Strategies to Collect Common Charge Arrears in a Co-Op or Condominium

Dear Mary:

Over the last two years, our common charge arrears have increased. It seems to be a combination of things. Some owners still have post-COVID financial problems. And we’ve had to levy a hefty assessment to cover unexpectedly costly Local Law 11 work. Regardless, we need owners to pay. Our problem is getting board members to agree on how strenuously to pursue this money. We differ on how best to weigh compassion for owners versus the financial needs of the building. Some colleagues have called me heartless for advocating a very proactive approach. Any thoughts on how we can come together on this?

— Collecting in Chelsea

Dear Collecting:

As we’ve discussed before in this column, members bring their own ideas about money to their work on the board. Nevertheless, you’re right: Owners need to pay. Try these ideas to get members to come together on this important board responsibility.

Prevent. Some arrears involve partial payments. This can easily happen if your owners use auto pay. They may pay the base common charges but not this year’s increase or new assessment. They might miss one-time charges, such as the annual bicycle room fee. Get ahead of this through good communication. Remind owners that a one-time charge is coming up or that an assessment is starting. Send a notice two to three months in advance. Repeat twice more.

Remind members of your fiduciary duty. One of your basic responsibilities is to keep the building in good working order. That takes money. And the primary source of that money is owner common charges. If you don’t collect common charges, you’re not fulfilling your fiduciary duty. The logic is straightforward.

Invoke fairness. We know that people don’t make decisions solely (or at all) on logic. You may get pushback on the fiduciary duty argument. That’s more likely in a large building, where the arrears for a particular owner represent a small percentage of the building’s income. This is where invoking fairness comes into play. Allowing some owners to avoid paying — or to pay late — simply isn’t fair to everyone else. Remind your colleagues that the scope of your compassion needs to include all owners, not just those in arrears.

Create a process and timeline. Are you dealing with every arrears event from scratch — i.e., deciding what to do each time? This is inefficient and can create exactly the situation you’re in. You’re better off putting a process in place that can accommodate rare exceptions. Consider what you’d like to do for a first missed or partial payment. Call the owner? Levy a fine? Identify what you’ll do for the second missed payment, and so on. If your managing agent is the point person on this, involve them in developing the process. Get your attorney’s approval.    

Create templates. Further simplify your process by creating communication templates. Does your first step involve contacting the owner? Draft a standard email that you can fill in with the particulars, or a brief set of talking points if you’re making calls. Draft letters that you, your managing agent or your attorney will send if and when you get beyond the first reminder. Work with your attorney on these. The key is to have all of this ready to go when the triggering event occurs. If it’s easier, you’re more likely to do it.   

Start by preventing arrears where you can. Frame the approach to money collection as involving both fiduciary duty and fairness. Make it easier to do by creating a process, a timeline and templates. Try it out for a few months; tweak as required. Good luck! n

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Mary Federico serves on the board of her 240-unit Upper West Side condominium. Through her consultancy, Organizational Behavior Strategies, she helps leaders use behavioral science to improve their organizations.