Founding a Condo Association

As is common with new condos, you may find yourself in a situation where the developer (also known as the sponsor) is pulling up stakes and you need to self-manage. This normally occurs from “turnover” or when over 50% of the condos have been bought out by new owners. At this point the original developer has lost control over the condominium, and it’s time to elect a Condo Association, a board of trustees who will manage the condo, especially in regards to maintenance of the commons. Founding a condo association is no easy task.

Management

When you meet with the other trustees, you’ll need to establish your guidelines. What rules do you want for the condo in terms of use of the commons or decoration of the units? You may want to use rules established by the developer, or expand on them as you see fit. Remember that the rules (and fees) you put in place will affect the kind of neighbors you have.

You can also instead pay a management company to handle your condo. They can set out all the guidelines, manage the financials, and use their contractors for maintenance. Generally speaking it’s good to settle on if you’ll be using a management company early on, to avoid a spike in fees later on.

Fees

One of the biggest issues when you’re founding the condo association is deciding on the fees for your units. While it may be tempting to keep fees low to encourage buy-ins, this can quickly turn around and cause problems with maintaining the financials later on, especially if you decide to use a management group. Spend time to carefully consider what a reasonable fee is for your needs and expectations before you set it down into law.

Legal

There is quite a bit of red tape you’ll need to get through to found your condo association. Ideally your sponsor can help with this transition process, but you will probably need to bring in a real estate lawyer as well as file documents with the city. You will need the following:

• Master Deed: this document covers the location of the condo and how it is divided into commons, including the interest percentage allocated to the various condo units.
• Declaration of Trust: this document declare the building to be a condominium trust, including date of filing and the original trustees of the trust. This will include how you will run the condo and its fees.
• File as a Business: You will need to file the association as a business. File with your state as a LLC or nonprofit, and obtain a tax number from the IRS. You will also need to open a banking account for the business.

Insurance

One last thing to think about is the insurance for your condo and your condo association. While individual units are insured by the owners, the common grounds should be insured to protect them against damage, as well as an association deductible to deal with gross damage to the condo. And as the management for your condo, it’s important to protect yourselves from liability with directors and officers insurance. Interested in learning more? Contact the H&K Insurance Agency, we’ll have our condo specialist Brendon Kilcoyne walk you through the requirements and coverage for New England condos.