Managing Amenities Coping with Changing Trends

Managing Amenities

The condominium’s swimming pool was 30 years old. It needed a renovation. That would trigger a legal requirement that it be in compliance with current regulations—and would cost $1 million. The association’s board of directors, aghast at the cost, decided to shut down the pool instead. Many owners protested, insisting the pool had to be retained because the governing documents listed it among the condo’s common elements.

Was the board within its rights to shut down the pool? Probably, says one legal pro. “Section 18.4(a) of the Illinois Condominium Property Act gives a condo board broad authority to administer the common elements,” explains Attorney Howard S. Dakoff. His Chicago-based firm, Levenfeld Pearlstein, LLC, counsels over 1,500 Illinois condo associations.

“Illinois case law says the board has broad authority to use its business judgment without fear of liability,” Dakoff adds. “One could argue that the board must maintain that amenity at any cost, but the true answer is the balancing of hardships and the common-sense rule.”

This situation illustrates one of the foremost challenges in managing amenities—money. Michael Kennelly, chief operating officer of Phoenix Rising Management Group, Ltd., in Chicago, which manages 116 properties with close to 5,000 units, says that “while amenities might be initially appealing, most owners and prospective buyers focus on current assessments and reserves. To properly manage an amenity, associations are required to budget for routine maintenance and upgrades, which drive up assessments. As assessments increase, groups of the ownership may advocate scaling back or eliminating amenities they do not personally use or value. This can cause friction between groups of owners who do or do not use the amenity.”

Size and Location

In Chicagoland as a whole, Dakoff says, the most popular amenities are swimming pools, fitness centers (sometimes called health clubs or workout rooms), and party rooms available for occupants’ rental.

Keith J. Hales, president of Hales Property Management, Inc., in Chicago, says Dakoff’s ranking is based on larger properties. “Our properties are relatively small, from three to 66 units,” he says. “Ours don’t have any of that stuff, but most have a common rooftop deck.”

Most of Kennelly’s clients are condos in or near Chicago’s Loop. He also cites an outdoor deck as a top amenity. “Folks enjoy views of Lake Michigan or the cityscape,” he says.

Fitness centers are fairly common in his clients’ properties, but swimming pools are not. “Space is limited,” he says. “You might see pools on rooftops, but they cause problems, they leak, they have to be maintained, and not a lot of people use them. In the suburbs, with more children, you find pools and playgrounds where people get value out of them.”

Tax Issues

Another amenity common in urban buildings is a coin or smart-card operated laundry room. Hales says it’s both a convenience and a revenue source for the association, which splits proceeds with the vendor who provides the machines and washing supplies.

“Most associations don’t know they have to claim that income at tax time,” Hales says. “They may have made a few thousand dollars. Now they have to pay taxes on it, but they didn’t set aside money for that in the budget, or allocate expenses to the laundry room to offset the income.”

Party rooms and rooftop decks have similar revenue potential, if their rental generates income for the association. Where such facilities aren’t rented, users still may be required to put down a security deposit, which won’t be refunded if the condo’s maintenance staff must clean up afterward.

“Technically that is income, offset with the expense of the cleanup,” Hales says. “Typically, the differential is in favor of the association, but you can offset some or all of it by assigning to that function some of the time for which you pay a management company.”

Maintenance Issues

Maintenance dollars allocated specifically to revenue-generating amenities also can provide a tax offset. For example, a natural-wood rooftop deck needs seal-coating and power-washing every year or two to prevent warping due to weathering and temperature changes. If enough warped boards need replacing, or if the entire deck must be removed to repair or replace the roof, the deck may have to be replaced completely to comply with current building code requirements.

In Chicago, Hales says, a 2,500-square-foot rooftop deck costs about $5,000 ($2 a square foot) to maintain and about $15,000 ($6 a square foot) to replace. “Associations need to budget for this kind of expense,” he says.

Non-revenue-producing amenities also require maintenance and upgrading at regular intervals. “The equipment in a fitness center must be maintained and funds set aside to routinely replace and upgrade equipment,” Kennelly says. “Otherwise, the equipment becomes dated, breaks down, and is unavailable. A fitness center full of outdated or broken equipment will become a point of contention for those that value this center and a blemish or detraction for a potential buyer.”

Where Responsibility Lies

Amenities management follows a convoluted chain of command. In the beginning, Dakoff says, developers build projects and write the initial rules and regulations to administer the amenities. The owners and boards inherit whatever the developer built. After a community transitions to association control, its board adopts or revises the rules and regulations, and decides whether to add other amenities.

The board in turn delegates responsibility to the property manager and his or her staff to administer the amenities (and the reservations if required for their use), to keep them clean and safe, and to ensure that they are being used according to the rules and regulations.

The manager offers input to the board to aid in its decision-making. “You can cut the landscaping budget in half, but you have to understand the association will not receive the same service,” Kennelly says. “The board always has the final say, but it is incumbent on management to ensure that they understand the implications of any decision.”

“The board deals with enforcement if there’s a violation,” Dakoff says. “They need the manager to give them guidance on what to do, and to send an enforcement letter, but fundamentally it’s a board responsibility.”

The Attorney’s Role

The board’s attorney enters the process at several points. First, the attorney should review the rules and regulations to “make sure you’re not violating anybody’s rights,” Kennelly says.

Once one of Hales’ clients tried to restrict children from its deck. An owner fought the restriction, charging that the board was discriminating against his children. “He got a pro bono law-school student to file a formal complaint with the U.S. Department of Housing and Urban Development,” Hales recounts. “To deal with that, the board hired an attorney who was extremely costly. In the end, the association had to apologize and change its rules.”

Hales says the aggrieved owner and the board could have resolved the issue without a formal complaint. His company ultimately “fired” that client. “We didn’t want to manage it anymore,” he says. “There were a lot of emotions with that board.”

The board’s attorney should be involved, Dakoff says, to help the board enforce its rules and regulations or levy a fine when an owner commits an “egregious” violation.

Legal guidance also is advisable when a board tries to restrict owners who are in arrears on their assessments from using the condo’s amenities, although Kennelly says “we discourage that practice. It’s very difficult to enforce, and then you set yourself up for some angry confrontations if you tell me I can’t use the fitness center or the pool, and you have no way to prevent it,” he adds.

“The right answer is to begin the collection process, let it play out in the legal forum, and don’t do anything to impinge on rights of access while working your way through the courts. Since the 2008 recession began, good people have lost jobs and found themselves in a bad financial position, but they do come out of it. If you treated them harshly during that process, now you have problem owners.”

The Role of Committees

Kennelly suggests organizing committees to oversee a community’s amenities and make recommendations about them to the board. “Committee volunteers will be more familiar with the functional requirements and use of a particular amenity,” he says, “but committees also can be difficult to control.

“Absent any financial constraints, a committee may have unrealistic expectations or attempt to maintain or upgrade an amenity at a higher level than desired by the rest of the community. If the board does not adopt the committee’s recommendations, they run the risk of offending or alienating the committee. The committee then becomes a problem, a distraction, not an asset.

“The best technique to control a committee is to appoint a board member as the committee chair. The board member is more likely to keep the committee in line with the budget and has credibility to explain board decisions.”

Trends in Amenities

In today’s problematic economy, the main focus in condos is controlling costs, Kennelly says. “Associations are coming to market with fewer amenities, and there’s a concerted effort by established associations to eliminate amenities,” he says.

“The thought process is, if you want a fitness center, join a gym. In an urban setting this makes sense. Most amenities enjoyed by an owner are immediately available in the local area. There are a few exceptions, such as a doorman service, but most owners want to pay only for an amenity that they personally use.

“This is not necessarily true for rental facilities, where residents want more, not fewer amenities. Owners, however, are more cost-conscious and therefore are less enthusiastic about amenities—at least, those amenities which don’t easily translate into higher property values.”

George Leposky is a freelance writer and a frequent contributor to The Chicagoland Cooperator.

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