Over the past several years, community association boards across New York have seen a steady increase in legislative proposals coming out of Albany that would impose new requirements on how Community Associations operate. Many of these proposals reflect a broader policy shift toward greater government oversight of community associations and less independence for boards to manage their own communities.
One of the latest examples is New York Assembly Bill A8945. This proposed Bill, if passed into law, will require Condominiums and Co-ops to conduct formal reserve studies and adopt long-term capital funding plans. Interestingly, the timing of this Bill coincides with CAI WNY’s recent webinar on Reserve Studies.
Presently, it is up to the Board to research and prepare for future repairs and maintenance of the common areas and buildings. It is also up to the Board how to fund those repairs (i.e. collect amounts on an ongoing basis, special assessment, loan or a combination of the foregoing). While financial planning is certainly important, having the government regulate how a Board goes about it is a whole separate issue.
In fact, it is the fine print of this Bill that is very concerning. Putting aside the fact that most Boards already have a pulse on what they need to do for future, the bill raises concerns about costs, flexibility, and the continued trend toward increased regulation of private housing communities.
Boards should understand both what this bill would do and how it fits into a larger pattern of legislative activity affecting community associations.
Community associations in New York have historically operated with a significant degree of independence. Boards are elected by owners and are entrusted with making financial and governance decisions based on the specific needs of their buildings and communities.
In recent years, however, Albany has introduced a growing number of proposals that would increase regulation and oversight of associations and their Boards. Many of these laws seem to be presented with the presumption that Boards do not govern their communities effectively. Unfortunately, this is usually the exception and not the rule.
The unfortunate part of this is that when many of these laws get passed, they wind up having the opposite effect of their intentions.
A clear example of this is the recent amendment to the law requiring HOAs and Condominiums to provide 90 days’ notice to a home owner before commencing a foreclosure action after a unit owner is in arrears.
While the goal was to provide additional notice to unit owners in arrears, the practical effect is that boards must now wait an additional three months before enforcing a lien and taking the most effective step to be able to recover the monies owed, even where the arrears are significant.
The law seems to ignore the fact that community associations are not “for-profit” entities owned by an investor landlord. Instead, as you know, they are associations set up to merely collect what they need to operate. The community associations run balanced budgets where they collect from their home owners exactly what they anticipate the expenses will be. As a result, when a home owner doesn’t pay what they are required to pay, the community association is now operating at a loss and will likely have difficulty paying their bills.
Not to mention, as we all know, a delay in collecting the arrears from home owners oftentimes makes it more difficult to recover the monies owed and results in a significant loss and impediment to the association. The net result is that the Board needs to collect these needed finds from the rest of the home owners who do pay, making it more expensive for the paying home owners.
The newest proposal under consideration is Assembly Bill A8945, which would require condominiums and cooperatives (but not HOAs) to perform professional capital reserve studies and develop long-term (30 year) funding plans for future capital repairs.
If that were where the Bill stopped, it might be tolerable. However, the language of the Bill says that the study must advise the Board what they need if they did not obtain a loan or have a special assessment. While reserve planning is an important tool that many boards already use voluntarily, the proposal would now mandate a particular financial approach statewide, regardless of the size or circumstances of the community (although there is a carve out for communities where there is less than twenty-five thousand dollars in total common area capital assets). It then goes on to dictate the period of time within which the funds must be assessed so that the funds are on hand. The proposed law also requires the reserve study to be filed with the Office of the New York State Comptroller within 60 days of its completion. The State Comptroller would also have the authority to review and audit such documents and compel a property management company, board of managers, or any condominium or co-op to complete a capital reserve study if they have not done so in accordance with the law.
Note, as indicated above, the law does not appear to apply to a Home Owners Association that does not have a condominium section within it. However, the law could be amended before it is adopted in its final form.
It is important to note that many community associations rely on loans to pay for these types of capital improvements and repairs. For example, when an association faces a multi million dollar capital project, a board may obtain a loan and repay it through common charges or assessments over several years (typically 5-10 years). This approach helps keep monthly assessment and charges manageable while ensuring that needed repairs are completed. While the law doesn’t prevent the association from getting a loan, typically, most lenders want the funds to be used for the actual repair work and are not likely to give a loan just to have the money deposited into the association’s account for a reserve. Loans are a common and responsible financial tool used by many community associations to spread the cost of major repairs over time. If associations are instead expected to fully reserve for every future project without being able to rely on financing when the work is needed, the result could be significantly higher monthly charges or reserve contributions for owners today. This could impact the value/affordability of homes in community associations.
This proposed law essentially seeks to govern how Boards make their decisions. Boards are elected precisely to make these kinds of financial decisions based on the unique needs of their communities. A statewide mandate reduces that flexibility.
What can Boards do? Legislation affecting community associations often advances quietly unless boards and residents become engaged in the process.
Boards who are concerned about the potential impact of these proposals may wish to contact their state legislators to explain how these measures could increase housing costs and reduce local control.
It remains to be seen whether this Bill gains traction and gets out of the Housing Committee of the Assembly. It was attempted last year and has been re-presented this year.
The Bottom Line
Proposals such as Assembly Bill A8945, combined with other recent legislative changes, reflect a growing trend toward greater government regulation of community associations.
As more laws affecting community associations emerge from Albany, it becomes increasingly important for boards and residents to stay informed and participate in the legislative process so that the voices of the communities most affected are heard.
