Shareholders and owners of co-op and condo units pay maintenance fees (or common charges) every month, but what are these payments going to and how can board members safeguard these funds? Co-op and condo boards owe shareholders and unit owners a fiduciary duty to protect their assets and use the common funds appropriately. Common funds make up the building’s operating account, reserve, and petty cash, and board members are responsible for allocating the funds appropriately.
The maintenance fee amount depends on the building and whether it is a co-op or a condo, but can range from the hundreds to the thousands. Co-ops tend to have higher fees as they are determined by the percentage of shares each shareholder owns and incorporate the building’s real estate tax. Condo owners own the title of their property separately so these fees are not added onto their common charges. Typically the sale price of a unit and the maintenance fees have an indirect relationship; apartments will sell for more if the maintenance fees are low. However, as new luxury buildings offer more amenities such as pools, gyms, spas and doggy-day-care, buyers have seen a dramatic increase in maintenance fees to contribute to a building’s common funds.
So what are common funds meant to contribute towards? Operating funds must be set aside to manage the building. This includes building maintenance, water and heat bills, repairs, staff salaries, management fees, and any other general expense the building has. In the co-op or condo’s governing documents there will be provisions setting out what building is obligated to maintain and repair, which would come out of the building’s operating account unless it is a bigger project. The building’s reserve is allocated for larger repairs and maintenance such as for the roof, sidewalks and courts, roads, and the building’s exterior. The Cooperator explains how the board will hire an engineer or architect to evaluate the condition of the building and determine how much future repairs and replacements will cost and when they will need to happen. The petty cash fund is useful for small building expenses and the board should keep its balance low.
Board members must be diligent and safeguard the building’s funds. The Treasurer should examine monthly expenses to make sure funding was spent on approved services and to prevent board members using the fund for personal use. Even if a board hires an external management agency, the Treasurer should still have oversight of all expenditures and the board should still approve all projects and expenditures. The Cooperator urges board’s to be as transparent as possible with the building’s funds, which can be done by “using an accounting firm for monthly accounting duties when the association is self-managed or having an annual audit or review”. This provides a further layer of accountability for board members and security for the shareholders or unit owners.