Q&A: A Roof Assessment

Q “In 2008, the board of my building took out a loan to fix the roof after a hurricane. It is my understanding that it was a five-year loan with a balloon, that they had to refinance it in 2013, and that the loan is now extended until 2017. The board has added this expense into the operating budget, along with the bad debt for unoccupied units. Can they add the loan for the roofs into the operating budget, or must it be a separate assessment?"

—Money Manager in Mendham

A “Association budgets and spending is a very complicated matter. Unfortunately, even if adequately reserved, a natural disaster causes a situation whereby a roof, for example could need to be repaired and/or replaced many years prior to its natural life expectancy,” according to Elysa Bergenfeld, Esq., an attorney with the law firm of Herrick, Feinstein LLP, based in Princeton.     “Therefore, the need may arise for an association to require a loan. The New Jersey Non Profit Corporations Act authorized associations to borrow money (unless of course the association’s documents provide otherwise). The other option would have been a special assessment of all unit owners. The cost of the special assessment could have been payable via one lump sum or via a payment plan over time.

“The association’s governing documents (the master deed or declaration and bylaws) set forth the requirements with regard to budgeting and must be analyzed accordingly. The Association is required to be adequately reserved. If the association is adequately reserved, then in a situation such as this, the money to repair the roof may have been available. In addition, the association should have deferred maintenance, which is money put aside for such repairs as painting, etc.

“Any common expense not set forth in the budget or any increase in assessments over the amount adopted in the budget must be separately assessed against all unit owners. Assessments for the roof repair are not an operating expense.”

Related Articles

When Associations Borrow

What to Know Before Taking Out a Loan

Don’t Raid the Cookie Jar

Capital Budgeting is Essential

Q&A: Who Owns the Floor?

Q&A: Who Owns the Floor?