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Removing Common Elements to Reduce Costs

Removing Common Elements to Reduce Costs

 

Associations review their budget at the end of the fiscal year to determine the new budget for the upcoming year.  In their budget, some Associations will have to reserve funds to repair and maintain one or more common elements that are no longer used by its members. These costly, but necessary budget items often times do not provide members with any value. Fortunately, Associations may be able to avoid these expenses by removing a common element.

The two most common situations an Association faces in which it may wish to remove common elements are (1) to sever and sell a portion of unused land that is part of the common elements and (2) to remove an existing common element and replace it with a more cost-effective option.

Sever and Sell:  Many Associations have undeveloped or unused land. If this land is in a desirable location for potential buyers, the Association may consider severing a portion or all of this land and selling it. Typically, the association should wait until a buyer is in place before severing the land in order to avoid certain tax consequences.  If the buyer plans to develop the property for non-residential use, the association will often be asked to secure one or more variances to the local zoning restrictions as a precondition of closing.    In addition to obtaining a variance, a skilled title company and surveyor will be needed to ensure that clear insurable title can be transferred at the end of the transaction.  The revenue from this sale may generally be used to offset current operating expenses or fund reserves, or it may be distributed to the membership if there is a surplus.

Remove and Replace: Associations often have common element structures – such as tennis and basketball courts – that have fallen out of use and sometimes have wasted into disrepair.  An alternative to repairing and maintaining unused facilities is to eliminate or repurpose the facilities. Regardless of whether the Association intends to repurpose or remove the common element, the decision almost always requires a vote of the membership.  If the common element is specifically listed in the master deed or declaration, the governing documents must be amended to remove it.  Some documents also require higher voting thresholds to remove amenities.  By removing the under-utilized common element, the Association reduces expenses related to future maintenance and repair and insurance.  Additionally, the removal of the common element structure may reduce the Association’s potential liability by eliminating any potential claims related to the dilapidated common element structure.

It is important to note that each situation necessitates a different process to remove any common element from the Association.  However, both situations typically result in an Association avoiding additional expenses and having the ability to allocate funds to other parts of its budget.