Interlude - An Association that works "For All of Us"

As I study this great American experiment in community living, I do wonder how it will turn out. Some experts say that condominiums are failing to be the social and living systems that they were intended to be. At this juncture in time, I would say, with my personal experience, that they are possibly correct.

Is such failure pre-ordained? Is it inherent in the structure of this organization and is it woven into the fabric, its very being? Are we destined, as a former board member once told me "to slip continuously into mediocrity?"

There are questions which would seem to be vital and must be asked. If we are not to simply operate out of subjective "change" which is defined as positive and negative, and based upon fundamental human issues such as fear and greed, and "winners" and "losers" then what should we be operating from?  These are questions for our leaders to ask, to answer and to express in their daily actions. Leadership on the board and by the board as a single entity is the only possible way out of the morass that encompasses this association.

Are they up to it? Are WE up to it?

I'm sure a few readers wonder where I have been going with this blog over the past 120 posts, and where I have been coming from. It's probably time to tell you. You have been very patient and gracious. 

Consider that the mantra of this group has been about "change". I suggest that is inadequate. How about "Transformation?" Transformation of the board into a force for positive change. Not "change" as we normally think of it, nor "change" as a buzzword, something desirable which we should therefore all aspire to. I don't mean change as it has been most recently expressed in this association, an association that works for some of us, or a few of us, or sometimes the majority of us. I mean a transformation into an association that works for all of us. For it is my perspective that an association that doesn't work for "all" in fact, works for none. Organizations in which "some" goals are achieved, or, in this case are working for "some" owners, are inherently inadequate.

What would that look like? Would you like to live in such an association?

It's your choice. We can all be a force for change, both positive and negative, or we can be a force for transformation. I choose the latter. How would that look on our board? As an example, such a board, that is, a board "that is working for all of us" as stewards and as leaders, would approach issues entirely from the perspective of performing their "fiduciary duties". When an issue came before such a board, each and every board member would be ready, willing and able to discuss, argue and present both and all sides of any issue or argument. By contrast, in a board that is coming from "change", individual members present or advocate only that side that serves them or a group or groups in this association.

Wouldn't that be interesting? Wouldn't that be empowering? For each of our board members to be knowledgeable in all aspects and all "sides" of the issues? To see each board member promote all sides, both the pros and the cons, of all issues, both large and small at all times, instead of the current approach that "its right" to do this and "it's wrong" to do that, or "it's just" for this to occur and "it's unjust" for that to occur.

It would be a manifestation of an association that works for all of us, each and every one of us, not a few and not the many, but all of us. It would be the manifestation of a board that is really up to the task and is seriously engaged in an inquiry about leadership and stewardship.

Will this happen here? Can this happen here? Well, as I said in an earlier post, this is 2010 and it will not be a repeat of 2009. I am committed to that.

But what are you committed to?

Board Operation, Some Examples and Fiduciary Duties revisited - Part IIa

"In successfully run homeowners associations, members of the board of directors possess good communication skills, carefully plan in advance, make good judgments based on sound decision making practices, delegate work to qualified committees or advisors, exercise initiative and independent thinking, and work well together as a team. In contrast, political or fiscal failures often result from the acts or omissions of boards of directors lacking good communication skills, procrastinating necessary work, making bad judgments without seeking input from committees or advisors, stagnating for lack of initiative, or political stalemates caused by dysfunctional personal relationships among the board members. From this perspective, the exercise of fiduciary duty flows naturally from effective business management, and it is the breakdown of good management practices, and the lack of skilled leadership, that breeds claims for breach of fiduciary duty."(6)

This is the second post on this subject and the first half of Part II of a multi-part post. In these posts I'll reference and quote a few sites and professionals, and provide a few "real world" examples. This will illuminate some of the issues faced by our board (or any HOA board) and a few of the issues when performing one's fiduciary duties. The next post will go into this a bit further.

I suggest the reader take the time to visit the links at the end of this series of posts, for further information. 

I am of the opinion that our board has been operating at a "technical" level. There are more than a few reasons for this. There have been and continues to be loosely defined responsibilities and accountabilities among members of the board. I think there is a perception that they must keep a "majority" of the unit owners happy and contented and at other times also cater to the whims and complaints of other groups. They may see their principal job as overseeing the maintenance, landscaping and other firms which support this organization. They may perceive their "duty" as bending the rules by reducing the enforcement of the rules, so that no one is offended and no one is compromised. Of course, in such a situation we are all compromised. If they are, in fact, attempting to operate for the majority of us, rather than for all of us, is it any surprise this association is sinking into divisiveness and petty complaints?

The irony is, the group that initiated this was all about a shift from a business model to a social model.  They seem to have become that which they most abhorred! Isn’t there an expression that "What you resist, persists"? Perhaps this is why our HOA is becoming a field for power plays, resentment and passive-aggressive behavior? I'll let the board and our great thinkers answer that one,  because whether they know it or not, they do, in fact, "lead by example".

I have recommended, in writing, that our current board attend a session with attorney and workshops to improve their understanding of the meaning of their "fiduciary duties".  This would be a mandatory assignment for all board members. Failure to attend would require resignation. In this small, intensive and "hands on" workshop, there are numerous questions to be asked, and answered. What are the issues and the practical application in an HOA? How to run an association for the benefit of “all” and avoid catering to the majority or other groups? How to balance the business aspects with the social aspects and properly enforce the rules and regulations? How to deal with dissension among unit owners and divisiveness among board members and successfully complete and uphold our duties? What is the proper conduct for a member of the board?

Here is the first of several examples, to illuminate the question "what are fiduciary duties". Sometimes it is useful to determine what something "is" by determining what it "is not". Or, what actions "are" consistent with fiduciary duties, by studying actions that "are not". Here is a list of recommended actions:

(1) "What actions can community association boards take to limit claims that they have breached their fiduciary duties?

In general, we offer the following advice to community association board members:

1.     Understand the association and its operations.

2.    Devote time to association business and actively participate in decision-making.

3.    Select and support good management.

4.   Seek the advice of professionals and listen to the advice those professionals give.

5.    Avoid making decisions solely based on popularity or to quiet dissension among neighbors.

6.   Serve the association altruistically, without compensation or special treatment.

7.    Conduct business at arm's length and for the association's benefit, not your own.

8.   Document the decision-making process in the association’s minutes, including professional advice received, for all major decisions."

I suggest the reader re-read the above. I’ll use some of the above in a few “real world” examples.

Let’s start with Number 3. Last year, there was open hostility toward existing board members, management and our professional maintenance company. It seems that the position was taken that one doesn't have to support management if they truly believe that management isn't "good". Really? REALLY? Certainly FUPM's communication methods with unit owners were under par; there were sufficient unit owner complaints about that. But it went further; why, ”we all knew” that management isn't good, didn’t we?  Question: Who is the "we" and how do we know what we know?  Well, I take another view. I think that it is the role of the board to support management, to guide management in correcting their inadequacies as part of the "partnership" that exists in running this HOA. And vice-versa. Instead, it became very clear that our management firm was in the crosshairs of a few. But the storm seemed to “blow over” and nothing happened! Actually, something did happen, and management now appears to be far more compliant to the wishes of the board, including the board's position on "hot button" items such as unit owner fees.

Current or recently elected board members have chosen to listen to management when it serves the purpose and position of some of the members of the board, and management seems more compliant, sometimes defending the position of certain board members during association meetings, etc. This year, management made an about face at the budget meeting of the association and made a statement which was something like "management does not believe a fee increase is necessary at this time." This was immediately seized upon by most of the board and has been used to justify their vote, to hold fees constant. How is it that members of the board can have it both ways? Management is “good” if the information it provides suits and supports the position of the board, and yet management is also “bad”. How can that be? Our treasurer, an experienced board member, stood his ground and did not cater to the "will of the majority". Good for him.

Number 5 seems to be a reoccurring and very difficult one. Is the goal to please people or keep them happy and thereby seek re-election? At times members of recent boards have seemed to promote and favor the wishes of groups, including the ever changing and nebulous "majority". Our current board may be accelerating the movement in that direction. Forms are being prepared with questions for unit owners to answer. From this, the position of the majority on key issues can be tabulated. Of course, since nearly half of our membership doesn't vote, it would be "common sense" that the majority will not respond to these forms.  There is a problem here. A group is a group. Satisfying the needs of the majority at the expense of a minority is "making a decision based on popularity." I thought an association is to be run for the benefit of "all" members. Any time the board of an association operates by seeking approval from a group of unit owners and then attempts to justify their actions because of the "will of the majority", it is headed down a very slippery slope. Consider for a moment the possible rationale of such a board. "We are merely doing what our membership is asking us to do." Is that leadership, or politicking?

Our board will have to make unpopular decisions. It appears that their current rationale is to attempt to offend as few people as possible. That in and of itself, is neither "good nor bad". However, it is not a valid approach if the principle goal is to be "popular or to quiet dissension among neighbors."

The board must uphold the condominium act, must collect sufficient funds to properly maintain this property (common elements) and in other ways "protect unit owners from themselves". That will include unpopular actions. Interesting, but no one asked me if I was for or against a fee increase during the budget planning period, and it’s my understanding that board members don’t read my blog. I suspect some don’t read my letters which are routed through management, either. Is it possible that the justification for this is their position that I am not a member of the majority, or some other special group? Since when is that a criteria? The only approach which is acceptable is for our board of managers to make decisions in good faith and with a rational and informed basis, which is to say, "in a manner each director believes to be in the best interest of the association, and with such care, including reasonable inquiry, as a prudent person in a like position would ordinarily use under similar circumstances." That is why I have taken the position that each and every board member should be willing and able to discuss their votes, and provide their basis and reasoning in reaching that vote. Is it possible that reading this blog would be a part of being “informed” and making “reasonable inquiry”? It certainly isn’t if the goal is to only read that which supports one’s preconceived notions.

If there is a desire or emphasis to satisfy the purported "group or majority", it is inevitable that some unit owners will be given short shrift.  I'll use the example of the change from guest parking to unit owner parking, which was discussed and voted last year in our HOA. During the unit owner's portion of that meeting, a unit owner made the request that the board consider preserving some of the guest parking as handicap parking. Some board members began discussing this, including the fact that the "guest" spaces did provide level asphalt for egress from vehicles, but it was quickly passed over in the rush to vote for the conversion of all "guest" parking to "resident" parking. As I recall, this had been promoted earlier in a survey. It seems that this conversion was the "popular" decision to make. If such a stance is taken, doesn’t that mean that the issues and the votes will go whichever way the wind blows. Is this leadership?

Continuing to another "popular" item last year, there was a request to change the rules to allow lawn posting of unit "for sale" signs. These are currently permitted only in windows. This item did not make it to a vote by the board last year. It will resurface. I don't have a personal opinion, either way. The questions for the board to answer in considering this would fall under the umbrella “How does this serve, enhance, or detract the entire association?” Some of the specific questions could include: 1) What is the recommendation of management, and why. 2) What is the opinion of professionals and who are they and why did they state what they stated. 3) How does this serve all the members of the association and why does it do so; alternatively, which members of our community are not being served.  4) Who made the request that the board consider this change. 5) Are there any costs or liabilities to the association in doing this, 6) What would be the effect if 20, 30 or more signs were posted? 7) What would need to be done to control the posting and maintenance of these signs. 8) What rules would be necessary for esthetics, such as to keep signs “neat”, maximum size and quantity per unit, 9) Could or should signs be removed by the association and under what basis? 10) Should a fee be extracted if there is any requirement for cleanup by maintenance, for example, damage to lawns, signs scattered on the grounds, etc. 11) Who is responsible for damage to lawns, etc. 12) In considering this at this particular meeting, what other business needs to be considered by the board at this time and which may be of higher priority due to scheduling, weather, breakdowns, etc.

And then there are requests for "garage sales" and "association parties" on the property, and so on. These I am certain will again come before the board. So how would one, if on the board, present this? I suggest that a "reasonable inquiry" in this example would include, at a minimum: 1) What was the cost to this association when the last injury case came before it in legal action, 2) Has the board considered the "experts" position regarding the possibility of legal action against this association, for example, noted attorney Mark Pearlstein's statement that "60% of all condo boards and homeowners associations in Illinois are involved in some kind of legal suit" see Our "City within a City" , 3) What was the increase in insurance rates the year following that last legal injury case, 4) What is the cost for rider insurance for each party or activity; last year it was initially stated to be nothing but later it seems a rider was quoted at $4,000, 5) Did our board budget funds for this insurance in 2010, 6) Is this a prudent use of unit owner fees, 7) Is it possible to control visitors and if so, how and if not, is that a problem or could it be a problem for unit owners. 8) Specifically where on the property would this occur and what limitations would be placed on unit owners. 9) Are there any safety or legal issues to be considered. 10) Has legal counsel been consulted. 11) Who will pay for any cleanup costs, damages, wear and tear, etc. and how will this be collected. 11) What restrictions will be placed upon unit owners who participate or organize these events. 12) What other restrictions would be necessary so as not to interfere with the lives of unit owners who choose not to participate, for example, what dates, times, day of the week, etc. 13) Who does this serve in the unit owner body, and who might it not. 14) In other cases, this board has taken the position that all unit owners in the immediate proximity of unit owners who want to make certain changes must be consulted and must give approval. Would that not also be appropriate for these types of events? If not, why not?

If the above questions are not asked by the board, then are they in fact "acting in good faith and reasonable care" in exercising their duties and responsibilities?   

As another example, I want to present the discussion last year of the ongoing upgrade of the railings on second floor patios. You may recall the meeting in which some board members challenged the necessity of doing so. Unit owners attending the meeting expressed anger over fees and the apparent willingness of the board to waste money. The new board members stated that this was a problem because 1) we are not currently required by our city to provide this improvement, and 2) There was issue taken that our maintenance company was doing the work, and making money doing what seemed to be an unnecessary task. During the discussion that ensued, our professional management stated 1) This was being done as a pro-active measure, it was also stated by other board members that 2) The association has, for a period of years, been providing free screening to cover the open areas of the older style rails to any unit owner who is concerned about the size of the openings or have children or pets and request this. 3) Management and the architectural director stated that while not currently mandated by code, this has a safety component and the association has been pro-active in doing this. 4) The existing board stated that by doing it this way, the association can spread the costs over a period of years and coordinate with the painting schedule of the buildings, 5) It was stated that all aspects of decks have been a particular concern of the association ever since the notorious collapse of one in Chicago several years ago and the litigation that created, 6) The architectural director stated that the association routinely maintains and repairs common elements, including the concrete first floor patios. The maintenance of railings would therefore seem to be appropriate for second floor owners. When the vote was taken, the board decided to continue the replacement of balcony railings on the normal schedule.

In the above example, was the decision appropriate to "fiduciary duties"? Were the explanations reasonable? Did the board seem to understand the operation of the association? Was the board supporting management? Was the advice of professionals sought and considered? Was this made as a popular decision? Was compensation to board members involved in the decision making? Was the decision made "at arm's length" and with no political or other reward?

Looking into it a bit deeper, is the association responsible for the maintenance of common elements and secondly, is the association required to provide adequate or necessary safety measures for common elements? The answer to both of these questions is "yes" and by addressing this issue, was the board of managers "acting in good faith, with a rational and informed basis for their decision?"

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References, Errors, Omissions, Additions:

(1)  Colorado HOA Governance
(6)  HOA Law - Jeffry A. Barnett, APC
 * Miscellaneous spelling, grammar and typographical corrections.
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Board Operation, Some Examples and Fiduciary Duties, revisited - Part I

I'm going to provide a few quotes and links to illuminate the subject of "fiduciary duty" as it applies to an HOA with some insights into these duties as they have been and are being applied in this HOA. Because of the length and richness of this subject, I’ll provide this in three parts. Part I will serve as introduction, Part II will include references and review of “fiduciary duty” in the words of "experts" and certified "professionals", and in Part III I’ll look at some of the practical application of  "fiduciary duties" as currently and previously applied in this association and I'll draw some conclusions and perhaps make a few recommendations. 

First, some background information. If you came here for entertainment, you came to the wrong place. I don't think this subject will be particularly entertaining, but I suppose it could be. I should also state that one of the forces that drive us is the desire to remain in the dark, and unenlightened. That way, we can continue on our merry way and do untold mischief, and feel good about ourselves at the same time. Yes, it is true that "ignorance is bliss" and if you crave that, you have also come to the wrong place. 

Our board is comprised of many newly elected, or inexperienced members. That is to say, some have no prior experience on the board of an HOA, or any board, for that matter.  Some have no “professional” or business experience. So it would be presumptuous on my part, and arrogant on theirs, to assume that they know their true duties. Most of us, and that includes myself, operate more as technicians than as leaders. That's a natural way for most of us to be. We all have immediate tasks and responsibilities to perform, and we can and do become readily absorbed in the day to day minutia. However, to do any task well requires some critical thinking skills and the willingness and ability to keep "the big picture" in perspective, and to prepare for the part. That preparation can take years; some of us prefer to think like the Nike ad, which purports that all it takes is a nice expression such as "Just Do It" and we are ready for the task at hand. Reality has a way of deviating from 30 second sound bites. If you have read about Chesley B. "Sully" Sullenberger, the pilot who landed a disabled aircraft in the Hudson River in January 2009, you quickly discover that he was unusually trained. That training, some on his own initiative, allowed him to accomplish what some people think was a "miracle".

For the members of the Board of Managers of an HOA in Illinois, part of the training is an understanding of the Illinois Condominium Property Act, another is a comprehensive  understanding of the Bylaws of the HOA and the Rules and Regulations. Another and perhaps most important is an understanding of their “fiduciary duties”. Finally, each member of the board  must possess sufficient education to exercise common sense, make sound business decisions, and perform their specific duties and assignments.  If we are to assume that an HOA is first and foremost a business, which it in fact is, then some rudimentary arithmetic and accounting skills are required. How else to review, approve and execute budgets? And so on.

It is the responsibility of candidates for the board to determine their suitability and  to either possess or rapidly acquire the fundamental skills necessary to function as members of the board of managers. They all vote on all matters, and they begin voting at the first association meeting. So it would be common sense that the members each possess these fundamental skills. Of course, if they don’t then they must rely upon “professionals” who are experienced in these matters, or they must rely upon other board members. In either case, the quality of the board is impaired. In the first situation, a board can become over-reliant upon the judgment of a single manager or professional. In the second case, the board may become the expression of one or several “powerful” board members. In both cases, the results can be less than satisfactory. For example, at one time, this association relied upon a manager who provided guidance on budgeting and reserves which was, to understate it, less than adequate.  We have the historical data to substantiate this. 

The opposite extreme is also possible. In such a situation the board decides that it is far too reliant upon the “professionals” and is eminently and inherently qualified to make more or most of the decisions.  At our HOA, the term “larceny” is sometimes used by some unit owners to describe past boards and management. There is no proof of any of this; it's simply innuendo and character assassination. I do have to wonder how people can think and say that the past situations were so terrible, and then in the next breath promote a position founded on the belief that our current board is so eminently capable, qualified, trustworthy and honest that such a situation “could never occur here”. This type of flip-flopping is not rational and certainly doesn't adhere to any definition of  "common sense" that I am familiar with. Any manager is somewhat familiar with the “Peter Principle” and if people are seriously considering this route, I suggest all unit owners read Tom Peter’s management book “Thriving on Chaos” (sorry for the pun, Mr. Peters). I do have a copy of this excellent book in my library.  But again, the fiduciary duties of a board would prohibit certain aggressive actions. 

Of course, a board could take the approach that they are first and foremost "administrators", hire professional threesomes in all categories, and then sit back and allow or direct, depending upon the skills of the board, the professionals to argue each position and present for each situation. The board would then simply select the two that, in the opinion of the board, are most satisfactory and vote on that. Using this approach could be prohibitively expensive and would run afoul of "fiduciary duty" issues. After all, could anyone really state that such an approach was a good and prudent use of association fees?

The members of our board are mandated and required to put the association first, at all times. Upon becoming members of the board of directors of BLMH, they gave up certain personal rights as a unit owner, because they must now act in the interests of all the owners of the association. They are prohibited from creating or supporting groups or sub-groups in an HOA. For example, as a unit owner, one can ignore the rules and assume this is primarily a social club and press for block parties, garage sales, street fairs and socials and coffees. However, a member of the board of managers, who also may have similar beliefs and agree with a specific group, is required to put their personal wants, needs and desires aside. They must view this solely with the perspective of an impartial member of the board of managers. That perspective should include a consideration of  the impact on all unit owners, which may include but is not limited to the cost of insurance for these public parties, the consequences of accident and possible litigation, direct and indirect costs, the problems of traffic and parking and possible hazards with visiting people driving our, to them, unfamiliar streets, and finally the consequences and desirability of the imposition of these events upon all unit owners. (Note: We don't have a sidewalk along our streets so most unit owners and their pets walk in these main streets, which because this is a PUD, are narrower than the usual, and cannot readily accommodate pedestrian traffic and two-way vehicular traffic).  A member of the board must weigh the possible benefits to all unit owners, as well as all costs both direct and indirect, as for example "wear and tear" on association property, and any and all possible liabilities. The personal position of the board member is of no relevance. Members of the board must  actually transcend the issues and view everything from the perspective of their fiduciary duty on one hand and the Illinois Condominium Act, the Bylaws and Rule and Regulations of the Association on the other.

What's best for the association is not necessarily the result of formal or informal polls. As an example, what if the majority of this association, as the result of a poll, decided they wanted no reserves and that all monies paid should be returned? This is an extreme example, but I think some of our board would be inclined to say "return the money" because that's what they believe the "majority of us" want! That’s one of the dangers inherent in an HOA in which a member or members of the Board of Managers are unfamiliar with their true “duties and responsibilities”.  If any member of the board assumes they have a broad political or  “social mandate” and their duties encompass ambiguous “change” and their specific tasks are the administration of  the Landscaping contractor, Maintenance contractor or even simply preparation of our Newsletter, then they are operating out of a personal perspective, not a fiduciary one.

To look at this a little closer, it is perfectly appropriate for me, as a unit owner, to express my "outrage" over what I perceive as "injustice" or infringement upon my personal “rights” or the rights of others, and I can threaten, cajole, or solicit agreement to change the rules which don't work for me. And in so doing I can ignore all or most of  my neighbors. However, as a member of the board, I must publicly and privately uphold the current rules and regulations and see that they are applied fairly and impartially to all unit owners. The board may openly discuss the issues inherent in the current Rule and Regulations, but is bound to uphold those rules fairly, impartially for all unit owners, no matter what their personal situation, relationship to the member(s) of the board or even their proximity as neighbors.  There is a method for altering the rules and regulations, but again that method not only encompasses open discussion but it also requires the members of the board of managers to view this from the perspective of their “fiduciary duties”, which includes the rights and privileges of all unit owners.

To overstate this, I can also, as a unit owner, operate from the perspective that I want to be as popular as possible. I can schmooze and "ooh and ahh" and express "oh, you poor dears" to my heart's content. However, as a member of the board of managers I must remain somewhat aloof and avoid entanglements and promises. I can only promise that I will always be objective, will do my best to use sound business judgment and common sense to guide this association in such a way that divisiveness is reduced, that the property (common elements) is well maintained, and that I will evaluate budgets encompassing both current and future needs when preparing and voting for assessments, fees, promoting capital projects and the funding of current operations and maintenance. 

It is unfortunate but in the real world, not all of us operate from integrity and it is also true that individuals seek seats on boards for personal esteem, personal reward and to promote personal agendas. If you doubt me, then you are truly naive. I recommend that you spend about $100 and talk to a good lawyer who specializes in condominiums and HOA law in Illinois. I can recommend one.

As individuals and unit owners, we may perceive our duties and obligations as the member of a board of managers of an HOA in a certain way, and there are many possible interpretations, but only one is of any significance, and that is the legal interpretation as it applies to our HOA. Winning a seat on the board of managers is nothing more than an opportunity to be a steward. Some say it is to work for the good of the association. But what truly is the "good of the association"? That is an area of mischief. Only by becoming intimately familiar with the concept and realities of one's "fiduciary duties" and by using that as a beacon to guide a board member's actions, is it possible for the board members of an HOA to navigate through the problems which face them.  If the board member is capable of exercising common sense and good business judgment, it is then a possibility that the board member will successfully complete his or her tasks, but will most likely not be universally popular.  

Actions by a board to put the board first is not putting the association first; power in a democracy does not give one the power to do whatever one pleases. It does provide the opportunity and that can be coupled with private agendas; ergo the need for the Illinois Condominium Property Act, for observers, and for point of law. Of course, what does one do in an association when members of the board have the unflagging opinion or belief that their position always conforms and aligns with the "right" position? That is, of course, in accordance with their personal beliefs, standards, judgments and evaluations.  It may also be aligned with those of a group of unit owners which is forever promoting and reinforcing these unshakable beliefs, to the benefit of course, of that particular group. In such a situation the board member occupies the center of the universe, and we the unit owners, in particular the "silent majority" of us are, I suppose, simply dust and detritus orbiting around them!

When posing some of these questions, I have been told that a good paper trail is always a handy thing to have, and there are any number of organizations that provide "independent and objective evaluations of fiduciary compliance".

  In part II, I’ll take a closer look at what exactly are the “fiduciary duties” that guide our board and how they guide and enable a member to do “the right thing”, no matter what their personal viewpoint may be. 

It's That Time for Winter Care of Our Trees

This is a tree situated near my unit. Looks typical. Can you spot a problem with this tree? (Hint: click on the photo to enlarge).

The problem is what arborists call "Water Sprouts". This tree has many of them. A "water sprout" is a vertical growing shoot, which steals energy from the tree. Trees should be trimmed so their energy is directed to growing a canopy. This tree appears to have been neglected and has many water sprouts. I know, I have been watching it. Some of the sprouts are now 5 feet in length and over one inch in diameter at their base. In the following photos, there are yellow arrowheads to point to some of the water sprouts.

If we want these assets to thrive and live a full life, they must be properly cared for. Otherwise, they will be stressed, will become diseased and will die. We then get to spend our fees on replacing them. So, how do you want your fees spent, and how do you feel about our trees? Let the board and our managers know.

Before I get some negative comments, let me also say that I brought my concerns to the board during "homeowner" sessions of the association meetings. I asked general questions about caring for our trees and doing things to extend their lives, and I expressed my concerns. This year, I suggested that the board consider spraying fruit bearing trees to diminish their fruit, in lieu of chopping them down, as some unit owners have requested. I also pointed out the "water sprout" problem. These sprouts should be trimmed each year, as part of the winter care of our trees. However, that is not occurring regularly. I have suggested to the board that they consider hiring an independent arborist to inspect our trees and give an opinion. We are a very short distance from the Morton Arboretum. It should be relatively easy and simple to do this.

I suggest that, after reviewing these photos, that you take a few minutes when walking our grounds and look for water sprouts.

It's all a choice. We have trees, over 800 of them and the shade and wildlife they bring. So shouldn't we care for them?

Here are a few photos of several trees, with the water sprouts flagged. Some of the sprouts are are new growth, from 2009. Others are obviously several years old.

Here's another view

Even more water sprouts!

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Comment:
All Photos on this site are copyrighted and are watermarked. They may be copied only with permission.

Our "City Within a City"

This year, I've begun to openly use this term for our HOA, in an attempt to convey the full breadth and scope of this community. I also use the term to give the reader an understanding of the unusual nature of this 40 acre micro city with its 40 buildings, streams, rolling landscape, ponds, hundreds of trees and of course, the wildlife that accompanies, and to provide some indication of the level of complexity inherent in the HOA.

Our community is well manicured, but is not "pristine". Our trees bear and drop fruit, the ducks quack all summer long as they paddle from pond to pond via the flowing streams and there are the occasional pet and goose droppings. We have abundant wildlife which passes through each day, including the ever present squirrels, many birds including woodpeckers, owls, red tail hawks, chickadees, brown creepers, nuthatches, sparrows, blue jays, morning doves, cardinals, wrens and even the occasional titmouse. In summer there are of course, the robins, blue birds, warblers, indigo buntings, creepers and grackles. We see an occasional fox wandering the property early in the morning and now the coyotes who are attracted by the abundant food.

Our unit owners and our board sometimes forget the true nature of this community, which is considerably more elaborate than the typical HOA. We spend more on trees and landscaping in a year than many HOA's spend for their entire budget in that same year, and yet we have no reserve fund for this asset. I understand the property encompasses assets of about 100 million dollars, depending upon how you run the numbers. We also have about 336 families, who have a diverse set of opinions and positions on any issue. Considering the characteristics of the "bell shaped curve", we have unit owners who traverse the extreme positions of "I love it here and want my ashes spread" on their passing, and we also have a few who "can't wait to get out."

We own our streets, we pay for everything and that includes even the street lighting, and our board is responsible for all of the decisions required to maintain this elaborate enterprise.  Those decisions are aired and voted during a monthly 2 hour meeting in view of a handful of unit owners who choose to attend. A few here think it's easy. Just snap your fingers, call management, etc. and it all gets done. We have a large pot of cash and so we are "sitting flush". All it takes to run this place is a couple of hours a month sitting on the board, a little common sense, and the ability to sign a check book. We can hire and use any management company, and even my "brother in law" could do a better job plowing the streets with his '90 Silverado pickup. Rules are meant to oppress or confine. Etc, etc.

Overall, things have been sufficiently smooth that half of our owners don't even bother to vote. So, obviously, things have been darn good here. Fees, which seem to be a problem for a few, again are sufficiently reasonable that half of the unit owners neither complain nor vote. They simply mail in their monthly check and go about enjoying the ambiance.

A few "activists", for lack of a better term, are dissatisfied. Some promote divisiveness, spread rumors and promote the position that we don't need the help of our professionals. Anyone can do it, so "we can do it ourselves and we can do it better." In fact, a few handymen could do it all. The position of the prudent, that we must be cautious, pinch our pennies, consider long term financial issues and planning, and avoid situations which could lead to legal entanglements, etc. are frequently viewed as those of the delusional. Facts seem to be a problem for a few unit owners, such as the quote attributed to attorney Mark Pearlstein, a noted association attorney and author of the "Condo Adviser" in the Chicago Tribune, who stated that "60% of all condo boards and homeowners associations in Illinois are involved in some kind of legal suit." Such statements are countered with the argument that "it would never happen here."

Well, some of us are ever watchful in this city!

Why Special Assessments are not an Option

"Special assessments are designed as the solution for emergencies, not regular common area expenses."
.....Robert Nordlund, P.E., Reserve Associates  (1)

For the past two years I have observed an ongoing debate among unit owners and the Board of Managers regarding budgeting, fees, funding of reserves and special assessments. A few unit owners feel that fees are "too high", and I think some members of our Board of Managers are predisposed to keep monthly fees low, even though there is a question about the adequacy of our reserves.

We have a variety of people here at BLMH, some of whom are very new owners and others who have been here for 20 or more years. Anyone who has been here for more than 10 years can remember "the good old days" when fees were much lower, and annual fee increases were lower than they have been in the recent past, the year 2010 excluded. I've posted a significant amount of information about that on this blog.

Unfortunately, those same people were probably spoiled by the wonderfully low, and I do mean low, fees and sometimes negative fee increases. Yes, you did understand that correctly. Rather than fund reserves, this association, at one time, actually reduced the fees, and not just once, or twice, or three times! The consequence was low fees, reserves of less than $100,000 for an association covering 40 acres, and more than a few very happy, but totally oblivious unit owners. Some have since moved on, but many did not. Oh, in case you think this was because Illinois did not have a condominium act, think again. There were condominium laws in every state in the union by 1969. So simply having a "law" does not get a result. This applies to our association reserves just as it does to the 20 MPH posted speed, which is also routinely violated.

Fortunately for us, in 1999 a new management and a board which could and would listen, and understood section 9(c) of the Illinois Condominium Act, decided that something needed to be done. So our fees were gradually and continuously increased from the period 1999 to 2009. That board was replaced in a palace revolt or something like that in 2008 and 2009. One of our professional managers, during a recent presentation to the unit owners during an Association Meeting, used the term "mutiny" to describe this event.

In 2010, the new board, which had completely overwhelmed or replaced the previous board, decided that a 0% fee increase was sufficient. This poses the question: Are we returning to the "good ol' days"?

Well, I don't think so. Not all of us here are "oblivious" and we have more than a few knowledgeable unit owners. So we have people who understand Section 9(c) of the Illinois Condominium Act, which is very specific. It states in part:

"All budgets adopted by a board of managers on or after July 1, 1990 shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements. To determine the amount of reserves appropriate for an association, the board of managers shall take into consideration the following: (i) the repair and replacement cost, and the estimated useful life, of the property which the association is obligated to maintain, including but not limited to structural and mechanical components, surfaces of the buildings and common elements, and energy systems and equipment; (ii) the current and anticipated return on investment of association funds; (iii) any independent professional reserve study which the association may obtain; (iv) the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves; and (v) the ability of the association to obtain financing or refinancing."

The  operative word is "reasonable" reserves. Some people think that "reasonable" fees dictate the reserve level. That is untrue. Reducing fees is not the intent of the act, I have been told. The fees are necessary to fund operations, maintenance and for establishing and maintaining "reasonable" reserves. Our current fees are the consequence of a failure for an extended period of time, of previous management and boards under the advice of that management, to establish "reasonable" reserves in the period 1983 to 1999. However, we are today, in much better financial health. In fact, based upon some of the many HOA horror stories I have read, we actually are in very good condition. Not perfect, and perhaps not fully funded (more on that in another post).

I have sent a letter to our association management regarding the most recent fee action. I have also suggested to the President of our new board that they should consider a workshop on the Illinois Condominium Property Act and on the duties and responsibilities of the members of the board with regard and respect to their fiduciary duties and the Act. I did so from the perspective that our current board is comprised for the most part of individuals who have one or fewer years of service on this HOA board, many have no prior experience, and the board has stated during a recent association meeting that they have an interest in pursuing an education in board matters. I am very concerned that all members of the board may not understand their duties and responsibilities. It would be foolish to assume that simply winning an election "qualifies" one for the job.

I think that every unit owner should be a demand that each and every board member be willing and able to explain our fees as they apply to the operation of our association and how they comply with the statutes, and how they got to be what they are.

According to the Act, "reasonable" reserves must take into account:

• The repair and replacement cost
• The estimated useful life of the property to be maintained
• The current and anticipated ROI of the association funds
• Any independent reserve study (which includes the one submitted by management in 2009)
• The financial impact on unit owners of any fee increase necessary to fund reserves
• The market value of the condominium units
• The ability of the association to obtain financing or refinancing. 

The last item might be attractive, but consider that financing of capital repairs or improvements means that from that day forth, the monthly fees assessed on unit owners will be comprised of:

• Fees for ongoing Operating and Maintenance expenses
• Fees for accumulating Reserves for future roofing, driveway, street and other capital repairs
• Fees for repayment of loans and financing which were obtained for funding current repairs.

In other words, if this association decides to pursue a loan for capital repairs, our monthly fees will increase, because each unit owner will have an amount added to their fees each month for the sole purpose of servicing the debt. That is to say, we'll pay an additional amount each month for principal plus interest on the loan. Another way to view this is as a "second mortgage" for each and every unit owner.  

Is there any way to justify such a loan? I suppose some unit owners might view it as preferable to a "special assessment".  I also suggest that unit owners and board members who favor a loan consider the impact on unit sales. Our current treasurer has stated he is "opposed to special assessments, period". He is also opposed to loans which mask special assessments. I have to ask our board, how many potential buyers would want to purchase a unit in an association with fees which include a mortgage? Of course, the way to responsibly deal with this, would be for any such loans to include a covenant that the unit owner must pay off his portion of the loan at the time of sale of his or her unit. This would be the fair and responsible way to deal with this.  If the board stated that this is the only method under which any loans would be considered, I have to wonder if some of the support for acquiring such debt would vanish. That would indicate if those who are so willing to promote mortgaging our future, are simply doing so for their own selfish reasons, which is to say, to avoid paying their fair share of fees here at BLMH. 

However, I view a special assessment or HOA loans as both avoidable and undesirable. I also view the fact that board members would even consider financing is an indication of a willingness and preparedness to avoid their duty and put the problem on the backs of future owners. There are serious issues regarding the underfunding of reserves and delaying of fees for the purpose of collecting "special assessments" at some time in the future, i.e, strapping future owners with debt. As I have stated repeatedly, such machinations avoid responsibility and will mortgage our future. I'll quote Robert Nordlund, P.E. of Reserve Associates  (1):

"Why not just special assess for Reserve expenses when the expenses occur? It fundamentally boils down to fairness and responsible corporate planning. By nature, Reserve expenses occur unevenly through the years: some years will have minimal Reserve expenses, some years will be especially hit hard. Pieces of the corporation are continually being bought and sold, and it is unfair for owners to be subject to "good luck" or "bad luck" with respect to what Reserve expenses "come due" during the years they own a unit at an association. That is no way to treat the other co-owners of your multi-million dollar Real Estate partnership! Some owners in this scenario pay much more than their fair share, and some owners pay much less than their fair share. Boardmembers in these situations bear the additional risk of knowing when major expenses are likely to "come due", and are under extreme liability scrutiny when it comes time to decide to sell their unit… Somebody always gets holding the bag.

In most cases, special assessments as an ongoing way of conducting business at an association should not even be an option. Governing Documents of most associations specifically require an "adequate" amount of Reserves to be set aside on an ongoing basis to offset anticipated Reserve expenses. Special assessments are designed as the solution for emergencies, not regular common area expenses."


The highlighting of the text above is mine. It could be the goal of a board to assure that the bagholders are someone else. 

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References, Additions, Errors, Omissions:
(1) Definition of "Reserve Study": The art and science of anticipating and preparing for major common area repair and replacement costs."   Association Reserves, Inc "Control the future of your association"
(2) Elaborated on some of the issues.

Trapper called in to trap coyotes - Wheaton Press Release and Website

That's the title of an article today in the print edition of the Glen Ellyn News. I quote it because of our immediate proximity to the western edge of that community, and because of the coyote sightings reported by our residents. Our local Wheaton paper also recently published an article on the coyote sightings.

To quote the GE News:

"The Glen Ellyn Police Department has received 36 reports of coyotes this month"....... It was reported that "a resident saw two coyotes attempting to prey on a small dog that was trapped within the confines of an electric fence".

The article went on "Anyone who spots a coyote should call the police." [See important comment (1) below - BLMH residents SHOULD NOT call the GE Police Department!]
Glen Ellyn Police Chief Phillip Norton was quoted "And don't feed them.......It sounds silly to some of us, but there are some that like to look at the wild animals in the backyard and will leave food for them."

(1) Note to BLMH residents. We are residents of Wheaton so DO NOT call the Glen Ellyn Police Department! The Wheaton Police have this statement on their website:

"Anyone can call 9-1-1 if they observe any wild animal behaving in a threatening manner. Police officers will respond Or, contact the Willowbrook Wildlife Center’s 24-hour automated phone line for advice at 630-942-6200".

A Glen Ellyn statistic:

• 20 coyotes spotted in January 2009
• 47 coyotes spotted in January 2010

The article also stated that traps will be set to catch coyotes. Obviously, our residents should not allow their pets to be unattended or to roam. This is in violation of the Rules and Regulations of BLMH. However, considering the issues with coyotes in the area, and traps, it would seem that a responsible pet owner will take steps to protect the animals under their care. Both the coyotes and the traps will be indiscriminate in what they catch. This is a quote from the official city of Wheaton website:  "Coyotes typically mate in February or early spring. During mating season, coyotes – especially males – may be more visible. It is especially important to keep pets on a leash during this time."

Wheaton has added the following special sections to the city website:

Click to find out about Coyotes in Wheaton
Click for more About coyotes and what to do if you encounter one
Click to find out How to deter coyotes
(2) Added February 12:
Click for Video - Coyotes In Suburbia - Protecting Your Pets

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Press Release

Tuesday, February 24, 2009

WHEATON, Ill. – The Police Department has received reports of coyotes being sighted in the area of Weaver Court and the surrounding neighborhood. No problems were experienced in these recent sightings.

Coyotes are a common wild animal in this area of Illinois. Usually they reside in wooded areas, however, they enter residential neighborhoods occasionally.

In most cases, wild animals such as coyotes are attracted to food sources such as bird feeders, compost piles and uncovered trash containers.

Coyotes can survive on whatever food is available, from rodents to rubbish, from insects to fruit to carrion. They can be a threat to family pets. Although no attacks have been reported within the City of Wheaton, in isolated but tragic cases elsewhere, coyotes have attacked small children.

Essentially unimpeded by control measures, abundant food has encouraged coyotes to become accustomed to the sight and sounds of humans. Consequently, coyote populations and range have expanded in recent years in the Western suburbs.

While coyotes are valuable in decreasing the rodent population, their presence in populated areas can be minimized.

• DO feed pets indoors or promptly remove dishes when pets complete their meal outside. Store bags of pet food indoors.
• DO clear brush and dense weeds from around property. This deprives rodents of shelter and reduces protective cover for coyotes.
• DO use trash barrels equipped with tight clamping devices on the lids, which will prevent spills should they be tipped over by large animals.
• DO try to educate your friends and neighbors about the problems associated with feeding coyotes. If you belong to a homeowner’s association or neighborhood watch, bring up the subject during one of the meetings.
• DO NOT feed or provide water for coyotes or other wildlife. This practice abnormally attracts coyotes and promotes increased numbers of rodents, birds, snakes and other creatures that can provide major portions of the coyote’s natural diet.

TO PROTECT PETS

• Keep small pets (cats, rabbits, small dogs) indoors. Don’t allow them to run free at any time. They are easy, favored prey. Some coyotes hunt cats in residential areas.
• Dogs should be brought inside after dark and never allowed to run loose.
• DO NOT leave domestic pet food outside. Wildlife will soon depend upon it.

Anyone may phone 9-1-1 should they observe any wild animal behaving in a threatening manner. Officers will respond.
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Related articles about our neighboring community can be read at: mysuburbanlife Glen Ellyn edition

The Wheaton Sun website is: Suburban Chicago News - Wheaton Sun Edition

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For "official" information about coyotes at BLMH, for policies and procedures and specific recommendations at BLMH, contact the "Communications Director" c/o the Board of Managers. 

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Additions, Errors, Omissions:
(1) Added note to remind BLMH residents that we are not residents of Glen Ellyn and we should not call the Glen Ellyn Police Department. We should follow the instructions and recommendations of the Wheaton Police Department!
(2) Added link to video, which will run in Microsoft Media Player, etc. 

Reserve funds cannot be used for daily working cash

One of the resources available to our Board of Managers and to unit owners is Mark Pearlstein's "Condo Adviser" column in the Sunday Chicago Tribune. This is usually in the "Money & Real Estate" section of the newspaper.

Mr. Pearlstein answers questions posed by boards and unit owners of HOA's regarding the business of running and living in an HOA.

On Sunday, February 7, Mr. Pearlstein addressed a question regarding the use of reserves for working cash needs. The article title is repeated as the title of this post. The reader who had a question stated that "Over the last few years, our expenses have gone over budget. The board has used our reserve funds to cover these excess expenses.........Should our capital reserve only be used as an emergency rather than as a revolving door for working cash?"

Mr. Pearlstein's reply, in part was this:

"No. As Section 9(c) of the Illinois Condominium and Property Act directs, the purpose of an association reserve fund is for capital expenditures to repair and replace major portions of the common elements." Mr. Pearlstein goes on to define what those "major portions of common elements" to which reserve funds are applicable, might be. He then goes on to say that "While directors do have authority to use reserve funds for temporary emergency expenses, the board must maintain the reserve fund. Directors have to structure assessments to replace any reserve funds used for these emergency purposes."

Mr. Pearlstein also suggests that "The better practice... is to adopt an operating reserve fund. This fund is a separate account, not mandated by statute." He uses the example of the use of this operating fund as the means to pay for an unexpected increase in "seasonal" utility costs. I can see this would also be a means to cover an overage in something like our snowplowing budget. It's my understanding that our plowing includes a certain number of "pushes". If we were to have a winter with unusual number of snowfalls we can exceed that contracted number and also exceed the budget.

The Chicago Tribune website, which includes the Condo Advisor article referred to in this post, as well as other, recent articles, is here:
Condo Adviser February 7, 2010

Click for Chicago Tribune Condo Adviser Articles



Additional Information:
Who is Mark D. Pearlstein? He is a partner in the Chicago law firm Levenfeld Pearlstein, LLC. According to the biographical information of that firm:

"Mark is a partner in the Community Associations Service Group where he specializes in representing community associations and developers, particularly in relation to mixed use developments. Mark is the current Chairman of the Illinois Legislative Action Committee of the Community Associations Institute (CAI), and he is a member of the Charter Class of the CAI College of Community Association Lawyers. He is the former Chairman of the Chicago Bar Association Condominium Subcommittee and a former member of the CAI Illinois Chapter Board of Directors.

Since 1988, Mark has written a weekly column on condominium and homeowner association law for the now entitled “Condo Advisor”. He is the co-author with Partner Howard Dakoff of the current chapter on “Condominium Management” for the Condominium Law textbook published by the Illinois Institute for Continuing Legal Education; and the author of a recent article on “Legal Defenses and Other Practice Issues in Architectural Covenant Enforcement” for the Journal of Community Association law. Mark has lectured extensively at State and national seminars on homeowner association law, including the subjects of association contracts, condominium insurance, covenant enforcement and mixed use developments. He has been actively involved in drafting provisions of the Illinois Condominium Property Act. He was the principal draftsman of legislation pertaining to condominium insurance, manager conduct and post foreclosure assessment recovery for associations. He is the current leader of the Chapter initiative to enact community association manager licensing.

He is a member of the Leading Lawyers Network and a member of the City of Chicago Condominium Task Force. In 2008, he was the recipient of the Premier Leadership Award by the Illinois Chapter of the Institute of Real Estate Management."

Click here for Levenfeld Pearlstein, LLC Link

What the 0% Fee Increase Means to this Association

The board decided, during the January association meeting, to hold the fees of unit owners at the same amount as 2009. This decision was reached with a "No" vote by the Treasurer, a "Yes" vote by all other board members (1). This vote was also reached with the concurrence and advice of Management. The manager who was present, stated that a fee increase was not required in the view of Management.

From a personal perspective, this suggests that I don't have to adjust my personal budget this year to accommodate a fee increase.

This vote is, I believe, very significant. It carries some additional meaning, which is implicit in the vote and the position of Management. In passing this vote, the members of the Board of Managers who voted  "No fee increase" made a declaration, which I view as this promise to the unit owners:

1. There will be no operating and maintenance spending increases this year. The spending will be held to the figures used to discuss and debate, and published to unit owners prior to the discussion and vote, and mailed January 26. If any area in "Operating and Maintenance" should require additional funding, it will be achieved by budget cuts in the other areas of operating and maintenance.
2. Our reserves are adequate. With the current amounts collected and the amounts to be collected in 2010 they are accumulating at a rate sufficient to fund our driveways, roofs and even deal with repairs to Lakecliffe. 
3. There is no need for "special assessments" or unusual fee increases next year or into the foreseeable future. That is to say, the Board with the advice of Management, has decided that we will have sufficient reserves to complete roofs in the 6 to 7 years identified by management in the "reserve study" released and discussed as part of the review. Driveways, etc. will also be completed in a similar fashion and on time.
4. No funds will be transferred from Reserves to Operating and Maintenance budgets to cover shortfalls in O&M. That does not prevent the use of Reserves for drainage improvements required by relocation of downspouts, as part of a capital roof project. It does prevent use of Reserves for decorative or other embellishments. 
5. There will be no loans or mortgages by the association to cover O&M or Reserve shortfalls. Shortfalls will not occur in the best business judgement of our managers and the Board. 
6. Fee increases in the future will not exceed the average here at BLMH, which is 5%. That is to say, current collections will not create future deficits which will be corrected by higher than average fee increases, loans or draconian measures which would require unusual service or other cuts.
7. Management and the Board took into account current inflation as well as near and mid-term inflation, as well as the long term averages for inflation when making recommendations and making their decision. 
8. The Board decided that with current receipts (fees) and expenses (O&M and Reserve expenditures in 2010 as well as Reserve deposits in 2010) that this association does not require the approximately $22,000 that even a modest fee increase would have provided.
9. The Board decided that the recommendation of the current Treasurer, who is a seasoned board member, as well as the recommendations of the previous Treasurer and a past President, who all recommended a modest increase, could be ignored. 

The board did decide and vote for another reserve study. I am not really clear about the specific reasons for expenditure of funds for this purpose. However, doing our best to establish clarity is understandable.

I want to congratulate Management as well as all of the past members of the board, in particular those who served in the period 1999 to 2009 for their hard work, dedication and perseverance, and for taking the necessary and at times unpopular steps to get us to this point. I thank you for doing your fiduciary duty. I will also be sending a letter to Management, with my thanks.

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Errors and Omissions
(1) Originally reported that the LD was not present.

My Personal Response to the 0% Fee Increase

The board voted for a 0% fee increase for 2010 during the January meeting. Now, there are some, including myself, who are concerned that this may have been a mistake. Three experienced board members made statements during the meeting in favor of a small increase; one is our current treasurer and two are former board members including past treasurer and president. I understand management made a statement which contradicts their earlier, published data.

So who do I believe and how can I protect myself in the event one side of that debate was in error? What can I personally do? Well, let's take a look at the underlying concerns unit owners might have.

If our association has made an error, then they will at some time in the future, raise our fees. In fact, fee increases are unavoidable if for no other purpose but to compensate for inflation and erosion of the dollar. As I told one of our board members during the recent "coffee with the board" social "if you want to  play you need to pay".  So, what can I do to prepare for these future increases?

In my specific case, I am currently paying a monthly fee of $308.57. A 2 percent increase this year would have raised it by the following amount:

0.02 x $308.57 = $6.17 per month

So, I have two choices. I can save this for the specific purposes of preparing for future increases or, I can spend it. As I am now "forewarned" and I do believe that there are going to be future fee increases, it would make sense for me to put this amount aside. So that's exactly what I am going to do. I am going to put 12 months worth of this 2% increase, or 12 x $6.17 which is $74.06 for all of 2010 into a special bank account which I call my "Savings for future fee increases" account.

In my case, because I am a "B" unit owner, I have been putting a small amount into this account each month, so that I can be prepared for the day when I must replace the "dormer style" window as part of the roofing project. That project will be somewhere between 2 and 7 years in the future, if our management company is correct in their assessment of the situation.

That was easy, wasn't it? So I am now prepared for the future. I'll reevaluate this each year at the time the board does the budget assessment and I'll either increase the monthly amount or decrease it as I see necessary. If the board does not exceed the "Operating and Maintenance" budget and our reserves grow adequately then, I might be in a position where I actually have a surplus in that savings account. That would not be a bad thing now, would it?

I agree with a comment our treasurer made. He said something like "unit owners can financially deal better with small annual increases than larger, infrequent ones". Amen brother!

If you also agree, then I suggest that you too put a small amount aside each month, in a cookie jar or whatever, for those future assessments. You too will be prepared and if our board reverses direction at some time in the future, or there is a large increase in monthly fees, you can just reach into your cookie jar and not be overly concerned about the effects of a larger increase.

Think about it!