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Board Talk: How Far Back Can We Go to Collect Outstanding Dues?

JD: We have undercharged maintenance for some units for five to seven years. Is there a statute of limitations on what we can collect? The mistake was made on the managing agent’s site. Can they be held responsible as well, if we cannot collect the entire amount from the shareholders?

JG in NYC: There is no simple answer. An attorney could advise you about a statute of limitations, and whether one applies or not. How many units are involved, and what is the percent of all units/shares?

I guess your actions would depend somewhat on how much money is involved. If it can be shown that the management company is at fault, you will need to have a conversation with the principals to see if they will cure the problem. Or will they attempt to contact the units themselves and work something out?

Shareholders should know what they are responsible for paying, but many don’t read mailings and rely on the maintenance bills to be accurate, making the assumption that they are calculated correctly.

You can also look to your insurance company as well as the management’s insurance company if you can’t get satisfaction from the management company directly. A simple check of the financial statements each year should have revealed a shortfall on annual maintenance received/billed, based on number of shares outstanding and the rates in effect.

Steve-Inwood :I have some additional thoughts. You definitely need a lawyer. My concern is that if you do not add the amounts to their bills and collect the undercharged amounts, the board could unintentionally create a second class of stock. I mean that if you are a co-op, all maintenance charges are allocated by share. If you don’t collect, you have allocated them less than everyone else and could face accusations of discrimination by the shareholders who were charged correctly. (I would hate to think that you would have to refund everyone else just to make things equal if you don’t try to collect the undercharged owners). If you are ultimately having trouble collecting, one strategy is to charge the bills and collect the funds upon the transfer of the unit with the appropriate monthly late fees and/or interest.

Additionally, even if a board hires a management company to provide services such a billing and accounting, the board is still responsible for the results (or an accounting firm, etc.). The board must provide oversight. This does not preclude legal action if management does something wrong and the corporation suffers harm. However, board oversight can often prevent errors in the first place.

Kaye: I remember a few years ago that the Habitat Board Talk forum had many postings on this problem and the consensus was not to do anything, except of course adjust the maintenance up or down. This made perfect sense to me because in order for the co-op to be left revenue-neutral, you would have to charge the under-payers to be able to pay the over-payers, which could be a major burden for some as the discrepancy could go back many years. I do not understand just charging the under-payers; aren’t there over-payers in the co-op?

Want to participate? http://www.habitatmag.com/Board-Talk

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