In this article 6 topics
Managing a residents' committee's finances is not a matter of personal trust in a committee member, it is a matter of law. The standard bylaws in Israel's Land Law set out what the committee must do with the building's money: a bank account in the name of the condominium, an invoice for every expense, a receipt for every payment received, an income and expense ledger, a financial report every six months, and the right of every apartment owner to inspect all of these. In this article we set out what the law requires, what is worth asking for beyond it, and what should raise a red flag.
What the law requires of the committee
Every condominium must have a committee that manages its affairs, and the committee acts as the agent of all apartment owners in everything related to maintaining and managing the building. In a building without agreed bylaws that say otherwise, the standard bylaws apply, and their section 16 sets the financial duties:
- An invoice for every expense and a receipt for every payment. The treasurer obtains an invoice for each expense, issues a receipt for each payment received, and keeps an income and expense ledger.
- A financial report once every six months, including details of how accumulated funds were invested.
- A right of inspection. Every apartment owner may, at any reasonable time, inspect the ledger, invoices, receipts and financial report.
- A bank account in the name of the condominium. Income is deposited in the building's account, not in a resident's private account.
- A calendar financial year, from January 1 to December 31.
In addition, the ledger, invoices and receipts are brought to the regular general meeting for approval.
Who decides on expenses
Under the standard bylaws, the general meeting of apartment owners convenes at least once a year, and no later than 15 months after the previous meeting, and it sets the expenses involved in managing the common property. Decisions are made by majority, but a charge that goes beyond the obligations in the bylaws does not bind an owner who did not agree to it. Owners of a third of the apartments can demand a special meeting.
Every apartment owner must share in the expenses needed to properly maintain and manage the common property, usually in proportion to the area of their apartment relative to all apartments, unless the bylaws set a different split.
What a good residents' committee financial report should include
The law requires a report but does not say what it looks like. From our experience, a report residents actually trust includes:
- The opening and closing balance of the account for the period.
- Collections: how much should have come in, how much actually came in, and who owes.
- Expenses by category (cleaning, electricity, elevators, landscaping, repairs), with the supplier's name and the invoice.
- A comparison with the budget approved at the meeting, with every line that went over marked.
- Exceptional expenses: who approved them, and which quotes were checked.
- A renovation or reserve fund, if there is one, and where the money is held.
Warning signs in a committee's finances
- The account is in a private person's name and not in the name of the condominium.
- Expenses without invoices, or cash payments with no record.
- A report that never arrives, or arrives only after repeated requests.
- A refusal to allow inspection of the ledger, invoices or receipts.
- Major work without competing quotes, or a long-standing supplier whose prices nobody has checked in years.
- It is unclear what the management itself costs, because the management fee is spread across other lines.
What changes when there is a management company
The Land Law allows apartment owners to decide that the common property will be managed by a maintenance contractor, meaning a management company, and the management fee is an expense all owners share. The law also states that the contractor is subject to the same duties as the treasurer under section 16 of the standard bylaws: keeping the accounts and providing information to apartment owners. In other words, a management company cannot handle the money with less transparency than the law demands of a volunteer committee.
In our residents' committee management service, the financial arrangement is set with the committee in writing before we start: whose name the account is in, who has signing authority, and how expenses are approved. By the 10th of every month a detailed expense report arrives, with our management fee on a separate line. The committee and the property owners see collections, budget against actuals and every service call in the portal. And anyone dealing with residents who do not pay will find the process in our article Residents Not Paying Building Fees.
Sources
- Land Law, 1969, sections 58 (sharing expenses), 64 (standard bylaws), 65 and 69 (committee), 71 (maintenance contractor).
- The standard bylaws in the schedule to the Land Law: section 5 (general meeting), 6 (special meeting), 12 (decisions), 15 (committee and treasurer), 16 (accounts).
The information in this article is general and is not legal advice. In a building with registered agreed bylaws, their provisions take precedence over the standard bylaws.
