The dreaded phrase “maintenance increase” are two words that most condo and co-op owners don't want to hear, but sometimes it is necessary for a building’s board to make the unpopular decision of raising fees. With rising operating costs, fuel and insurance rates climbing, and the need for periodic emergency repairs, raising maintenance fees often is not only a necessity, but may even be advisable. A good board has to follow one simple rule, it's time to raise fees when cash inflow is insufficient to cover cash outflow, even when utilizing reserve fund contributions.
“The real indicator for boards to know that it's time to increase the fees is when the budget is insufficient to include reasonable services,” says Chad Porter, an accountant with the firm of Kutchins Robbins & Diamond in Schaumberg. “The board has a fiduciary obligation and a legal obligation to determine what those anticipated expenses are going to be; determine what the adequate level of reserve funding is, and that is often a hard pill to swallow, but they can't lose sight of that. They can't let that fear of their neighbors’ animosity overcome their fiduciary responsibility.”
Having low maintenance fees can be an attractive selling point. Some buildings in Chicago may pride themselves on not having increased maintenance for decades, but maintenance fees that are too low can cause a host of problems on its own—from issues with the 80/20 rule to coming up short in cases of emergency.
“Board members have to realize that they're running a business,” says Steven Silberman, director and vice president of the accounting firm of Frost, Ruttenberg & Rothblatt, PC in Chicago. “While board members may not want to raise the fees of their neighbors, they have a responsibility first and foremost to the business of the community.”
Time Has Come
So how does a board know when that time is? Sometimes it’s obvious, sometimes not so much. If the building is hemorrhaging money in nickel-and-dime repairs due to a physical problem that needs a decisive, long-term solution, an increase may be put into effect. Other times, a good board will notice that a potentially bad situation is ahead, and fixes the problem with an increase before the problem mushrooms into a full-blown crisis.