The community associations for most developments are obligated under their governing documents, which are comprised of articles of incorporation; bylaws; declaration of covenants, conditions, restrictions, and easements; and any other rules and regulations, to maintain, repair and replace items and amenities in the common areas. This involves performing regular inspections and maintenance of heating and lighting in the common clubhouse, maintaining the community pools, and providing landscaping services, among other services.
Additionally, as a property ages, major expenditures come into play such as repairing private roads and the replacement of roofs, siding, doors, windows, mechanical equipment, elevators and other critical components. The Community Associations Institute (CAI) estimates that by the end of this year there will be approximately 225,500 HOAs that are 20 years old or older; 130,000 of these will be at least 30 years old.
Funding, Budgeting for Large-Scale Projects, Repairs
The key is for community associations to have enough funding in cash reserves to be able to undergo large-scale repair projects and replace aging equipment without undue financial strain. Unfortunately, in many cases, particularly with older properties, deferred maintenance or under-funded reserves results in many associations being unable to perform the needed repair and replacement projects involving common area improvements within their communities. In fact, according to an article in Common Ground magazine, deferred maintenance has emerged as the single greatest cause of increased insurance and legal costs, declining property values, and resident complaints.
This is why having long-range financial planning and reserve funding as an integral part of the community association’s governance and management process is so important. This involves an association implementing proactive planning and scalable practices or standards for boards and managers to follow in managing property maintenance.
It’s important to note that if an association fails to maintain the development’s common areas as required by its governing documents because the board mismanaged the property’s finances, residents could sue the board for breach of its fiduciary duties. In implementing an ongoing maintenance program, the community association is not only helping to keep the property safe and secure, it is also protecting its board members from potential litigation if they fail to meet their obligations and duties.
Distinguished Programs provides community associations with a high-limit Umbrella program, including Directors & Officers (D&O) Liability. D&O insurance is designed to protect not-for-profit community association board members from lawsuits that result from actions or decisions made while they serve.