Friday, December 11, 2009

What constitutes a proper common expense?

If you live in a condominium association, the board is constrained by both statute and the governing documents in terms of how and for what it can spend the members' money. If you live in a homeowners' association, the governing documents will control what does or does not constitute a proper common expense of the association but typically an HOA board has a little more leeway in this regard than a condominium board does.

The Condominium Act defines common expenses as the expenses for the operation, maintenance, repair, replacement, or protection of the common elements and association property, the costs of carrying out the powers and duties of the association, and any other expense, whether or not included in the foregoing, designated as a common expense by the Condominium Act or by the association's governing documents.

Common expenses also include reasonable transportation services, insurance for directors and officers, road maintenance and operation expenses, in-house communications, and security services, which are reasonably related to the general benefit of the unit owners even if such expenses do not attach to the common elements or property of the condominium. However, such common expenses must either have been services or items provided on or after the date control of the association is transferred from the developer to the unit owners or must be services or items provided for in the condominium documents or bylaws.

The expenses for any mandated fire safety equipment or water and sewer service where a master meter serves the condominium, shall be also be common expenses whether or not such items or services are specifically identified as common expenses in the declaration of condominium, articles of incorporation, or bylaws of the association.

What does this mean in terms of daily operation? If there is any question about whether or not an expenditure is a proper use of common funds, ask your association attorney for an opinion. Certain expenditures may be the result of good intentions (throwing a community holiday party, giving a departing board member a commemorative plaque, etc.) however that does not mean that expenditure will pass muster as a proper common expense. More associations are amending their documents to give themselves some flexibility in terms of the types of events and expenditures they want to be able to provide to the community. If your members want that holiday party each year, go ahead and amend your documents to classify it as a common expense just to be on the safe side!

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