Qustion: I am the President of a large condominium association, and most of our owners pay their condominium fees each and every month on time. However, one owner is refusing to pay the condominium fee, claiming the association is not performing certain functions properly, and the owner is attempting to offset the fee as leverage to get the condominium to do that work. Does the owner have the right to withhold the fee under these circumstances?
Answer: A condominium unit owner, in my opinion, never has the right to withhold the condominium fee -- whether or not the association legitimately owes money or some other duty to the owner.
If one unit owner decides unilaterally to withhold the monthly fee, this can put a serious strain on the condominium association's budget. More importantly, if one owner is permitted to withhold the fee, every other owner in the complex will be able to claim the same right, and clearly this will raise havoc within the association. The condominium association has certain monthly obligations. It has to pay taxes, it has to pay insurance, it has to pay a water bill, and it has to pay a management fee. And of course it has to pay its attorney. Every year, the board of directors of the association -- often in conjunction with the property manager -- develop a projected budget, estimating what the annual income will be for the next year, and attempting to estimate the operating costs for the coming year. These estimates are often based on the past two or three years history of the association, and of course the association also has to budget an adequate amount of money each year for reserves.
Reserves are an important part of any condominium budget. Every association must have adequate reserves available in the event an emergency occurs, or an unforseen problem occurs that will necessitate a considerable expenditure of money. Most owners will acknowledge that they would rather pay $5 or $10 a month each and every month into a reserve account, than be hit with a special assessment of $2,000-$3,000 (or more) because there are not sufficient reserves.
Thus, if the projected income on a month to month basis is not reached because one or more owners refuse to pay their fee, this begins to put a serious strain on the overall budget of the association.
There is a case in California that is instructive to all condominium association owners, property managers, and boards of directors.
An owner refused to pay the condominium association's assessments, because he alleged that the condominium association had violated the condominium documents and had committed wrongful acts when it performed certain repair work to his unit.
The court in California recognized there is generally a right of setoff, which can be defined as follows: "A" owes $100 to "B," but "B" owes $75.00 to "A." In our example, "A" really owes $25.00 to "B," and "A" can withhold (setoff) the balance of the $100.00 owed because "B" owes "A" that money.
However, the court also determined that if the claim of setoff defeats public policy, such a setoff would not be permitted.
The language of the court in discussing the public policy of a condominium assessment is very instructive:
Because homeowner associations would cease to exist without regular payment of assessment fees, the legislature has created procedures for associations to quickly and efficiently seek relief against a non-paying owner. Permitting an owner to broadly assert the homeowner association's conduct as a defense or "setoff" to such enforcement action would seriously undermine these rules.
Thus, as a member of your board of directors, you must take prompt action to collect the delinquent fees owed by all unit owners. The collection procedures vary among the various states, but you and your property managers cannot permit the delinquencies to continue to stay on the books.
There is another important legal concept in condominium and homeowner association law, namely uniformity. A board of directors cannot treat one unit owner in a different manner than they treat other owners. The board cannot be arbitrary and capricious in its application of the laws, but must enforce the laws uniformly across the board. If the board permits one owner to stay delinquent, all of the other unit owners may soon claim the same right, and thus your association will begin to have serious financial consequences.
This does not mean to suggest that unit owners have no rights. On the contrary, they certainly can file suit against the association, and in those jurisdiction where mediation or arbitration is provided, can request a dispute resolution mechanism in an effort to settle any outstanding matters. But unit owners cannot be permitted to let their condominium fees lapse.