Reading a Condo Fee: Reserves, Special Assessments, and the 6(d) Certificate

Two condos, same neighborhood, same size. One has a $380 monthly fee, the other $720.

Nearly everyone reads that as a $340 difference. It usually is not, and occasionally the cheaper one is the more expensive building to own.

The fee is not one thing

A condo fee is your share of what it costs to run the building. What that includes is set by the association, and it varies enormously.

One building’s fee covers heat, hot water, water and sewer, master insurance, landscaping, snow, trash, and a professional management company. Another covers insurance and snow removal, and you pay every utility yourself.

So the first question is never “how much is the fee.” It is “what does the fee include, and what will I be paying on top of it.” Get both buildings onto the same basis before you compare a single dollar.

The part that is not spending

Here is the piece that costs people real money years later.

A well-run association splits the fee in two: operating money that pays this year’s bills, and reserves set aside for the things that eventually need replacing — the roof, the boiler, the elevator, the facade, the decks. None of that is optional maintenance. It is arithmetic with a slow fuse.

An association that keeps fees low by underfunding reserves is not saving anyone money. It is deferring the bill and adding the interest of urgency to it. When the roof finally fails, the money has to come from somewhere, and the somewhere is the owners.

Which is why an unusually low fee deserves more scrutiny than a high one. Sometimes it means a small, efficient, self-managed building with genuine discipline. Sometimes it means an association that has not raised fees in a decade because nobody wanted to be the one to propose it.

Special assessments

A special assessment is a one-time charge to owners for something the reserves cannot cover. Roof replacement, facade repair, elevator modernization, structural work, a large insurance deductible after a loss.

They are not rare and they are not a sign of a bad building — sometimes they are a sign of a board finally doing its job. What matters is whether one is coming, and whether you will be the owner when it lands.

That is knowable before you buy, and it is knowable from the documents.

What to actually read

When you go under agreement you get the condo documents. Read them. This is the part of the diligence that people skim and later wish they had not.

The budget. How much goes to operations, how much to reserves. Compare the reserve contribution to the size and age of the building.

The reserve balance. A number, not a feeling. Then ask what the major components are and roughly how old they are. A twenty-five-year-old roof and a thin reserve is a special assessment with a date on it.

Two years of financials. Is the association operating at a deficit? What is the delinquency rate — how many owners are behind?

Board meeting minutes. This is the single most useful document and the one most often ignored. Pending work, contractor bids, litigation, insurance problems, and assessments that have been discussed but not yet voted all show up here first.

The master insurance certificate. What the building’s policy covers, and to what point inside your unit. This determines what your own policy needs to do.

The bylaws and rules. Rental restrictions and minimum lease terms matter enormously if letting the unit is ever part of your plan — see the three-year assignment question. Pet rules, move-in rules, and renovation approval requirements matter for daily life.

The 6(d) certificate. Under MGL chapter 183A section 6, the association must provide it within ten business days of a written request, and it states unpaid common expenses and other sums assessed against the unit, along with what the association claims has priority over a mortgage. It tells you whether the seller is current.

Why unpaid fees are not someone else’s problem

Massachusetts gives condominium associations real collection power, and it is worth understanding as a buyer rather than being surprised by it.

Under chapter 183A section 6, the association’s lien for common expenses takes priority over a first mortgage to the extent of six months of assessments — the regular budgeted ones, not special assessments — that would have come due in the six months immediately preceding an action to enforce the lien, plus costs and reasonable attorney’s fees.

Two practical consequences.

The association can collect, which is good for a building’s stability and good for you as an owner.

Lenders care about this, which is why a building’s delinquency rate and finances affect whether you can get a loan on a unit in it at all. A building with weak finances is not only unpleasant to own — it can be harder to sell, because your buyer’s lender looks at the same documents.

Small buildings are different, not worse

A great deal of Greater Boston’s condo stock is three-family houses converted into three units. Around Somerville and Allston in particular, this is the default, as covered in Cambridge vs Somerville.

The economics are genuinely different in a three-unit association:

• there is usually no management company, so the owners do the work
• the reserve is small because three units fund it
• a $30,000 roof is split three ways, not a hundred
• one neighbor not paying is a third of the budget, not a rounding error
• decisions require getting along with two specific people for years

Well-run small associations are excellent. Poorly run ones are painful in a way a large building rarely is. The documents matter more here, not less — and if the association keeps no formal budget or reserve at all, that is itself the finding.

Your own insurance

The master policy covers the building. It does not cover the inside of your unit the way you might assume, and where the line falls is defined in the condo documents.

Owners generally carry their own unit policy for interior finishes, contents and liability. Ask specifically about loss assessment coverage, which is the piece that responds when the association assesses owners after a covered loss. It is usually inexpensive and people usually do not know they can have it.

Before you make an offer

Five questions, and they are all fair to ask:

1. What exactly does the fee include?
2. What is in the reserve, and when were the roof, heating system and major systems last replaced?
3. Has a special assessment been discussed, voted, or is one pending?
4. What is the delinquency rate?
5. Are there rental restrictions?

If the answers are vague, that is an answer.

One caveat

Condominium documents are legal documents, and how they apply to a specific building is a question for your attorney — which in Massachusetts you will have, since attorneys are customary on both sides of a purchase. The transaction vocabulary covers where in the process this reading happens.

What I do is get these documents early and go through them with you in Korean as well as English, before the contingency deadline rather than after it. A building’s finances are knowable in advance. There is no reason to find out afterward. Get in touch.