Imposing Fines
QUESTION: I live in a town house community wherein we are assessed monthly assessments. I have been told that because my payment was received late that they now want the entire year assessment up-front. Neither the By-Laws nor the Declaration of Covenants, Conditions and Restrictions mention anything about an up-front 12-month payment. They do speak of a maximum percentage interest rate that can be charged if payment is not received within 30-days, however the management company charges $10 after 10-days late. Do I have to pay the whole year up-front simply because they say so and bring me to court? Once in court, does the Judge assume they have the right to charge me the entire year up front, and is it up to me to prove they cannot do this (if this is the case)?
ANSWER: I will assume that your townhouse community is a condominium for the purpose of this answer, although it would not really change the analysis if it was a property owners association. The legal concept you are describing is that of "accelerating" the annual assessment. In most condominium documents, you will find authority for the Board of Directors to impose an annual assessment to meet the Association's budget and for the payment of common expenses. Although it is an annual assessment, most Boards expressly are authorized to allow the annual assessments to be paid in monthly installments. Sometimes the authority is specific ("The annual assessments will be paid in monthly installments, due on the first of the month.") and sometimes the authority is a little more general ("The annual assessment shall be due annually, except as otherwise may be established by the Board.")
Whether or not the Board can accelerate your annual assessment likely depends on what the Declaration, Bylaws, and the Rules and Regulations say. I suspect that the Declaration gives the Board enough authority to collect the annual assessment so that all that would be required to allow the Board to accelerate payments that are in default would be a provision in the Rules and Regulations. You will need to review all of those documents carefully to look for all the provisions relating to what the "annual assessment" is, when it is due, and the Board's authority to revise the due dates and otherwise collect the assessments. Unless the Declaration and Bylaws are unusually restrictive, it is likely that if the association does not have the right currently to accelerate the assessments, the Board can give itself that power simply by passing a new Rule.
If the condominium documents provide that the annual assessment is due in monthly installments and there truly is nothing in the condominium documents or the Rules and Regulations allowing the acceleration of annual assessments, then I do not believe the Board has the authority to take that action. If you appear in court and contest this action, the Judge should place the burden on the plaintiff (the association) to prove it has the right to do so.
Even if the Board has the power to accelerate assessments, you usually will find the circumstances under which this can be done to be fairly specifically laid out. The more clear the provisions are, the better it is for everyone, as the Board's right to take the action will be clear, and all of the Owners will understand what they need to do to avoid it. Usually, the language will say for how long an assessment must be overdue before the annual assessment can be accelerated (immediately, 30 days overdue, 60 days overdue, etc.) Also, the language typically will provide that the Association must send the Owner a notice that it is exercising the right to accelerate the annual assessment. This would be nothing more than a letter telling the Owner that the annual assessment is being accelerated and stating the reason. Sometimes the letter will give the owner a right to cure the default and avoid acceleration, but this usually is not required.
The ability to accelerate annual assessments can be a powerful one, especially for a condominium association. One reason this is true is because Virginia Code Section 55-79.84, which allows the association to file a lien against property for overdue assessments, requires that the lien can only cover assessments that came due in the previous 90 days. Without the ability to accelerate overdue assessments, the association would have to either forego this lien or incur the additional expense of filing a new lien at least every 90 days. With the ability to accelerate, the association can deem the entire annual assessment for the rest of the year to be due, and then file a single lien to cover all of it. Also, if the association ends up having to file suit for the amounts overdue, the ability to accelerate will minimize the number of suits that have to be filed against a defaulting owner.
We urge our association clients to have a clear collections policy, specifying the rights and obligations of the association in the event of non-payment for assessments. A robust policy will address issues like acceleration, late fees, interest on overdue assessments, and responsibility for attorneys fees and costs in the event legal services are incurred to collect the overdue balance. This not only will tell all owners the consequences of failing to pay their assessments, but also can decrease the amount of collection activity that is required in the event of default, maximize the collection of assessments, and minimize out-of-pocket costs and attorneys' fees for the association.
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Follow-up to reviewing Financial Records
Question: In this post you cited Virgina Code 55-79.74:1 re charging owners for copies of records, etc. My questions pertains to Virginia Code Section 55.79.75 which states in part "...Unless otherwise exempt as relating to an executive session pursuant to subsection C, at least one copy of all agenda packets and materials furnished to the members of the executive organ or subcommittee or other committee thereof for a meeting shall be made available for inspection by the membership of the unit owners' association at the same time such documents are furnished to the members of the executive organ..." I am being told by the management company that we "members of the community" have to pay for that. My reading of Act does not say that. Clearly, if the drafters of the Act wanted the members to pay for the materials, they wold have said for or referenced 55.79.74. What is you opinion on this?
Answer: I do not believe that the provision you cite exempts members from paying for copies of the materials. It is really intended to address the timing of availability and inspection. You have they right to review and examine the materials at the management office, except those items which are part of any executive session agenda, as soon as they are available to the Board. But if you also want a copy of the materials you may be charged as you would for copies of any other Association document.
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Monitoring the Annual Budget
Q. Our Board is responsible for a $450,000 annual budget. We are concerned that we may need to be spending more time overseeing our manager with regard to financial matters in order to fulfill our responsibilities as a board. What guidelines can you give us on this topic? What laws govern us on financial responsibility?
A. As associations grow in size and sophistication, their funds become more vulnerable to market loss and theft. Though many associations are adopting policies to protect their investments from market loss, not all associations adequately protect their funds from theft--an oversight that could cost thousands of dollars.
An association's size often affects the manner in which board members and managers protect its funds. For example, small associations often use volunteer board members to run the association. They do not hire staff members or an outside management company. Therefore, volunteer officers are responsible for all of the association's fiscal matters. These associations depend on the honesty and integrity of the volunteers to protect funds.
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The Budget Process
Q. As the new President of my Association, I need to start the budget process. Who should prepare the budget? Can you give me some guidelines on making a budget and any pitfalls we need to be aware of?
A. The development of a budget is essential to the operation of a healthy association. It is the Board of Directors’ responsibility to establish the budget; however, a Finance or Budget Committee can be used to come up with a proposed budget for the Board to review. In a few older associations the budget must be approved by the owners. Without an accurate budget, the association will soon find itself in financial hot water. The Board of Directors, based on the budget, is responsible for establishing the level of the assessment.
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Budget Process
Q.I have just been appointed the chairman of my community association's finance committee. Can you give me some guidelines on putting together my association's annual operating budget? I read your column about reserves - how does that get included in the budget?
A.Assuming your association's budget runs with the fiscal year, you are probably starting later than we would recommend, but there is no reason you can't catch up and still have a well prepared budget. Unless you are dealing with older documents that require you to limit the amount of the assessment increase or obtain the owners approval of the budget, the process is very straightforward and logical.
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