In a previous article called "Passing the HOA Baton", the subject of the HOA charging new owners a fee at closing was discussed with a recommendation of not to do it unless current owners have paid it also. But this topic needs further discussion.

Some governing documents call for a Working Capital Contribution which all purchasers must pay at closing. This provision is fair because all pay it. But there are HOAs that view a sale closing as an opportunity to tag a new owner with a fee, sometimes thousands of dollars, to fund the operating and reserve fund. And there are other fees that the HOA might charge both new owner residents and landlords which are related to actual turnover costs incurred by the HOA.

To determine the fairness, the basis for the charge must be considered. An administrative or service fee charged for unit turnover related to actual cost for account setup, entry access programming, parking tags and pool keys is merely reimbursing the HOA for costs related to an owner's sale or a landlord's rental. This is not, nor should be, a common expense. However, a turnover fee charged to fund either the operating budget or reserve fund constitutes a reallocation of common expenses. In some states, changing the common expense formula requires 100 percent approval of all owners.

Regardless of the law, the HOA needs to make all such charges both fair and reasonable. Newcomers that feel penalized aren't likely to think kindly toward the HOA or their new neighbors. The way to avoid this is if Working Capital Contribution is needed to fund the budget, all owners, current and future, should pay it. But more importantly, the Board needs to examine how budgeting is done. These kind of turnover fees almost always come up due to failure to budget adequately in the past. Ultimately, the under budgeting cycle must be broken to cure the real problem.

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Published: July 28, 2004

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .