By: Kristie Leff
One of the most important functions of condominium boards is the assessment and collection of common charges. Without a properly funded budget the association will not be able to pay its expense, maintain the property, pay insurance premiums, or fund its reserves. It is essential that the proper budget adoption procedures are followed because the lack of a properly adopted budget could mean that common charges are not collectible. The budget adoption procedures are found in Connecticut General Statutes Section 47-261e(a). Always check the association’s governing documents as well as there may be additional budget adoption procedures that must be followed. The statutory requirements are summarized as follows:
- Executive Board must adopt a proposed budget at least once a year for unit owners to consider
- Executive Board must provide unit owners with a summary of the proposed budget within 30 days of adoption, including a statement of the amount in reserves and a statement of the basis on which the reserves are calculated and funded.
- Executive Board must schedule a vote for the unit owners to consider approval or rejection of the proposed budget not less than 10 days nor more than 60 days after providing the budget summary
- The vote can be at a meeting or by ballot without a meeting
- The proposed budget is approved unless a majority of ALL unit owners vote to reject budget
- If a proposed budget is rejected, the prior budget remain in effect.
Why is it important to follow these procedures? A Connecticut Superior Court case demonstrates the importance of a properly adopted budget. In the case of Westbury Condominium Association v. Tashjian, 2006 Conn. Super.,LEXIS 3295, November 6, 2006, J.D. of Hartford, the association brought a foreclosure action against a unit owner who refused to pay increased common charges. The association’s budget increased the common charges from $244 to $372 per month. The unit owner continued to pay the $244, but refused to pay the increase. Once the account became delinquent the association brought a foreclosure action. The unit owner filed a special defense alleging that the increase was invalid because the budget had not been properly adopted insofar as the budget summary not provided to unit owners until the day of meeting, and the summary misrepresented the amount of the increase by stating it was a 28% increase when in fact is was a 50% increase.
In court the association argued that validly levied common charges are an absolute obligation and are not subject to special defenses. The court agreed with this, but noted that that the key phrase is “validly levied.” The court found the common charges were not “validly levied” because the budget was not adopted properly—the summary was not provided until the meeting, and the summary misrepresented the amount of the increase—stated it was a 28% increase when in fact is was a 50% increase. The court stated that the purpose of sending notice and a summary of the budget in advance is to put all unit owners on notice of the proposed budget, give them ample opportunity to study the proposed budget, and decide whether or not they will appear at them meeting. The court therefore entered judgment in favor of the unit owner and the association was unable to collect the common charge increase from the unit owner.
This case is a cautionary tale to associations: if budgets are not properly adopted common charges are uncollectible. Avoid this trap and be sure to follow all statutory procedures and any other requirements in the association’s governing documents when adopting budgets.