Q–How can residents of a condominium association be sure they are being charged reasonable property management fees?
Prior to the owners assuming control of the association, the developer ran our property for 11 months. He charged the association $1,400 a month for management fees.
From what the owners can determine, based upon bank statements and other records, the developer wrote an average of four checks and made three bank deposits a month. Because our association is a small development of 36 units, we feel that these charges were excessive, and were an attempt by the developer to recover overhead costs for services provided by his employees.
What recourse, if any, is available to the association to reclaim a large portion of these fees?
A–At nearly $39 per unit, per month, the management fees charged by the developer appear excessive. However, before rushing into court, secure a copy of the management contract for the developer’s management company and review the management duties stated in the agreement.
Management services are more than writing checks and making deposits. Standard management services include collecting assessments, paying bills for common expenses, filing tax returns, hiring and supervising vendors, preparing association meeting notices and issuing documents for sales or leases of units.
The board of directors should obtain a copy of the management contract for the developer’s services during its period of control. If the duties of the management agent under the developer agreement and the supporting records of the developer do not justify the $1,400 monthly expense, the board of directors has a basis for a lawsuit against the developer. However, you have some homework to do before reaching that conclusion.
Q–I am considering the purchase of a condominium in a Lincoln Park high-rise that has, in my opinion, a relatively low reserve balance for this 200-plus-unit building. The association currently has a special assessment running for two years to build up the reserve account.
How should I consider a purchase of a condominium in this building?
How important is the level of reserves, and how much less should I expect to pay if the building is under reserved?
A–The impact of reserves on a prospective condominium purchase relates to the age of the building. The longer a building has been a condominium property, the larger a reserve fund is needed by the board. Older buildings are more likely to face major repair and replacement projects.
The amount of a reserve fund is not the sole consideration. A prospective purchaser must determine the status of major repair and replacement projects such as windows or roofs. Additionally, what is the likelihood the building will need extensive repairs such as a tuckpointing project?
Through the seller/unit owner, a purchaser can obtain copies of board meeting minutes. To perform proper due diligence for a condominium purchase, review board meeting minutes for the last year.
The minutes should disclose a substantial amount of information which indicates whether major projects were completed or are part of board plans for future years. The impact of reserve funds on the purchase price of the unit, if any, is a question better answered by real estate brokers and salespersons.
Into the pool
The Illinois Chapter of the Community Associations Institute will sponsor a program on swimming pool maintenance entitled “Keep Your Head Above Water.”
Speakers Pat Burke and James Atlas of Pool Watch Inc. and Terry Smith of Pool Care-Aquitech Inc. will discuss staff management, operational services, and maintenance programs for associations to operate a safe and well-run swimming pool.
The program will be held April 8 at the Cross Creek Office Complex, Nerge Road and Plum Grove Road, Roselle. For further information, call 630-980-0251.
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Mark Pearlstein is a Chicago lawyer who specializes in condominium law. Write to him c/o Condominiums, Real Estate Section, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611. Sorry, he can’t make personal replies.
