One bad habit I see in Condo Associations – whether it is from Board members or Owners – is what I called the Shared Cost Delusion in a Condo Association. This is the idea that if you shift the cost on a fee from an Owner to the Association, the cost magically goes away. This can cause all sorts of strange behaviors which are detrimental to the interests of your Condo Association and need to be avoided. Let me make one thing abundantly clear before we dive into this article – I am solely referring to incidents where the Bylaws do not expressly state expenses should be borne by the Association. In those cases, obviously, the Association needs to pay. But there are many more instances where there is discretion, and ensuring an Association’s fiscal health means you need to be diligent in fighting this behavior pattern.
Shared Cost Delusion in a Condo Association manifests itself in two primary ways. First, when an Owner would rather shift a given cost to the Association, because then he or she doesn’t get a direct bill – the cost is instead spread across all other unit Owners. Rather than one person paying $100 dollars for something, 100 people pay $1. This is rational behavior for an Owner, but not necessarily in the Association’s best interest.
The second manifestation of this phenomenon is the one that becomes more challenging. The second case comes when Board members are considering the cost of an inconvenience and believe the Association should be paying, not Owners. While this can be done with the best of intentions to ease the burden on Owners, it is a dangerous path. Instead of burdening a smaller subset of Owners, ALL Owners become burdened. This behavior tends to rapidly drain an Association’s finances, which in turn leads to higher fees, which is not only bad, but arguably violates the fiduciary duty a Board has to the Association, which is often the primary – or only – codified duty a Board has in many Association’s Bylaws.
Let me give you a direct example of this behavior. Say your Association is in the midst of a major project that is generating a lot of noise throughout the day. For the hair splitters out here, let’s make it clear the noise is legal and within all applicable county and state codes – you have no legal mandate to make any accommodation during the construction. You have a number of elderly residents in the Association who have limited mobility and have complained that the noise is extremely unpleasant, and they request that the Association get them hotels for a week. Let’s say it’s a $1M project and the cost of hotels is $2,000. It’s just $2,000 they say – a small fraction of the overall project.
Is 2% of a project cost something to fight over? I argue yes – you must hold the line for the Association. While it is unfortunate that Owners are exposed to an unpleasant environment, the bottom line is that home ownership – whether it’s in an Association or not – comes with occasional inconvenience. It is not the Association’s job to ease every inconvenience of some Owners. It is the Association’s job to provide a safe, secure, and financially stable environment for ALL Owners.
It is human nature that the moment there is a generic, faceless government body – i.e., “the Association” – you’ll have a cohort of individuals who want to use that body to pay for stuff. People just think money is coming from a money tree. But that $2,000 doesn’t come from a money tree – it comes from you. While comparatively small amounts like $2,000 may not sound like much, if you start shifting what could be individual costs to the Association, it starts to add up rapidly. And that’s money you could be spending elsewhere, or keeping in the pockets of Owners by keeping fees low. Another important thing to keep in mind is that any accommodation you make for some Owners you must be willing to make for all. That small subset of elderly Owners you just put up in a hotel? Trust me, there are others who want to be in a hotel too. If they find out some people got a hotel, they’re going to demand the same treatment, and then you’re in a real pickle.
As tough as it is to do sometimes, you need to focus on the fact that as a Board you represent the Association. That means doing what’s best for all, not best for some. When faced with a situation like this – ask yourself the following questions:
- Do the Bylaws specify an action? If they do, follow it, obviously.
- Is there a legal mandate to our behavior? For example, some local laws might say if a Condo is 51% under construction, it’s considered uninhabitable. Anything else the law may be silent on.
- Is this a comparable inconvenience that someone who owns a home vs. a Condo might experience? For example, if you owned a home and had similar construction, getting a hotel to avoid the noise would be a convenience, but is not required. Why should someone in a Condo receive special treatment?
- If I help a small group of Owners, will other Owners – or even the whole building – demand similar treatment? For example, if this is a comfort accommodation like a hotel, will other Owners logically demand the same?
Thinking through those questions will help you determine if sharing a cost is logical or delusional. Remember, that money has to come from somewhere – namely you and other Owners. Make sure that when you’re thinking about what the Association should and should not pay for, you’re doing so with a big picture, and not falling into the Shared Cost Delusion trap.
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