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Any advice on Setting up a new condo homeowners association?

I have moved into a new condo. The entire condo is new, just eight units but we all are the first residents. We need to set up a homeowners’ association in order to collect common charges and pay bills. Does anyone have experience in how this process goes or who one can contact to have…

by BedStuyCarrot
09/25/2008

I have moved into a new condo. The entire condo is new, just eight units but we all are the first residents. We need to set up a homeowners’ association in order to collect common charges and pay bills.

Does anyone have experience in how this process goes or who one can contact to have this set up?

Any advice or contacts would be greatly appreciated for this condo newbie!

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Comments

  1. Yes, you are considered an unincorporated homeowner’s association. You normally don’t have to pay federal taxes, but still have to file an 1120H return. Of course New York State and City still get a piece of you, and you will at least have to pay the minimum tax each year under Article 9 NYS franchise tax (about $100), MTA surcharge (17% of your franchise tax-yes the MTA gets a piece too) and NYC Corp Tax ($300).

  2. Hi Matt,

    We dealt with this same issue recently in our building (new construction, 8 units), and were told many different things by everyone — corporation, not-for-profit, etc.

    Ultimately I went by what the offering plan says, which is that we are NOT a corporation but rather an “un-incorporated association” — and therefore not taxed as a corporation.
    Did your sponsor give you a Tax number (EIN)?
    Once we finally got this info from our sponsor and confirmed it with the IRS, everything else was fairly simple (at least with respect to the bank account).
    All banks have different rules, but ours just asked that I bring them letter stating that we were a homeowner’s association, not a corporation, and confirmation of our Tax ID number.
    The sponsor does have a legal responsibility to perform the initial steps of this process, so if he is not you should speak to a lawyer.
    Hope this helps!

  3. curiositykilledthecat –

    If you do not mind me asking, what did you set your condo up as? We originally set it up as an LLC and were told that was wrong – and are in the middle of figuring out what to do. Just looking for a comparable. Did you set it up as a DBA or a not-for-profit? And did you have an accountant set this up or an attorney, or did you do it on your own?

    Thanks,

    Matt

  4. Another word on self-management. Our 6-unit, new construction condo has self managed since we all moved in 6 years ago. It is NOT a lot of work, and we don’t even have the help of all the owners.

    We have 6 reasonably intelligent people who trade off on the jobs (pres, secretary, treasurer). We also have a great MAINTENANCE company (NOT management), who cleans the common areas once a month, etc, and is on call for all significant repairs.

    The two best aspects of this arrangement are:

    1. Our common charges are still only $200 per month, which has even been enough to build up a nice reserve.

    2. We all take the work seriously because we are, obviously, the owners.

    Good luck~

  6. Thank you all so much for the comments!
    This gives us a good place to start, and I appreciate all the leads.

    Our main concern at the moment is forming the corporation and getting the tax number. We first were told to form an LLC, but the insurance company told us it should be an ‘association’ and not an LLC, for liability reasons.

    It’s all new to us, but we are willing to roll up our sleeves, so we hope to be okay.

    Thanks again!

  7. Hi,

    Since your condo is only eight units, and if you agree on self management, you can probably save yourself a lot of money. I did this years ago when I lived in a condo. I am a CPA, so I had experience with doing the accounting. If everyone is willing, and you have the skills needed, it is doable. You will need a tax id. That is easy enough to get from the IRS. You will need to read your prospectus to see what if any rules were already set up about the board. (The sponsor, may or may not still hold some control). You will have to elect a board, set up by-laws, open a bank account, draw up a budget estimating your income, and expenses for common areas. The board will have the power to hire contractors, etc. Each year, the condo files a federal tax return 1120H, and a State and City Tax return (state franchise tax, MTA surcharge, and the City’s general corporation tax). You will probably need to hire an accountant, unless you have one in your building who is willing to do the work.

    You will save money going the self-managed way, but be prepared to get involved and do some work. If people are not willing, then it may be better to go with a management company.

  9. Here are some websites that I found useful when setting up a condo association in my building (we are also just 8 units).
    Good luck!

    http://www.habitatmag.com/publication_content/2007_december/web_exclusive_adaptations/new_building_new_board

    http://realtytimes.com/rtpages/20060220_community.htm

    http://www.condoassociation.com/blog/tabid/19257/bid/3727/How-To-Start-A-Condo-Association.aspx

    http://www.associationtimes.com/articles2003/devtrans1103.html

    http://cooperator.com/

    http://www.condolawyers.com/primer.htm

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