Q&A: Builder Acts as a Financier

Q We live in a condominium that has a builder-controlled board. In the past, when we had a deficit, the builder covered it so we were able to  start the year without a deficit. When we had a surplus, the builder was given credit for the surplus therefore  reducing the amount he owed to the association. Is this an accepted practice  with builder-controlled boards? If it is, how long will the builder be able to  do this, assuming we have a surplus every year? Will the builder be obligated  to pay the deficit when there is one, if he accepts credit for the surplus?  

 —The Condo Committee  

A “It appears the letter writer’s condominium association has not commenced transition,” says Hackensack-based attorney Donald M. Onorato. “The developer owns a majority of the units in the condominium and has yet to  relinquish control of the association to the unit owners.  

 “N.J.S.A. 46:8B-12.1 sets forth the procedure for the administration of the  association, and the eventual turnover of the condominium property to the  association when unit owners shall be entitled to elect all of the members of  the governing board upon conveyance of 75% of the units in a condominium.  

 “It appears that the developer continues to finance the association by covering  any deficits or receiving surplus monies from the common expenses each year. The better practice would be for the association to create its own budget and  all owners including the developer who presumably owns a majority of units in  the association would contribute towards any deficit. If the association enacts a reasonable budget, it should not be running such a  surplus or deficit each fiscal year. All of the unit owners are responsible for paying his or her share of common  expenses based upon their percentage of undivided interest in the common  elements. It appears that the developer is acting as a lender and continues to assert  control over the association in this regard.  

 “I would suggest that the association create a budget so that all unit owners are  contributing towards the expenses and avoid the builder supplementing or  receiving a surplus each year.”       

 

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