

• Provide the association with contact information for your tenants.

Renters: If you don’t have a copy of the association rules or you’d like more information about the association, please contact a board member or manager.

Thursday, November 18, 2010

Collected Assessments and Established Reserves = Fiscal Viability

By Jim Digre

One of the biggest responsibilities that a condominium board faces is maintaining the fiscal viability of the association. The operating income of the association comes from the assessments paid by the unit owners and in the light of rising costs, it is inevitable that those assessments will need to increase, if only to keep up with inflation. However, no condo owner wants their assessment raised and there are some who blithely wonder just why assessments should ever have to go up. Well, now that we are in a time of financial crisis, when personal incomes are suffering, and foreclosures abound, the problem of fiscal viability verses assessments becomes an even greater concern to the Board and the association.

Because of the ongoing financial crisis, many boards are having a difficult time collecting some portion of the monthly assessments needed to run the association. When you pile on top of this a history of poor fiscal management, major problems for the community can arise that may take years of strict financial austerity to overcome. In parts of the country, some situations have gotten so bad that buildings that were once thriving condo communities are looking more like slum projects on the "bad side of town". Units get abandoned, repairs go undone, and general neglect of the property becomes the norm.

Hopefully we are starting to see a turnaround for the economy and those associations that are struggling will have the chance that things will get easier financially. In light of all this though, there are some associations that seem to go on weathering financial storms as if nothing was happening at all and I'm not talking about just communities full of rich people. I'm talking about those associations run by boards whose members truly understand their fiscal responsibilities.

The Illinois Condominium Property Act specifically lays out the responsibilities of the board and what they can and can't do. So, when elected, the first thing board members should do is to thoroughly acquaint themselves with the provisions of the act. The second thing is to read and digest the Decs and Bylaws of their own association. Since assessments are the life blood of the association, part and parcel to these documents is what the board can and must do to enforce the collection of past due assessments. In addition to the collection of assessments, establishing a workable budget that contains provisions for adequate reserves is critical to achieving the financial where-with-all to avoid a crisis when the economy implodes.

"Adequate" reserves is a nefarious statement that can be interpreted in many ways. Most commonly, because of Government lending guidelines, it is thought of as a minimum of 10% of the annual budget. However, those associations that stay viable and avoid special assessments approach their budget, assessment and reserve requirements in a specific and technical manner that addresses the actual needs of the association not just an estimated guess. Understanding that reserves are meant for scheduled repair and replacement of common area elements not "extra" money, separating them from the operating budget and the undertaking of a reserve study to see what they actually need financially is what creates a successful association that can "weather the storm".

If you are wondering what your association can do to improve its fiscal viability and avoid the need for special assessments,  e-mail me and I will happily send you a free report entitled "Reserve Study Know How". In this report you will learn how to do your own reserve study at a fraction of the cost charged by reserve study companies.