CTV News in Ontario, Canada – reported on a story entitled Faulty towers: The hidden dangers of low condo maintenance fees. This story could have been written anywhere in the United States and even Colorado. While the circumstances facing the condominium association in the article are extreme, the story outlines the inevitable results of artificially low assessments, deferring maintenance and failing to fund reserves.
In these tough economic times, no board or resident of a homeowners’ association (“HOA”) wants an assessment increase. Heck – even in good times nobody wants an increase! However, the responsibility of an association to maintain, repair and replace common elements does not magically go away. You need only look at the declaration of covenants, conditions and restrictions for your HOA to determine the responsibilities of your association. For condominium associations – this is particularly important since your association likely has significant and potentially costly responsibilities.
Every HOA should take stock of whether the association is financially prepared to handle routine maintenance, major repairs and replacement of common elements. To determine whether your association is in fiscal shape to handle these responsibilities, here are questions for your board to ask:
- What are the maintenance, repair and replacement responsibilities of the HOA?
- What are the costs associated with routine maintenance of the common elements? Has the association adequately budgeted for this maintenance? Are assessments at a sufficient level to cover the maintenance responsibility?
- When is the last time the association had a reserve study conducted? Since that time, have we deferred maintenance that will affect the remaining useful life of any of the components in the reserve study? Have there been any unusual weather events that have affected the common elements? Is it time to get the reserve study updated?
- Do we have a plan for funding reserves? Are the assessments set at a sufficient level to fund reserves? Are we planning to levy a special assessment? Is a loan an option for our association to fund major projects?
These questions are a starting point for boards to determine whether their associations are able to handle common element responsibilities. Going through this analysis is the easy part. However, taking the steps to ensure appropriate funds are in place to carry out these responsibilities is not so easy. Assessment increases, the dreaded special assessment and whether the association would qualify for a loan are issues that have to be faced by boards and homeowners. Failing to do so will only result in worse financial conditions down the road.
Facing these tough issues now will set your association up for long term fiscal health and will protect the integrity of the common elements and property values in your community. You also might be pleasantly surprised that your association is in better financial condition than you thought!