Facebook
Please note that the following article is strictly to provide information and neither the content nor transmissions through this website
are intended to provide legal or other advice or to create an attorney-client relationship.
Community associations, like people, evolve during their lifetimes. Some of it is good, and some is bad, but change is inevitable as projects, and people, age. Whether that evolution leads to a long and healthy life or an early demise depends on early decisions made and the ability to recognize signs of decay--both physical and political. To assist, we have outlined what we consider the four “stages” of life of a community association. Not just the physical condition, but also political and economic trends, for each play a role in the long-term health of the project. Read about them and see which apply to your association or your client’s associations. Like anything harmful, recognizing the symptoms can help with a cure.
A new project enters the First Stage. During the first stage, the regular assessments will appear to cover all projected maintenance and repair costs without resort to special assessments or outside sources, and with only modest annual increases. Non-owner occupancy is the lowest percentage it will ever be, usually 10 percent or less. Board members and professional managers are easy to find, the political climate is benign, and the members are supportive of the board. The project is new and exciting. The membership’s attitude reflects these qualities. Re-sales are brisk, and values stay high with modest appreciation reflecting general market trends.
In a project’s Second Stage of life, regular assessments will not satisfy mounting maintenance and repair costs. If a competent board using professional management has identified the real costs of repair, the members will contribute capital with a special assessment on at least one occasion during this stage. If all maintenance and repairs have not been identified, the project will appear to be within its budget. There may have been a discovery of defective construction conditions that will demand a remedy. Nonowner occupancy has increased beyond 25 percent. The board of directors will face political issues from the increasing percentage of non-owner occupants. There will be more complaints from residents about the condition of the project or about the necessity for specific repairs. Active recruitment of board member candidates may be necessary. If true repair costs are identified and brought to the members, there will be a general resistance to the request for a special assessment, but the members will ultimately support the board’s request if the cost of repair at this stage of the project’s life remains affordable. This will be true if needed repairs are not deferred for too long. Sales of units are comparable to the market. Government-backed mortgages and refinancing are still obtainable.
In the Third Stage of life, those associations (and there are thousands) that have failed to store enough nuts away for the winter, must appeal to the membership for emergency funding or apply to a bank for a loan. Bank financing of large reconstruction projects is becoming commonplace, but most financial managers will argue that borrowed capital is not an adequate substitute for capital contributed by the owners. This is especially true if the repayment of the borrowed capital prevents the association from adequately reserving for the next round of reconstruction. Borrowed capital for reconstruction should only be a temporary means of achieving solvency for the association. Assessments for repayment of the loan should be beside contributions to reserves adequate to fund future repairs. In this stage, non-owner occupancy has increased beyond 35 percent.
Government-backed mortgages become difficult to obtain. Management costs increase due to the additional workload presented by the many complaints from residents about the physical condition of the buildings. Political strife within the association increases as the demands upon the residents for funding, coupled with a decreasing quality of life, increase. Board members resign rather than be subjected to the stress of the owners’ demands. Recommendations for repair now include several building components not anticipated in the reserve accounts. The cost of repair is moving beyond the association’s financial ability. The reserve deficit and the economic and political climate are reflected in the sales price and turnover of units. The deferred maintenance is visible and is reflected in unit value. Painting is delayed, landscaping deteriorates, and resident complaints about maintenance and repair issues increase, putting added stress on the board and management.
Given that many associations have failed to anticipate the full extent of eventual reconstruction costs, they will, sooner or later, exhaust both contributed and borrowed capital sources. This includes such one-time influxes of capital such as insurance recoveries or litigation settlements. Once all outside sources of capital are exhausted, the ravages of obsolescence will be hard to forestall. By this Fourth Stage in the project’s life, the owners have long since refused to contribute additional funds; lending institutions have refused further advances, and the cost of immediate or future repairs is well beyond any accumulations in the reserve accounts. Assessment delinquency climbs to where the association’s ability to pay for essential services, including utilities and management, is fading fast. Repairs are being deferred to the extent that the basic habitability or safety of the buildings is coming into question. Non-owner occupancy has risen beyond 50 percent and refinancing, or mortgage lending by most traditional lenders is unavailable.
Behavioral problems increase, vandalism to the property becomes more than just occasional, and political problems within the association make recruitment of board members and management very difficult if not impossible. If deterioration of the physical condition affects habitability, health, or safety, local jurisdictions will be forced to intervene and will demand those conditions be repaired. If that isn’t done, some, or all of the units may be condemned. Predicting, funding, and executing adequate maintenance and repairs is critical to avoiding a project’s obsolescence. If those efforts fail, and the project becomes uninhabitable, it will also be valueless.
To learn more, read: The Uncertain Future of Common Interest Developments
Each stage presents its own unique problems and challenges. Our firm assists associations in all of the four stages with creative and practical ideas and legal help.
The keys to a successful transition from a Developer-Controlled Board to a Member-Controlled Board.
It is important that a new volunteer board member understands the structure of a common interest development, the association’s authority over the property and its owners, and the unique manner in which an association is governed.
New buildings can conceal far-reaching faults. It’s a property manager’s worst nightmare — rainstorms damage buildings and bring owner complaints. Is legal action necessary? With our guide, you’ll learn about the resolution process for construction problems, and how to handle complex claims.
This supplement is intended to be used in conjunction with your existing maintenance manual. It will assist your association in determining if any building components or assemblies violate established construction standards, and provides information regarding applicable time limits to bring a claim to seek repair or compensation.
This guide is intended to offer assistance in managing a complex construction project, including recommending and retaining appropriate professionals to determine the scope of work; construction contract and bid package essentials; administering the project; and handling disputes.
What Determines the Life of a Common Interest Development?
Selling a Distressed Common Interest Development as a Single Parcel: Is Partition an Alternative to losing it to Individual Foreclosures?
2023 shaped up to be a year of mostly beneficial legislative changes and cases
Condominiums are a nice concept, but the reality has been less than perfect.
Once primarily an economic problem, hidden damage has become a much more severe problem—a matter of life and death.
Sign up for Berding|Weil's Community Association ALERT Newsletter, providing Legal News, Comments, and Great Ideas for Community Association Boards and Managers.
Please Note: To ensure delivery to your inbox (not bulk or junk folders), please add news@berding-weil.com to your address book and/or allow emails from berding-weil.com to pass through your automated anti-spam software or service.
As one of the largest and most experienced construction defect litigation departments in the nation, we have recovered over 1.9 billion for our clients.
2023 shaped up to be a year of mostly beneficial legislative changes and cases
Condominiums are a nice concept, but the reality has been less than perfect.
Once primarily an economic problem, hidden damage has become a much more severe problem—a matter of life and death.
Sign up for Berding|Weil's Community Association ALERT Newsletter, providing Legal News, Comments, and Great Ideas for Community Association Boards and Managers.
Please Note: To ensure delivery to your inbox (not bulk or junk folders), please add news@berding-weil.com to your address book and/or allow emails from berding-weil.com to pass through your automated anti-spam software or service.
As one of the largest and most experienced construction defect litigation departments in the nation, we have recovered over 1.9 billion for our clients.
(925) 838-2090
(925) 820-5592The content on this website is strictly to provide information and neither the content nor transmissions through this website are intended to provide legal or other advice or to create an attorney-client relationship.
This site uses cookies and other technologies to improve your experience of relevant content and information, and to better help us understand how our site is being used by analyzing site traffic, as well as to provide functionalities such as social sharing. By continuing to use this website, you consent to use of cookies.
For more information please see our Privacy Policy.
