THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, August 19, 1995 TAG: 9508250879
SECTION: REAL ESTATE WEEKLY PAGE: 20 EDITION: FINAL
COLUMN: Common Ground
SOURCE: G. Robert Kirkland and Michael A. Inman
LENGTH: Medium: 51 lines
I am on the board of a condominium where there is a sizeable parcel of land left over that was not built on by the developer. A number of residents want to put playground equipment on this land since there is no public playground nearby.
There is no money in the budget to pay for this project and the suggestion has been made that we take it out of the reserves and replenish that account later. This sounds like a good practical solution to the problem since it will avoid a special assessment if we go forward with the project.
What do you suggest?
This would definitely not be an appropriate use of the reserve funds and, in our view, it would be a breach of fiduciary duty for the board of directors to fund the project from the reserves, which are generally earmarked for replacement and repair of existing common area facilities. Sometimes people misunderstand the purpose of the reserves, which are not intended for new projects.
First, the board needs to determine whether the proposed project is in the best interest of the majority of the unit owners as opposed to being a response to the pleas of a few. It might be wise to conduct an owners' forum concerning this intended project and, prior to that event, a conceptual plan needs to be made and cost estimates obtained.
Assuming the project is broadly supported, you should then address the method of payment. Special assessments are not particularly popular and, of course, the degree of unpopularity often relates to the size of the assessment. It may be that an installment plan can be set up to collect the special assessment over a period of several months before the project is built.
Another method is to obtain a bank loan that can be paid back out of the income from a slight regular assessment increase.
In any event, the integrity of the reserves must be upheld and new projects should be funded from other sources. MEMO: G. Robert Kirkland, president of a Virginia Beach property management
consulting firm, and attorney Michael A. Inman specialize in Virginia
community association issues and are affiliated with the Southeastern
Virginia chapter of the Community Associations Institute. Send comments
and questions to them at P.O. Box 446, Virginia Beach, Va. 23458. To
submit questions by phone, call 430-3617; by fax: 431-0410. by CNB