Tag Archives: Ownership

Think Before You Lease Your HOA Amenities to Outside-Residents


Many associations are considering a range of revenue-generating measures to offset ever-tightening budgets. But before you rent out your clubhouse or sell memberships to your golf course, pool, tennis courts, or other facilities to non-owners, keep a few critical rules in mind.

Think About It

1) Consider the liability. The biggest issue that keeps associations from renting out their facilities to non-owners is liability. Check with your insurance carrier to find out if injuries to non-owners and injuries caused by non-owners would be covered under your current policy. Chances are they won’t, and it’ll be much more expensive to expand your policy to include that coverage. Once you know the additional insurance costs, you need to weigh them against the potential new revenue to determine whether the financial gain adequately offsets the added cost.

2) Which facilities will you rent? Don’t automatically assume that you should rent all your facilities to the public. For example, you may find that it’s too expensive and the liability is too great to allow public assess to your pool, but the increased insurance costs and limited risk of personal injury in allowing non-owners to use your clubhouse is acceptable. Evaluate each amenity individually before making any decisions.

3) Who’s in, and who’s out? Ask yourself whether it’s necessary—and permissible—to place limits on whom you’ll allow to be guests. For instance, your association might be heavily populated by seniors who prefer not to lounge at the pool while children happily scream and perform cannonballs. But banning children might open your association up to family law discrimination claims, even if those claims end up being frivolous. Similarly, opening your golf course to novice and sometimes ill-behaved players may transform your residents’ peaceful round of golf into a high-tension activity. On the other hand, allowing an aerobics instructor to conduct classes in your gym or allowing personal trainers to use the same facilities to train nonresidents during certain hours may not bother residents—who may actually appreciate the convenience of those services. In addition, you may be able to require instructors or trainers to include your association as an additional insured under their liability insurance policy, which would limit your liability. Whatever the amenity, get residents’ feedback on whether they’ll feel comfortable sharing it with non-residents.

4) Know the laws that apply. Remember that once you allow the public to use your facilities, your association will be subject to new laws, such as the Americans with Disabilities Act (ADA). Do your facilities meet the requirements of the ADA? If not, what would it cost to bring them up to compliance, and do those costs outweigh the revenue? Also, renting out your clubhouse for such events as weddings and parties will open up the issue of liquor liability. You can require that guests not bring alcohol onto your property, but that rule can be hard to enforce, and it may limit the facility’s appeal. If you allow the consumption of alcohol, you’ll again have to check with your insurer to determine how that affects your coverage.

5) Don’t forget the added expenses. It sounds great to be able to supplement your association’s income, but how many people will sign up to use your newly available facilities if you don’t market them? You’ll probably have to pay a salesperson or marketing firm to advertise your facilities, so be sure to add those expenses into your cost versus revenue calculation.

There are so many issues to consider before allowing nonresidents to use your facilities that it’s unwise to make the decision without professional guidance. So be sure to run your ideas by an attorney or professional management association with experience on the issue. Reviewing these five questions with your board and researching insurance costs in advance will help you be prepared and minimize the time and money you spend to get that critical advice.

Source: http://www.communityassociationmanagement.com/facilities-a-maintenance/amenities/

Call Riverside Property Management of Kennesaw for more information!

678-866-1436 or www.riversidepropertymgt.com

Think Before You Lease Your HOA Amenities to Outside-Residents


Many associations are considering a range of revenue-generating measures to offset ever-tightening budgets. But before you rent out your clubhouse or sell memberships to your golf course, pool, tennis courts, or other facilities to non-owners, keep a few critical rules in mind.

Think About It

1) Consider the liability. The biggest issue that keeps associations from renting out their facilities to non-owners is liability. Check with your insurance carrier to find out if injuries to non-owners and injuries caused by non-owners would be covered under your current policy. Chances are they won’t, and it’ll be much more expensive to expand your policy to include that coverage. Once you know the additional insurance costs, you need to weigh them against the potential new revenue to determine whether the financial gain adequately offsets the added cost.

2) Which facilities will you rent? Don’t automatically assume that you should rent all your facilities to the public. For example, you may find that it’s too expensive and the liability is too great to allow public assess to your pool, but the increased insurance costs and limited risk of personal injury in allowing non-owners to use your clubhouse is acceptable. Evaluate each amenity individually before making any decisions.

3) Who’s in, and who’s out? Ask yourself whether it’s necessary—and permissible—to place limits on whom you’ll allow to be guests. For instance, your association might be heavily populated by seniors who prefer not to lounge at the pool while children happily scream and perform cannonballs. But banning children might open your association up to family law discrimination claims, even if those claims end up being frivolous. Similarly, opening your golf course to novice and sometimes ill-behaved players may transform your residents’ peaceful round of golf into a high-tension activity. On the other hand, allowing an aerobics instructor to conduct classes in your gym or allowing personal trainers to use the same facilities to train nonresidents during certain hours may not bother residents—who may actually appreciate the convenience of those services. In addition, you may be able to require instructors or trainers to include your association as an additional insured under their liability insurance policy, which would limit your liability. Whatever the amenity, get residents’ feedback on whether they’ll feel comfortable sharing it with non-residents.

4) Know the laws that apply. Remember that once you allow the public to use your facilities, your association will be subject to new laws, such as the Americans with Disabilities Act (ADA). Do your facilities meet the requirements of the ADA? If not, what would it cost to bring them up to compliance, and do those costs outweigh the revenue? Also, renting out your clubhouse for such events as weddings and parties will open up the issue of liquor liability. You can require that guests not bring alcohol onto your property, but that rule can be hard to enforce, and it may limit the facility’s appeal. If you allow the consumption of alcohol, you’ll again have to check with your insurer to determine how that affects your coverage.

5) Don’t forget the added expenses. It sounds great to be able to supplement your association’s income, but how many people will sign up to use your newly available facilities if you don’t market them? You’ll probably have to pay a salesperson or marketing firm to advertise your facilities, so be sure to add those expenses into your cost versus revenue calculation.

There are so many issues to consider before allowing nonresidents to use your facilities that it’s unwise to make the decision without professional guidance. So be sure to run your ideas by an attorney or professional management association with experience on the issue. Reviewing these five questions with your board and researching insurance costs in advance will help you be prepared and minimize the time and money you spend to get that critical advice.

Source: http://www.communityassociationmanagement.com/facilities-a-maintenance/amenities/

Call Riverside Property Management of Kennesaw for more information!

678-866-1436 or www.riversidepropertymgt.com

Think Before You Lease Your HOA Amenities to Non-Residents


Many associations are considering a range of revenue-generating measures to offset ever-tightening budgets. But before you rent out your clubhouse or sell memberships to your golf course, pool, tennis courts, or other facilities to non-owners, keep a few critical rules in mind.

Think About It

1) Consider the liability. The biggest issue that keeps associations from renting out their facilities to non-owners is liability. Check with your insurance carrier to find out if injuries to non-owners and injuries caused by non-owners would be covered under your current policy. Chances are they won’t, and it’ll be much more expensive to expand your policy to include that coverage. Once you know the additional insurance costs, you need to weigh them against the potential new revenue to determine whether the financial gain adequately offsets the added cost.

2) Which facilities will you rent? Don’t automatically assume that you should rent all your facilities to the public. For example, you may find that it’s too expensive and the liability is too great to allow public assess to your pool, but the increased insurance costs and limited risk of personal injury in allowing non-owners to use your clubhouse is acceptable. Evaluate each amenity individually before making any decisions.

3) Who’s in, and who’s out? Ask yourself whether it’s necessary—and permissible—to place limits on whom you’ll allow to be guests. For instance, your association might be heavily populated by seniors who prefer not to lounge at the pool while children happily scream and perform cannonballs. But banning children might open your association up to family law discrimination claims, even if those claims end up being frivolous. Similarly, opening your golf course to novice and sometimes ill-behaved players may transform your residents’ peaceful round of golf into a high-tension activity. On the other hand, allowing an aerobics instructor to conduct classes in your gym or allowing personal trainers to use the same facilities to train nonresidents during certain hours may not bother residents—who may actually appreciate the convenience of those services. In addition, you may be able to require instructors or trainers to include your association as an additional insured under their liability insurance policy, which would limit your liability. Whatever the amenity, get residents’ feedback on whether they’ll feel comfortable sharing it with non-residents.

4) Know the laws that apply. Remember that once you allow the public to use your facilities, your association will be subject to new laws, such as the Americans with Disabilities Act (ADA). Do your facilities meet the requirements of the ADA? If not, what would it cost to bring them up to compliance, and do those costs outweigh the revenue? Also, renting out your clubhouse for such events as weddings and parties will open up the issue of liquor liability. You can require that guests not bring alcohol onto your property, but that rule can be hard to enforce, and it may limit the facility’s appeal. If you allow the consumption of alcohol, you’ll again have to check with your insurer to determine how that affects your coverage.

5) Don’t forget the added expenses. It sounds great to be able to supplement your association’s income, but how many people will sign up to use your newly available facilities if you don’t market them? You’ll probably have to pay a salesperson or marketing firm to advertise your facilities, so be sure to add those expenses into your cost versus revenue calculation.

There are so many issues to consider before allowing nonresidents to use your facilities that it’s unwise to make the decision without professional guidance. So be sure to run your ideas by an attorney or professional management association with experience on the issue. Reviewing these five questions with your board and researching insurance costs in advance will help you be prepared and minimize the time and money you spend to get that critical advice.

Source: http://www.communityassociationmanagement.com/facilities-a-maintenance/amenities/

Call Riverside Property Management of Kennesaw for more information!

678-866-1436 or www.riversidepropertymgt.com

 

Association Boards, Things You Should Have Learned From the News


https://i0.wp.com/www.washingtoncountyks.net/newspaper_3.gif

Here are examples of a few lessons that should have been learned by reading the newspapers:

  • There is no substitute for good financial management and a solid reserve program.

The combination of foreclosures, budget deficits, embezzlement and the inability to continue with the maintenance was felt in Community Associations across the country. Those Associations which had to cut corners, or assessments, are often found in deeper problems, and in some extreme cases, in the street. This is the time to be smart.

  • Disasters happen – do not bet the HOA that you will be spared.

The last two years have seen not only a financial disaster hit the U.S., but also a string of natural disasters that have severely affected a large number of Homeowner and Condominium Associations. Many did not have flood insurance, or increased deductible or lower limits of their insurance coverage. Many canceled special policies that covered hurricane, earthquake, wind or other things that they hoped would miss them. Too often, it was the wrong bet. As a result, some organizations simply disappeared, owners forced to leave, the units condemned, without any hope of recovery. Some had to sell the buildings damaged at a great loss and move on. Others had to live for months outside the homes in hotels with only some or none of the costs covered, while the Board has wrestled with insurance companies, contractors and the courts. Insurance is one of the most important things that boards have to deal with.  Do not bet on the future of the Association, Mother nature may try to ignore you.

  • Find a way to deal with “going green“, without confusion, expense and visibility.

In nature (and often the CC & R), Associations,  are resistant to change. But this is not going away, and the Association is almost always going to come through to look bad when they resist any change. Clothes lines, solar panels, false grass, landscaping and other items are only the beginning. Start with an owners vote on how they feel about various issues and real information (not just rumors) about how they will help and what are the options. It can be a single owner that poses a problem, but you can expect many more to follow.

  • Flags cause problems – no flags allowed at all causes even more problems.

If you allow the U.S. flag to fly on holidays with a bracket attached to the unit / home, you can almost count on someone  pushing to do more. They want to fly the flag every day, on a pole 20 feet in front of your unit / home, or a service flag for the Navy or Marine, or the stars in the windows to show a family in danger, or flag college game day, etc, etc, etc. Someone will always push the envelope. Again, just survey the residents and see what is the general consensus, which the majority will support. This is not only an individual problem, the Board must decide and then publish.

  • If you’re not active on the internet, it is very likely you will be found “on” the internet.

The number of sites created by the owner of the individual to attack or publish less than favorable information about your Association has grown exponentially. You can get on the Internet for almost no cost and see what is published can  stay forever. Transparency of operations and multiple methods of communication must be a primary consideration of the board. Do not keep putting it off. Get connected now.

  • State legislatures will cost the HOA more money unless the owners SHOW UP.

Since there is very little actual data about Associations and owners available, state legislators often act due to the squeakiest wheel, usually one or two owners who have beaten their heads with the Board. Who is really to blame rarely counts.  It is what you can give a legislator in particular. The positive exposure usually results in bills that will cost money from the owners. Boards should be aware of how legislation will impact the potential of the Association and all owners and find a way to voice their position.

Riverside Property Management, Inc. is a leading provider of financial reporting, maintenance and governance, legal collection procedures and management consulting services for Homeowners Associations and Conominiums in the Atlanta Metro area..

Our clients include homeowners associations and developers of multi-family, owner-occupied housing throughout the Atlanta Metro area.

Our team includes certified Professional Community Managers (PCAM), Licensed Real Eastate Agents (RES) and a Board Certified Collection Attorney (ESQ), licensed in Georgia, who all specialize in maintaining property condition, collection of  assessments and enforcement of existing Covenants.  Individual consultations, management reviews and educational workshops for association boards, to help improve their community governance skills.

We also provide critical budget and financial planning tools that include reserve studies and budget projections for maintenance and repair costs of community owned assets.

Detailed reserve studies and maintenance plans prepared in conjunction with our consulting architect are one of the most valuable management tools available for any association. If you are interested in long range financial planning and supervised maintenance of community assets, our services will be of benefit to your association.

Developers will find our company invaluable when planning a new construction or conversion project. Reserve studies, maintenance plans and operating budgets required for all newly formed associations are available from our company.

For more information about Riverside Property Management and the services we offer please take the time to browse our website and feel free to call our offices to speak with a licensed representative of our company.

(678) 866-1436
info@riversidepropertymgt.com

Negotiation not Litigation for Your Homeowners


https://i0.wp.com/www.softwarethinktank.com/wp-content/uploads/bigstockphoto_Group_Of_People_Negotiate_At_T_314756.jpg
Without a board, a community association would cease to function. Many organizations are challenged to find enough volunteers to serve on the board, as some owners are afraid of being sued or becoming involved in a dispute with a contractor or, more worryingly, a neighbor. Some councils believe they must sue in the beginning instead of trying to solve a problem amicably. I believe that negotiation is the first action that all cards must be considered for resolving disputes association.

Ask any board member, community manager, insurance agent or a lawyer what the number one recommendation is legal and financial. Certainly, all will tell you to avoid litigation. Litigation is costly and slow. More often, neither party ends up being what you want. Certainly there are times when litigation is the only resource, but I am convinced that most problems can be resolved through negotiation. After many years of experience in managing community associations, I can personally say that negotiation is resolved most issues at a lower cost and less distress to the association and the owners.

Collecting delinquent assessments is a major problem in most associations in the community during these tough economic times. Quick reference instead of an attorney delinquent owners of the collection, first try to negotiate with the owner. Association of Community Boards have the authority to consider and offer payment plans to homeowners who have clearly shown a financial burden and they will to carry your checking account if you can extend your payments. The Council must ensure that a lien is presented for registration and the payment agreement made in writing by both parties. If all goes as planned, the account is updated, the board held to its fiduciary duty to the association and the owner defaulted greatly appreciates the fact that the board was understanding and compassionate. And the association does not spend time and money in litigation!

The declaration of an association, the governing documents, become protagonist is another example of first negotiation to try before resorting to litigation. The successful partnerships in the community have clearly written policy resolutions establishing procedures for implementing the rules, including holding hearings and appeals process. Many rules violations can be resolved through negotiation. Most homeowners appreciate a manager and / or  board that takes the time to explain a violation of the rules and why they issued a citation. Quiet, intelligent conversation, not confrontation really works. To be fair, reasonable and consistent, and approval of changes in your case, results in a respectful and rewarding in a community, residents and volunteer leaders to become star.

These are just some examples of why it is better to negotiate and litigate only as a last result. Come on, become the protagonists.  Focus on resolutions and save your association some big money!

CONDOMINIUM INSURANCE – WHO COVERS WHAT?


Most condominium association‘s “Declaration of the Condominium” (hereinafter referred to as declaration) follow the wording of Chapter 47C of the North Carolina Condominium Act with regard to the definitions of “common elements” and “units”.  The Declaration specifies what insurance is to be provided by the association and what insurance is to be provided by the unit owners.In the statute, 47C-2-102, Unit boundaries it says: “Except as provided by the declaration:

(1)   If walls, floors or ceilings are designated as boundaries of a unit, then all lath, furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finishes flooring and any other materials constituting any part of the finished surfaces thereof are a part of the unit; and all other portions of such walls, floors, or ceilings are a part of the common elements.

(2)   If any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any other fixture lies partially within and partially outside the designated boundaries of a unit, any portion thereof serving only that unit is a limited common element allocated exclusively to that unit, and any portion thereof serving more than one unit or any portion of the common elements in a part of the common elements.

(3)   Subject to the provisions of paragraph (2), all spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are a part of the unit.

(4)   Any shutters, awnings, window boxes, doorsteps, stoops, decks, porches, balconies, patios, and all exterior doors and windows or other fixtures designed to serve a single unit but located outside the unit’s boundaries are limited common elements allocated exclusively to that unit (1985 (Reg. Sess., 1986), c.877, s.1.)”

The Declaration of most associations specify that the association shall provide coverage for “common elements” and each unit owner must insure his “unit”.  This would suggest that a unit owner would need to include Coverage A Building under the standard condominium unit owners HO6 to cover the elements of the unit that are actually part of the building (contrasted to “contents” such as clothing, TV‘s, etc.).  The parts of the “unit” which cause concern are building type items such as floor covering, wall covering, built in cabinets and appliances, and interior non-load bearing walls and partitions.

Under 47C-3-113, Insurance (a), “Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent available:

(1)   Property insurance on the common elements insuring against all risks of direct physical loss commonly insured against including fire and extended coverage perils.

47C-3-113 (b) “In the case of a building containing units having horizontal boundaries (multi-story buildings) described in the declaration, the insurance maintained under subdivision (a)(1), to the extent reasonably available, shall include the units, but need not include improvements and betterments installed by unit owners.  This seems to imply that the master policy should include all that comes with the unit at the time of purchase (with standard) allowances.  The unit owner would need to insure the value of any upgrades under the Coverage A Building part of his HO6.

An attorney who has much experience in preparing Declarations has responded to an inquiry as follows: “In response to your memo, please note that, per section 47C-1-104(a) of the Condominium Act “Except as specifically provided in specific section of this chapter, the provisions of this chapter may not be varied by the declaration or the by-laws.”  Section 47C-3-113 (the insurance provision to which your memo refers) states that it may be varied or waived “in the case of a condominium all of whose units are restricted to nonresidential use.”  Accordingly, regardless of what the declaration or by-laws say, unless the insurance is not “reasonably available”, if the condominium contains residential units with horizontal boundaries, the insurance must include the units (but need not include improvements or betterments installed by the unit owners.)

Therefore, we conclude that the Association master policy must cover these described items and the amount of insurance selected should reflect these values.

Another issue is the association policy deductible which can be as much as $10,000.  Perhaps the individual unit owner is uncomfortable with such a large deductible.  A solution would be to purchase an amount of Coverage A Building under the HO6 equal to the cost of his upgrades plus $10,000.  The association policy is primary but it does not cover “upgrades” nor anything under $10,000, so the solution suggested will work.  Also, the HO6 building coverage is not subject to a coinsurance clause.

In order for this solution to work, the association Declaration must follow 47-C-113 (b) of the statute.  The alternative method is to say in the Declaration that the associations will provide coverage on the “common elements” only and each unit owner will have to cover all parts of the unit (including walls, floor coverings, built-ins, etc.)  This method calls for the developer/builder to inform each unit owner as to what the replacement cost of such items is so that the proper amount of Coverage A Building coverage can be obtained by each owner.  Not only is this a cumbersome method, but it appears to be contrary to what is dictated by the statute.

Avoiding the Special Assessment Trap


Don’t think owners won’t notice an extra charge from the association.  Prepare for a fight and plan ahead to avoid special assessments altogether.

Special Assesments for Necessary Repairs

Many community associations turn to special assessments when confronted by unanticipated repairs, but boards need to avoid making hasty decisions to fund these surprise expenses.

Special assessments should be the last resort – not the first step -in funding an expensive repair; they’re unwelcome surprises and can cause financial hardship.  Moreover, they are inherently inequitable because they fall on the people who happen to own at the time payment is due, without regard to length of ownership – a measure of how much an owner “consumed” the component being repaired.  Given these dynamics, it should not be surprising that some owners will search every nook and cranny of a special assessment decision and may emerge with troublesome defenses.

Owners may dispute a special assessment for many underlying reasons.  The challenges come from the disgruntled owner who simply doesn’t like the board or from the guy who disputes the wisdom of the project, timing, cost or the specifications.

The owner’s personal agenda doesn’t matter because he refuses to pay, but he will not stop there; misery loves company.  He will organize his neighbors, start a petition, appear at your next board meeting with a circle of supporters and wag his finger or wave his fist in your face.

Worse, he will encourage others not to pay.  Then the board may realize it doesn’t have enough support for the project.  Further, the board may be faced with difficult collection actions, lawsuits that cost money and create tension, and may need to delay the very work that the special assessment was intended to cover.

LITIGATION LEADER

In the experience of my law firm in collection work for community associations, special assessments are one of the leading sources of litigation.

Just when you think you have done everything correctly, you may find yourself embroiled in a legal dispute.  There will be a clever attorney on the other side, skillfully probing every step in your decision-making process.  Believing his claim has great merit, he will cloud the issues with distracting defenses, bury you under an avalanche of paper discovery, file an endless stream of meddlesome motions and posture for his client who sits by his side cheering him into battle.   It won’t be fun.

THE NEED FOR A PLAN

Hopefully, a special assessment will never will be necessary.  If a board plans properly and builds up its reserves, it may not be.

Unfortunately, some boards want to keep general assessments low, believing that owners consider only the monthly fee when determining how much they pay the association.  This is fiction; you can’t play hide-the-ball with a history of special assessments.

The association needs to engage in strategic planning to avoid the necessity of a special assessment; the adverse impacts of financial surprise and inequity are often too much to overcome.  Many managers are particularly good at initiating strategic planning because of their professional knowledge and experience, but even self-managed communities can map out a well-developed plan.

Strategic planning calls for an objective look into the future to minimize surprise.  What components and systems will need major repair or replacement in the future?  How much will they cost?  How will these needs be funded?

The board is responsible for preparing the annual budget, including reserves.  When asked how they determine reserves, some of my boards say they have been to Disney World, using the Magic Kingdom Formula of 5 percent.  Others simply contribute “whatever is left at the end of the year.”  Both approaches are arbitrary and subjective.

Many state laws and governing documents call for reasonable reserves for repair and replacement.  The key word is “reasonable.”  Since every community is different in terms of construction, quality of materials, level of maintenance, climate and other factors, each must be examined on its own.

The basis for determining what’s reasonable for your particular community should be a reserve study by an independent expert – one who does not stand to obtain the repair work, who has professional qualifications in this field and is designated by CAI as a Reserve Specialist (RS).  Couple the study with an energy audit to buffer rising energy costs.

If your association does not have a financial plan for reserves, is this a failure to plan or a plan to fail?  And what if the association has some reserves, but they are either inadequate or the board doesn’t want to spend the entire fund on one project?  If that happens, the next best approach is to borrow funds from an institutional lender, using an assignment of assessments as collateral.  Many lenders now offer such loans for community associations.

Borrowing has many of the equitable features of reserves because the debt service is paid in modest amounts over a period of years.  The obligation transfers from one owner to the next as sales occur, thus spreading the costs and benefits in the same manner as reserves.

Of equal importance is that the association would have all the funds up front to complete the project, and would be able to enter into contracts without worrying about whether all owners will pay a special assessment in full, on time and without the delay and cost of chasing delinquent owners.

Without a financial plan, how do you know where your community is going?  John Irving wrote in Hotel New Hampshire, “If you don’t know where you’re going, you don’t belong where you are.”  The challenge for associations – volunteer leaders, homeowners and managers – is to find out where they’re going by engaging in strategic planning, starting with an objective reserve study and an energy audit, followed by setting a realistic level of funding.  This is the best way to minimize the need for a special assessment.

If your homeowners or condominium association doesn’t have a financial plan, it also may fall out of favor with the Federal Housing Administration.  The agency frowns on special assessments, and it requires that the budget contain a line item of at least 10 percent for reserves.  Since Feb. 1, 2010, condominium associations need to get on FHA’s approved project list before it supports any mortgages in the communities.  Failure to be on FHA’s approved project list will discourage real estate listings, leading to reduced marketability and resale values.

DUE DILIGENCE

Sometimes, not even fully funded reserves can prevent a special assessment.  When it’s unavoidable, the board must exercise due diligence before imposing the additional fee.  Due diligence can be tedious and time consuming.  To cover everything, use the following 10-point checklist and document each step:

1.     Ask your attorney to review your plans, applicable statutes and governing documents.  Get suggestions for improving them to foster success.

2.     Follow all applicable procedures in the governing documents for approving the budget.

3.     Make sure you have a full board that is properly elected.

4.     Be sure all voters are qualified.

5.     Make sure you comply with provisions in statutes and governing documents for adopting a special assessment.  Some states have special approval procedures.  Virginia, for example, authorizes members to rescind or reduce a proposed special assessment by majority vote at a meeting.

6.     Be diligent in identifying and evaluating options.  Prepare a comparative analysis.  Be objective.  For example, if you are replacing the siding because it would cost less than continued repairs, collect reliable data to support this finding.

7.     Keep the owners informed throughout the process.  Remember your obligation to disclose information about the special assessment on resale certificates.  Better to include it, even if it is merely under consideration, than to surprise a new owner.

8.     Use competitive bidding to find the lowest and best proposal.  Three are usually enough; any more will just drive you and your manager nuts.  In selecting a contractor, remember lowest cost is not always best value.  Many of us have learned the hard way that the lowest bidder is usually lowest in quality and reliability, but highest in terms of contract management.

9.     Make sure the components and systems to be repaired or replaced are within the association’s authority.  For example, if you want to replace all the windows in the condominium, make sure the windows are common elements, not part of the units.

10.  Get an opinion letter from your attorney to make sure that you have satisfied all substantive and procedural requirements of your state statute and governing documents.

The old carpenter’s adage, “measure twice, cut once” is good advice for board members because it’s essentially encouraging due diligence.  If successfully accomplished, the tasks on your checklist will not only create the foundation for a successful project, but also will minimize the possibility of litigation by contrarian homeowners.

After your due diligence is complete, engage the owners in the process.  Avoid top-down implementation or the appearance that the project is entirely driven by the board.  Appoint a committee of homeowners to take ownership of the project and be responsible for presenting it to the members.  Even if you do everything properly, you will not succeed without broad owner support and acceptance.

Indeed, there is nothing special about special assessments.  They present lots of moving parts and traps for the unwary.  They can lead to litigation involving issues far more complex than the problems they are intended to resolve.  The better approach is to build reserves based on an objective reserve study and to augment funding through a loan.  If you have absolutely no alternative to a special assessment, exercise due diligence in your preparation.  And remember that old carpenter’s adage.

By Marvin J. Nodiff, esq.