Advantages and possible problems of creating a homeowners association

Recommendation points

• Pros of creating an HOA
• Possibility to choose a management company
• Impact on the management company
• Repair subsidies
• Cooperation with other companies
• Additional income
• New workplaces
• High cost of apartments
• Purity
• Cost control
• Respect for common property
• Good neighborly relations
• The main problems of the HOA
• Local authorities
• Beneficiaries
• Rent
• Choice of the chairman
• Lack of tenant initiative
• Feasibility of creating a HOA

The first and currently the only step towards achieving this goal is the Homeowners’ Association (HOA), creating which owners of residential and non-residential real estate located in an apartment building will be able to talk with management companies from the position of a full partner who can dictate their own conditions.

The decision to create an HOA can only be made by the owners of housing in an apartment building, for which a meeting of owners should be held. The main condition necessary for creating a partnership is the presence of active apartment owners who are not afraid to take the initiative into their own hands, who could organize a meeting of tenants, warn in advance about the planned creation of a homeowners association, hold a vote and take on all the troubles associated with organizing the activities of the partnership.

And there will be quite a lot of trouble at the first stages of creating a homeowners association:

• legal issues related to the creation of a non-commercial entity of economic and financial activity;
• registration with all state authorities;
• opening of current accounts;
• looking for a bona fide competent accountant who would keep all the documentation of the newly created organization;
• election of the chairman of the HOA and the manager of the apartment building, as well as members of the board of the partnership;
• conclusion of contracts with resource supplying organizations – an energy company, heating network, water utility, gas service;
• selection and conclusion of a contract with a management company that can take over and provide all utilities, as well as cleaning of premises, maintenance of the adjacent territory, garbage disposal and other necessary work related to the normal functioning of all systems of the house.

All of the above points are a prerequisite for the initial stage of organizing a homeowners’ partnership. And, I repeat, in order for the HOA to really be successfully created and start its work, it is necessary, first of all, the activity and initiative of the apartment owners themselves, who would want to take on all of the above chores, in return that can bring a lot of advantages over other apartment buildings.

Pros of creating an HOA

The advantages of creating a homeowners’ partnership include:

Possibility to choose a management company

Let us remind you that the operating organization is appointed forcibly, at the initiative of the local authorities, for houses in which there is no HOA, so they have no choice..

Impact on the management company

HOA members can quite realistically influence the policy of the management company, decide on their own whether repairs are needed in the entrances, what the residents’ funds will be spent on in the first place, as well as the purchase of what equipment is an urgent need.

Repair subsidies

Residents who created HOAs are obliged to carry out major repairs of the house at their own expense, but the state, interested in reforming the housing and communal services system, often provides subsidies for such large-scale repairs.

Nikolay Bogomolov. My house

Cooperation with other companies

The HOA is a legal entity, as a result of which it can enter into transactions with other companies, organizations or enterprises in order to generate income or protect the interests of the owners of the apartment building.

Additional income

The common property of an apartment building – a basement with a high ceiling, technical non-residential premises, annexes or non-residential fund, can bring homeowners associations significant profit – by leasing them out as commercial real estate, the partnership can earn money for landscaping, building a playground, and so on. Also, funds can be earned by placing advertising banners and panels on the facade of the house, however, such income is available only to those HOAs whose houses are located on central streets and busy highways.

New workplaces

participation in an HOA can also bring profit to individual residents of an apartment building. So, quite often young, still quite able-bodied pensioners become cleaners, plumbers, locksmiths, accountants, managers of a partnership, receiving quite a decent salary for their work. In addition, such work activity takes place in the immediate vicinity of your own apartment, often does not require daily efforts, so such cooperation is beneficial for both the residents of the house and the HOA itself, which can save on the services of the management company.

High cost of apartments

The creation of a HOA increases the commercial value of apartments in this building, since new residents are already guaranteed a higher level of utilities.

Purity

Residents of an apartment building who have formed a homeowners’ partnership can enjoy such joys of life as a clean entrance, a well-groomed courtyard and a renovated roof, which are often not available to residents of apartments in ordinary houses..

Cost control

Members of the HOA can control the spending of the partnership’s funds by creating an audit commission, which has the right to verify the legality and expediency of all expenses of the management company or members of the board.

Respect for common property

Residents of houses in which homeowners’ associations have been created are usually much more careful about common property, realizing that its repairs will have to be paid out of pocket.

Good neighborly relations

The creation of a homeowners association can significantly improve the general climate in an apartment building – meeting at meetings and solving urgent and significant issues for everyone, without exception, the inhabitants of the house get to know, communicate, and establish quite good-neighborly relations.

The main problems of the HOA

However, do not think that homeowners’ association is a panacea for all the problems of an apartment building..

The main problems that may arise for apartment owners who have decided to create a homeowners association include:

Local authorities

Relations with local authorities, which can often be disposed not to be too loyal to proactive owners, besides, legislation does not regulate all aspects of HOA activities. For example, if one of the tenants refuses to pay utility bills, it will be possible to collect the due payment only through the courts. The litigation can take a long time, and all this time the burden of paying off HOA debts will fall on other, more law-abiding homeowners.

Beneficiaries

Beneficiaries do not often strive to become members of the HOA, since the state usually does not compensate the partnership for the difference between the standard payment for utilities and the tariffs provided for privileged categories of residents.

Rent

The rent in the HOA is often higher than the payments of the inhabitants of ordinary apartment buildings. Of course, HO members pay for electricity, gas and heat at the same rates as other citizens, but such additional costs as arranging garages, playgrounds and landscaping can become an additional burden..

Choice of the chairman

The success of the HOA functioning to a large extent depends on the activity and integrity of its chairman and board members, so that their choice and control over their activities should be approached especially responsibly and seriously.

Lack of tenant initiative

Many residents of the house are not active and do not want to pay for additional costs, do not take part in the activities of the partnership, so the lack of initiative of the residents may eventually result in violations by the management company and the inability to solve the problems of improving the apartment building.

Feasibility of creating a HOA

It should also be noted that the creation of an HOA is not always advisable. So, if an apartment building:

Firstly,is a house with a small number of apartments – less than 150, which will not allow the formation of a sufficiently large fund of funds.

Secondly,is an old building that needs reconstruction, large-scale overhaul, which will require substantial expenses from the HOA already at the first stage of activity;

Thirdly,does not have additional space, such as equipped basements or technical premises, which can be rented out on a commercial basis, which will bring quite tangible income.

Fourth,the overwhelming majority of residents are not active, are not going to participate in any way in the activities of the HOA or incur additional costs.

In this case, the creation of a homeowners’ association is not advisable, it will not be able to solve all the problems of an apartment building and simply will not pay off.

Thus, the creation of homeowners’ associations is a phenomenon that is becoming more and more frequent at the present time, especially among the inhabitants of large multi-storey buildings of the latest construction. In old, three- and five-storey buildings, few homeowners decide to take such a crucial step, which, despite all its many advantages, also brings additional hassle and costs. In general, the decision to create an association of residential apartment owners is taken by them independently, and as a result, it brings such a desired freedom of choice, but requiring responsible decisions and a serious approach..