Community Association Best Practices – Fiduciary Responsibilities for Board Members of Condo, Townhome and Homeowner Associations
Proactive Capital Repair Planning Prevents Community Association Disasters: A Primer for Community Association Board Members and Property Management Professionals
The High Cost of Deferred Capital Repairs – A Primer for Community Association Board Members of Condos, Townhomes, HOA’s and Cooperatives
In the book “Zen and the Art of Motorcycle Maintenance”, author Robert M. Pirsig writes about the “romantic” and the “classical” approach to motorcycle maintenance. The romantic approach involves living in the moment and essentially boils down to the following adage: “if it isn’t broke, don’t fix it”. On the other hand, the classical approach involves applying rational analysis that translates to taking a very proactive and structured methodology in the maintenance of the motorcycle.
Let’s now apply this to the world of community association living and see 10 examples of the pros and cons of each approach. Although these examples are not actual property specific examples, they are based on real world scenarios that closely match the examples given below.
- ABC Association has a need for tuckpointing and the initial estimate from a vendor comes back at $25,000. The board tells the management company that the association can’t afford that expense, which is true as the association doesn’t have enough money in their capital reserve account currently to pay the expense. The board doesn’t act and ignores the recommendation of the management company. Three years later, the association hires a tuckpointing vendor at the cost of $75,000 to perform emergency tuckpointing repairs that would have only cost $25,000 if they had acted upon the recommendation of the management company.
- ABC Association is informed by the management company that their domestic hot water tank system is old and is reaching its life expectancy and that the board should perform a planned replacement within 1-2 years. 3 years later the association still had not acted upon the recommendation of the manager even though the manager mentioned it at each board meeting. The next day after one of the board meetings, 3 years after the recommendation, the board president calls the manager in a panic informing the manager that the hot water tank had sprung a leak. The board president then starts screaming at the manager because the hot water tank is not getting replaced “fast enough.” Lastly, the association spent 25% higher than market price because of the emergency nature of the request.
The manager informed the board at ABC Association that the roof is in poor condition and that the roof will need to be replaced over the next 1 to 2 years. The manager also shows the board a detailed report from a roofing company that shows pictures of the roof condition, the cost of the roof replacement and a grade of D which means the roof needs to be replaced in 1to 2 years. The board ignores the recommendation of the manager and ends up spending $25,000 in reactive and emergency roof repairs over the next 3 years and then still needs to pay the cost to replace the entire roof for $75,000. - ABC Association has a steam boiler heating system for the building. The manager informed the board that the system is 17 years old, and that the system should be replaced proactively so that the association is not caught with a broken heating system in the dead of the winter. The board took the recommendation under advisement but did not act. 3 years later, the system died in the middle of the winter and the association was forced to spend $7,500 to have an HVAC company bring in a temporary heating system to heat the building until a new system could be installed. The new system was $16,500.
- Mickey the manager informs the board that the porches are not built to code and recommends that the board hire a porch company to inspect the porches and make recommendations on how to bring the porches into code compliance. The board ignores the manager and 3 years later, the city inspector writes up the association with multiple code violations related to the porches. The association is forced to hire an attorney to represent the association in court and ended up passing an emergency special assessment for $100,000 for a 15-unit association with a 6-month payment plan. The association ended up unnecessarily spending $10,000 in attorney’s fees and overspending for the porch repairs due to the time constraints imposed by the City of Chicago.
- ABC Association has a chimney that vents a domestic hot water tank system. Mickey the manager informs the association that the chimney needs to be rebuilt and that a new liner should be installed to ensure that the exhaust properly vents out through the chimney and doesn’t damage the interior of the chimney. 3 years later, the inner wall of the chimney collapses and damages the hot water tank system and duct work. The association was without hot water for 5 days and had to spend $50,000 in emergency repairs for the chimney, a new liner, and new duct work from the tank to the chimney.
Mickey the manager informs ABC association that there are several lintels that need to be replaced because several homeowners are complaining of water infiltration above their windows. The association had not raised their assessments in 10 years. The manager mentions the problems to the board and the board asks the manager to investigate further and get quotes to address the water leak issues. At every board meeting, Mickey brings up the issues and the board continued to approve 0% assessment increase budgets for 3 more years and does not approve any repairs. Finally, 3 years later after several other units started to get water infiltration as well, the board decides to act and pass a special assessment to pay for the necessary repairs. 5 years after Mickey initially mentioned the problems, the fixes were completed, and the association had to spend $30,000 in drywall repairs due to all the water infiltration damage sustained inside the units. - ABC Association has many wooded framed windows that have not been properly maintained. Mickey the manager informs the board that the 75 window frames need to be repaired and/or replaced. The initial quote came in at $50,000. 3 years later, the association still had not acted upon the issues and the board asked for a revised quote which came in at $100,000 due to all the additional wood that became rotten and now needed to be replaced. The board still has not taken action to repair the rotting window frames and the cost of the project will continue to increase.
- ABC Association has an elevator. Mickey the manager is asked to repair the elevator in the 5-story building. The elevator company repairs the elevator at a cost of $10,000 and informs Mickey that the elevator is so old that the mother board needed to be custom built and programmed. As a result, Mickey recommends to the board that the association replace the elevator before it breaks again, and money is spent wastefully. The board attempts to pass a special assessment and the homeowners block the passage of it and reject the attempt to raise funds to replace the elevator. Soon afterwards, a new board takes over and 6 months later the elevator breaks again. 9 months go by with a broken elevator before the new board approves a special assessment to raise funds to fix the elevator (and not replace the 30-year-old elevator).
- ABC Association is in the Gold Coast of Chicago. Although the association is only 5 units, they are very high-end units that have a market value of approximately $1,000,000 or more. The board, against the advice of Mickey the manager, keeps the assessments very low and reserve account funds are almost non-existent. Each time there is any type of project over $5,000, the association is forced to pass a special assessment to raise funds to make the necessary reactionary repairs.
Summary
Much can be learned from the mistakes of others. Hopefully your association does not have to experience any of the situations outlined above. Ina any case, you should consider the benefits and actual cost savings of not having emergency repairs. The questions being asked is should your association take a proactive approach to community association capital improvements and maintenance, or should the approach be “if it isn’t broke, don’t fix it”? It is all a matter of prospective and how “Zen” like the board and homeowners want to live within the community.
