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How much should I expect my co-op maintenance fees to increase each year?

As a shareholder, you have the right to understand what's behind a big maintenance increase. 

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Question:

I've heard that maintenance fees usually go up 3 to 4 percent a year, and my own co-op fees usually increase annually by 2 percent. But in the last two years, the fees on my brother’s 550-square-foot co-op have gone up by 10 percent each year. Is there a standard fee increase? What sort of notice and explanation are shareholders entitled to? What recourse do we have if the increase seems abnormally high?

Answer:

Maintenance fees reflect the costs of running the co-op, so while the citywide average annual increase is relatively low, our experts say, there may be more substantial hikes in certain years if your building has taken on large projects. 

"According to nearly all proprietary leases, the amount of maintenance that can be charged must be equal to the cost of operating the building: Paying for repairs, fuel, staff members, real estate taxes, and mortgage payments," explains Kevin R. McConnell, partner at Himmelstein, McConnell, Gribben, Donoghue & Joseph (a Brick sponsor).

And though a 10 percent jump seems steep—the average maintenance fee increase is "a few percentage points," according to the Daily News, while StreetEasy pegs it at two to eight percent—the rate can be pushed higher if a co-op undertook major repairs in the previous year. 

"The average does not take into account non-recurring items, such as repairs, capital improvements, and legal fees," says Jeffrey Reich, partner at Schwartz Sladkus Reich Greenberg Atlas. "While boards do what they can to stem the tide of the inevitable increases, the drivers of these increases are often outside of a board’s control."

It's your right as a shareholder to understand the calculations behind maintenance fee hikes, and each year, you should receive an audited financial statement from your board that outlines the building's expenses. 

"In my experience, most of the time it is actually easy to figure out what is going on by looking at the financial statement of the building from year to year," says Deanna Kory, a broker with Corcoran. "The financial statement shows what money is coming in from the shareholders and what the expenses are, and therefore what money is being paid out." 

Increasing real estate taxes, fuel prices, and labor costs are some of the most common factors behind fee increases, she adds. 

Under New York Business Corporation Law, shareholders are entitled to see financial statements upon request, according to the Cooperator. If you have trouble parsing the documents, Kory says, "Using an experienced real estate attorney can help you figure out what is going on." 

And if something strikes you and your attorney as suspect, take your concerns to the board. 

"Tenant shareholders who think their maintenance charges are increasing disproportionate to the services they are receiving should question the board members and the board’s accountant at the annual shareholders’ meeting," McConnell advises. 

Finally, shareholders who feel that their board is mismanaging building finances should consider working to change membership—or even running for a position on the board themselves. 

"If a shareholder in concerned about the magnitude of his or her annual increases and he or she cannot get a satisfactory explanation from their board, their remedy is to vote for a board that he or she believes will be more fiscally prudent (or transparent, as the case may be)," Reich says. 


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