January 29, 2010

This week's tip deals with associations that take leftover money in a miscellaneous or contingency budget account and fritter them away with things like parties. Be careful before taking that step, advises Jeff Vinzani, an attorney at Nexsen Pruet LLC in Charleston, S.C., who represents associations.

"I've seen boards say, 'We've got $2,000. Let's have a party.' I don't think that's fair because not everybody goes to association parties," says Vinzani. "I also think it's breaching the board's duty to the homeowners because it's not a social line item but a miscellaneous line item. This budget category needs to have a list of possible uses so the board and the management company have some guidance on how to proceed in spending the funds."

In fact, Lisa A. Magill, a shareholder and association attorney at Becker & Poliakoff PA in Fort Lauderdale, Fla., says your association may not even need a miscellaneous line item in your budget. "Having a miscellaneous line item isn't necessarily a bad practice, but it's unnecessary," she says. "Your board, along with management, should be able to estimate the expenses associated with each budget category, and evaluating the expenses from the previous year is always a good place to start."

But Robert White, managing director of KW Property Management & Consulting in Miami, which oversees about 125 associations totaling 30,000-35,000 units, disagrees. "We call it a contingency line item," he explains. "In every association, especially in older ones where maintenance can pop up, you're working to get the budget as close to actual as possible. But we usually build that line item in there for a couple of reasons."

To learn more about whether to have a miscellaneous or contingency fund in your budget and to determine whether you may be abusing your authority with funds left over at the end of your fiscal year, see our new article, HOA Finances: Do You Abuse Your "Miscellaneous" Account?.

Best regards,
Matt Humphrey
President