Assessments, Reserves, and Maintenance Obligations
December 2, 2013

The biggest concern we often hear about at association meetings is assessments.  Association members are right to be concerned about the cost of maintaining their association.  That being said, often there seems to a disconnect between the realities of the amount of the assessments and what the assessments are for.  Simply put, many associations appear to be either under-assessing or to not have a realistic idea what they should be assessing for.

An association, whether it be a homeowners association or a condominium association, is responsible for the maintenance, operation, repair, and replacement of the common areas (for a homeowners association) or the general common elements (for a condominium association).  These areas many include landscaped grounds, lakes, private roads, gates, sidewalks, elevators, balconies, buildings, signs, lights, street signs, walking trails, stairways, entrance foyers, parking lots, etc.  What an association may maintain, operate, repair, and replace can run the gamut and will be different in each development.  Thus, the documents governing the individual association are of paramount importance in determining what the association is to maintain, operate, repair, and replace.

Once the obligations of the association are known, it would be wise of the Board of Directors to contact an engineer who can provide the Board, on a periodic basis (perhaps every five years), with a report on the status, operational cost, maintenance cost, and replacement cost of such common areas and general common elements.  For example, a private road, no matter how constructed, has a lifetime.  It will need to be replaced.  If a homeowners association does not properly reserve funds for its replacement, the time will come when its members will be hit with a large special assessment.  The same can be said of a roof in a condominium development.  Rather than a Board depending on its judgment, it is better that the Association spend some money and depend on the judgment of a professional.  With such a report, the Board can then determine, with some degree of reliability what the Association’s operational expenses are.  Additionally, such a report should provide a Board with information as to what the remaining lifetime of its common areas or general common elements are.  Such a report should also estimate the replacement costs of the common areas or general common elements.  Once this information is known, then the association can intelligently plan its reserves.  We have found such engineering reports invaluable in providing unbiased information to members.

After operational expenses and reserve numbers are known, then the association can address other expenses, such as insurance, legal fees, etc.  Finally, you arrive at a workable budget.  This end number may be surprising.  It may turn out that the association is not assessing enough.

In the end a properly run association should have sufficient reserves to address the replacement of its common area and general common elements when such items reach the end of their useful lifetime.  While many documents provide for special assessments, such should be used in the case of emergencies and not as a replacement for thoughtful planning.

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