We won’t raise the fees
“They are so eager to get their hands on the proffered scam payoff that they fail to pay even rudimentary attention to the details of the proposed transaction and ignore scam cues that may be obvious to others not so overwhelmed by desire.”
—Jeff Langenderfer, a behavioral economist at Meredith College

Many boards refuse to raise common element fees.

There are condo boards that haven’t raised assessments in six years and they are quite proud of that. The problem is that inflation hasn’t stood still and every month the condo has a cash flow problem. They can’t pay all of their monthly bills so they push them out into the next month.

They say that the owners are seniors on fixed incomes and single mothers who are struggling so they can’t add to their “friends” and neighbors expenses. They are afraid that some owners will slide into arrears.

Another reason is that the board and the manager can and will find cost savings. So cleaners, and security guards get laid off, the swimming pool is closed, maintenance is deferred and the property becomes dirtier and dirtier.

The board know that they will be voted out of office if they raise the fees or they will face a requisition meeting to throw them out of office.

Many directors run for office promising the owners that they will not raise the fees. That has a lot of appeal for most of the owners. Greed is a powerful emotion.

How do they do it?
They deal with the cash flow issue by underfunding the reserve account.  While a reasonable 2-5% increase each year over the years would give a balanced budget and would have been easier for their owners to swallow, at some point the board will have to raise assessments 15 to 25% to make up for the lost income.

That increase will actually place more hardship on their owners and cause a lot of anger. Add to that the fact that their reserve fund is depleted so a special assessment or a loan becomes necessary.

Over the long term, ignoring reality isn’t doing anyone any favours and does far more harm than good.

Here are just a few reasons why running annual deficits will come back and bite you:
When you do finally have an increase, the amount will be huge and you will have an owner revolt on your hands. You may have owners fall into arrears and their units could go on power of sale. This drives down property values.
Cash flow issues start impacting routine maintenance that would normally get done. Too much deferred maintenance makes the day-to-day living in your community less desirable.
The condo stops paying its bills on time. Late penalties then kick in and the corporation starts paying thousands in interest on the unpaid balances.
Yet the board may go this route as it is completely invisible to the owners and potential buyers.
Not properly funding your reserves evenually harms property values. A condo with insufficient reserves may not be able to get CMHC insured mortgages. This means that all future buyers will need a minimum of 20% down payment. Fewer potential buyers mean downward pressure on property values.
Once the building starts to slide due to underfunding, the more astute owners, who can see where this is going, sell their units. The lower values attract lower income purchasers and they add to the pressure to keep the fees low.
When the owners finally catch on that their corporation is broke, the board will face criticism or lawsuits for not living up to their legal and fiduciary responsibilities. The owners will accuse the board members and the manager of corruption or they will claim, with justification, that the directors were stupid or incompetent.

It is hard to make pragmatic and proper decisions for the condo corporation’s future but it must be done. It is important that a board properly funds their actual needs and they must not make emotional decisions rather than the sound business decisions that their fellow owners elected them to do.

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