Will you still need me, will you still feed me,
When I'm sixty-four?
…The Beatles
In 2005 we published a treatise entitled "The Uncertain Future of Common Interest Developments." We worried about the inability of condominium boards to fund reserves for future repairs and maintenance. In addition, political pressure from individual owners was keeping assessments artificially low. While this pleased the then-owners, it underfunded reserves and robbed future owners of the resources for long-term maintenance.
In the following years, we noticed and added another factor to the under-funding equation—damage unseen during routine inspections, which eventually required unexpected and unfunded repairs. At first, these problems—rot in wall cavities hidden for years, gradual soil problems, slow deterioration of framing elements—required spot repairs but often led to large-scale reconstruction later. Unfortunately, some of that hidden damage eventually caused catastrophic failures of building parts or entire buildings and loss of life.
After studying this phenomenon for several decades, we have concluded that these failures and the lack of funding that leads to them result from a fundamental flaw in the condominium business model. Allowing critical funding decisions to be made by a majority vote of owners with disparate interests invariably defeats most fund-raising efforts by the board of directors. This makes funding voluntary. Condominium repair and maintenance are determined not by experts but by laypeople whose interests in the project are mostly short-term. But the managing corporation's interests are long-term. Thus, an inherent conflict.
The consequences of voluntary funding are seen in the gradual deterioration of many older condominium buildings. Newer owners resent that they have been saddled with the cost of decades of deferred maintenance while past owners escaped unharmed. Repairs or restoration that the association could have done inexpensively twenty years earlier, if found in time, now require six-figure special assessments or bank loans, again the responsibility of current owners. Reserve funds were kept artificially low by past votes against higher assessments, did not keep up with the rate of deterioration, and promoted increasing reserve deficits.
So, what's the end game? What happens when current owners either balk at paying for reconstruction to keep a building watertight and safe or lack the financial capability to address these problems? State and local entities have learned of the potential for injury or death from failed building components due to poor maintenance. They can and will condemn buildings considered unsafe or uninhabitable. Insurance companies that provide liability or property damage coverage are also aware of these conditions and, for now, have raised premiums to account for it. But they may deny coverage altogether. Boards of directors have been sued by current owners who reject the idea that they should bear responsibility for many decades of deterioration. And then, there is the possibility that all or a part of the building will fail due to inadequate maintenance, construction defects, or natural disasters.
If any of these factors are present, the project may be at the end of its service life. That's not what a community association's governing documents intend, but that's the reality. Buildings destroyed, unsafe, or cannot be adequately maintained for habitability can no longer function as planned, and the owners must consider an "end of life" outcome. Some outcomes can be chosen, but some cannot be addressed in time to save the project. Here are a few.
