Property management opportunities in the Philippines

While one reading this article may be viewed it negatively, I read it as an opportunity for better property managers to serve the needs of the Philippine market.

From BusinessWorld Philippines

October 28, 2012

Why Condo Corps fail

A CONDOMINIUM (condo) is a multi-unit dwelling where the “living areas” are subdivided units individually owned, and the “common areas” like the corridors/hallways, easements, amenities and recreational facilities, to include “limited common areas” like appurtenant parking and unit-accessed balconies, are collectively owned by the unit owners via a condominium corporation (Condo Corp).

Even before incorporation, the unborn Condo Corp has been genetically bound by the Master Deed with Declaration of Restrictions, written by the original Owner/Developer of the condominium project and submitted to the Housing and Land Use Regulatory Board (HLURB) as the basis for constructing and thereafter selling the individual condo units.

The common practice by developers of pre-selling condo units (conditionally allowed by HLURB) is like a fixed marriage of the condo buyer with a still unborn bride, the Condo Corp, who is yet a twinkle in the eye of the Developer. Within the usual five-year waiting period for the construction of the condo building, the pre-selling condo buyer does not even see the Master Deed — and yet many amendments can be approved by the HLURB for the Developer.

In pre-selling, the Buyer effectively finances the construction of his condo unit and his share of the common areas. Yet it is only when the buyer had done the physical walk-through and inspection of the unit, signed the acceptance and the Deed of Absolute Sale — only then would the Buyer finally, finally, get a copy of the Master Deed and Restrictions. (In some lower-class development projects, the individual buyer never sees the copy of the Master Deed.) In the US and other countries more sensitive to the property rights of buyers, there is no pre-selling; the condominium building is up before any selling starts. The Master Deed/Restrictions is given to the Buyer to study before signing of the Contract to Sell, and deposits paid by the Buyer are in escrow, meaning, the Developer cannot yet use the funds prior to successful turnover.

The Developer would have registered the Articles of Incorporation and By-Laws of the Condo Corp (which it had itself formulated) with the Securities and Exchange Commission (SEC) just before the promised delivery date of the project. For exigency, the incorporators are the assignees of the Developer, who will sit in the Board for the unsold units and those not yet turned over. When the real unit owners will have unified themselves into a majority (50% +1, under Corporation law), they can elect Trustees to replace assignees of the Developer. Otherwise, as long as the Developer holds some shares and no quorum is garnered, the Developer’s assignees will govern the Condo Corp in continuous holdover Trusteeship. Or, the Developer can “groom” certain unit-owners in their favor, who will govern the Condo Corp. Such are the indestructible power groups entrenched in vulnerable Condo Corps.

This is the main reason why Condo Corps fail: It is the inability to round up enough physical attendance at the annual stockholder’s meeting or gather enough proxies to hurdle the 50% +1 majority that will allow legitimate unit owners to elect their chosen Trustees in the Condo Corp Board. Extremely rare is the Condo Corp that has put up a three-fourths vote of the total unit owners to amend those powerful Master Deed and Restrictions, Articles of Incorporation and By-Laws that can be disadvantageous to the unit owners, and can perpetuate the interests of the Developer.

There are basically two kinds of condo unit owners: the investors and the live-in home owners. The investors are those who have bought the condo to flip (sell) when the price is right, park cash for eventual need, or to rent for investment cash flow. The second group, who themselves live in their units full-time, including those who use their condos as midway homes (weekenders, office workers and those who live abroad part time), are the ones truly disadvantaged by not being properly represented in the Condo Corp that rules their lives in the condominium community.

The operational and logistics requirements of a condominium community are always huge, because these are compounded by the density of the units that share the common areas. Cash inflows from timely collection of dues must be closely watched. Absentee owners and those who have leased out their units can be careless about paying dues, causing shortfalls in needed operational expenses. The delinquent unit owners mulct subsidies from those who pay on time, particularly those who actually live in their units, and cannot escape House Rule sanctions like cutting of utilities and services for non-payment.

The amount of dues and the computation of these (usually a rate multiplied by the unit area, to cover contribution to common area overhead) must include contributions to an emergency sinking fund equivalent to at least two months operational expenses. As a condominium building ages, maintenance costs rise and capital expenditures will increase, to buy replacement equipment and the painting of common areas and outer walls. But the raising of dues is the most contentious issue in a Condo Corp. If the Board of Trustees truly represents the unit owners, then the dues would be more prudently determined and collected, and judiciously prioritized and spent.

Most Condo Corps inherit the Property Managers installed by the Developer, (usually their subsidiaries) who in turn sub-contract their favorite security, housekeeping, and maintenance and engineering services. The Property Manager is crucial to the smooth functioning of the condo organization and operations. Still, it would be preferred that Trustees in a Condo Corp should be live-in at the condominium, for them to personally observe the day-to-day operations and maintenance of the buildings, test the performance of the service providers and easily anticipate safety, security and comfort needs to ensure the better quality of life for residents.

But like working in government, the leaders in Condo Corps have a lot of power over resources that are not theirs, and might only pretend to be accountable to a euphemistic “common good” that has become faceless because of the non-involvement of individual members/unit owners. In a situation where the Developer is still very much entrenched in the Condo Corp (perhaps through “dummy” Trustees, or their operatives, the property managers), there is the natural gravitation of unscrupulous opportunists to inevitable corruption.

In one condo community in Makati, some unit owners are fighting to restore integrity in their dysfunctional Condo Corp. They have written a Vision-Mission Statement that pledges to maintain and improve the quality of life for their unit owners, and aims to make their condo the best (and most valued) in Makati. A Code of Conduct imposes good and decent behavior (no slander, defamation, libel of neighbors), no conflict of interest (self-dealing, commissions) and no unjust enrichment at the expense of another. Honesty, transparency and accountability must be the action principles of their Trustees.

They have yet to see their Code of Ethics proven effective, to keep their Condo Corp from failing them, and to experience the noble intent of the “Whereas” clause in the ubiquitous Master Deed, “to preserve the values and amenities” for a true quality of life and the peaceful enjoyment of property.

ahcylagan@yahoo.com

Article location : http://www.bworldonline.com/content.php?section=Opinion&title=Why Condo Corps fail&id=60704

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