Condo Media - March 2017 - 25

UNIT OWNERS PAY
THEIR FAIR SHARE
Using a reserve report properly can help
overcome unit owners' resistance to properly
funding the reserve. If the association has to
collect more money by significant increases
in monthly assessments, or even a special assessment, the current unit owners will have to
pay more than their fair share of the reserve
expenses. No one likes to give large sums of
cash in a short period of time to make up for
an underfunded reserve account.
Taking out a loan to pay for roofs will
make future unit owners pay more than
their fair share of the reserve expenses.
Repayment of a bank loan will have to
come from the current and future unit own-

ers in a form of rapidly increased
monthly fees and/or special
assessments.
Funding the reserve ahead
of schedule makes the past and
current owners pay more than
their fair share of the reserve
expenses. This is why you should
have the study updated every two to three
years, and not fund more than the unit
owners' fair share. A reserve study represents the fairest method of spreading the
cost of large capital expenses to the unit
owners who will enjoy the benefits of the
useful life of the capital items.

(i) All condominiums shall be required
to maintain an adequate replacement
reserve fund, collected as part of the
common expenses and deposited in
an account or accounts separate and
segregated from operating funds. The
requirements of this subsection may be
modified pursuant to subsection (m) of
this section." Massachusetts Chapter
183A fails to define what an "adequate
amount of reserves" is.
While not a law, the Federal Housing
Administration (FHA) requires an
association to budget 10 percent of the
budget for reserves. For all intents and
purposes, a 10 percent budget requirement is a meaningless number that is
devoid of any fact-based assumptions.
Following the FHA requirements could
greatly underfund the reserves.
An association needs adequate funds
available to replace a capital item when
required. When the reserve fund is
properly funded, it is less likely that a
special assessment or a bank loan will
be needed. An up-to-date reserve study
and a properly funded reserve account
protect all homeowners throughout the
life of the condominium and represents
the fairest method of spreading the cost
of maintaining the property over those
who enjoy the benefits of the useful life.
And as best described by Gary Porter,
RS, "A reserve study is a series of assumptions about future events, not one

of which is likely to be exactly accurate.
The purpose of the reserve study is
to provide approximately the right
amount of money at approximately the
right time."

A properly funded budget means the
board has fulfilled some of the obligations
to take care of the property. A main duty
of the board is to preserve and protect the
association's assets. Using a well-planned
and reasonable reserve will accomplish
that purpose.

■ WILLIAM MACKEY, CMCA, AMS,
PCAM IS WITH BECHT ENGINEERING.

Practicing Condominium
Association, Real Estate, Litigation,
Employment & Bankruptcy Law

Attorneys left to right: Rob Anctil, Kim Alley, Charlie Perkins, Jr., Scott Eriksen, Rhonda Duddy, David Chenelle

Solving your problems today and
strengthening your association for tomorrow.
We bring the knowledge that we have
obtained from decades of experience of
representing more than 750 associations
to each client's concern.
6 Lyberty Way, Suite 201 | Westford, MA 01886 | Tel (978) 496-2000 | info@perkinslawpc.com

March 2017

Condo Media - March 2017

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