Flickr photos via Iain Browne
Q. How often should I expect my co-op maintenance charges to go up? What’s a normal increase and why? Does it ever go down?
A. Expect your maintenance charges to go up every year or two, say our experts, and expect the increases to be well above inflation.
Maintenance fees cover the costs to run the building, and “in recent years a big challenge facing co-op boards has been rising fuel and real estate tax costs–which are rising faster than overall inflation,” says real estate appraiser and market analyst Jonathan Miller of Miller Samuel Real Estate Appraisers & Consultants.
Typically, maintenance increases average 3 to 4 percent a year, says asset manager and real estate broker Roberta Axelrod of Time Equities, but “sometimes boards skip a year and have a larger increase in the second year.”
If it’s any consolation, boards hate maintenance increasees as much as you do–and not just because part of it comes out of their own pocket or because it could impact the property value of their own apartments.
“The natural inclination is to not want to vote for maintenance increases because they are inherently unpopular with shareholders,” says co-op and condo attorney Dean Roberts of Norris McLaughlin & Marcus. “The tension between these two positions creates the circumstance in which no increases are implemented until the board has backed itself into a corner and the budget shortfalls require a large maintenance increase or assessment.”
Delaying the inevitable “works in the short term politically, but in the end forces the board to pass much larger and much more upsetting increases,” says Roberts. “It is better both politically and for budgeting purposes to have shareholders become accustomed to small incremental increases every couple of years.”
That said, it’s rare for maintenance increases to top 10%, says real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder. In fact, says Stone, from a buyer’s perspective, an increase of 10% or more would be “cause for questioning the managing agent about the specifics of the increase. They are usually for unavoidable costs like real estate tax and fuel increases.”
(Buyers should also beware the co-op whose maintenance is too low, notes Miller, the appraiser. “I view this as a sign of a building that is not well run, that can’t anticipate rising costs before or while they are occurring,” he says.)
So do maintenance charges ever go down?
“This usually occurs when either the co-op has a large windfall, usually related to a commercial property or some other business transaction, such as an insurance settlement, which allows the co-op to have a budget surplus and therefore decrease maintenance in the next year,” says Roberts. “Also this can occur when a mortgage is paid off or some other large capital program is completed and the budgeted amount for this work or reserves can be decreased.”
Real estate broker Shirley Hackel of Warburg Realty agrees that a reduction in maintenance is the exception and not the rule.
“I can remember less than a handful of examples in my 30+ years in the business,” she says. “In nearly all those cases, charges went down because the co-ops were able to successfully negotiate a favorable long term lease for a ground floor commercial space.”
Axelrod, who sits on many boards as a sponsor’s representative, says that although decreases are exceedlingly rare, one board recently reduced maintenance as a result of a lower interest rate on the coop’s underlying mortgage after refinancing.
Sometimes a reduction can be temporary, says Roberts.
“I have seen maintenance reduced as a maintenance ‘holiday,’ which is in essence a rebate,” he says. “As one of my clients got toward the end of the year they discovered they had a substantial budget surplus and basically waived the requirement to pay the December maintenance bill.”