Board Has Right to Raise Budget Yearly

QUESTION: The monthly fees for our homeowner association are admittedly too low. Three years ago, the board of directors tried to get a 25% increase approved by the homeowners but it failed.

The directors then approved a special assessment equal to the raise that they wanted. Each year since then, the board hasn’t even tried to get a rate increase approved by the owners; they simply decide what budget they would like to approve and then call it a “special assessment.”

It is my understanding that a special assessment has to be for emergencies only.

Why does an association even need to vote on the budget if the board can circumvent the will of the homeowners by calling the increase a special assessment?

ANSWER: Most declarations give the board of directors the power to formulate and approve the budget without taking the proposed budget to the homeowners for a vote.

According to California law, the board has the right to impose a 20% increase over the prior year’s regular assessment when the new annual budget is approved. In addition, the board can approve special assessments at any time during the fiscal year as long as the special assessments do not exceed 5% of the total annual budget.

The law (California Civil Code, Section 1366) does not limit the amount of special assessment in an emergency situation, but the board must justify the collection of a special assessment greater than 5% of the annual budget by passing a resolution containing written findings as to the necessity of the extraordinary expense involved and why the expense was not foreseen at the time the regular annual budget was approved.

This law applies to condominiums, homeowner associations, stock cooperatives and “own-your-own” apartment projects. It takes precedence over more restrictive controls in your association’s legal documents.

Your board of directors is simply using the wrong terminology if they are calling all budget increases special assessments. From what you have stated about the association’s fee being “admittedly too low,” you have no reason to find fault with the board’s decision to raise the assessments.

If an emergency does arise, such as unforeseen roof repair, there is no limit as to the amount of the special assessment that can be imposed if the board complies with the resolution requirements.

Services Managing Firm Can Perform

Q: I serve on the board of an 80-unit association. We are currently self-managed. The board members take responsibility for overseeing the landscape contractor and the janitorial service. The treasurer keeps track of the assessment payments from the association members and pays the association’s bills. He is retiring soon and has decided not to run for the board again at our next election.

Our vice president has been handling the escrow information when a unit is sold, but she has sold her unit and will soon be moving away. She has been providing copies of the association legal documents and financial reports and responding to the escrow and real estate agents’ requests.

None of the rest of the board members can accept the responsibilities that these two people have been doing for the association. We have talked about hiring a management company. What does a management company do and how much would it cost?

A: Management companies provide a wide array of services ranging from basic financial services (just collecting assessments, paying bills and preparing a monthly or quarterly financial statement) to full-service management, which might include handling the details of rules enforcement, owner correspondence and preparation of board meeting agendas and minutes.

The cost will depend upon the scope of the services that you would like the management company to perform. Before you contact management companies to obtain their proposals, the board of directors needs to decide what functions can still be done by volunteers and what functions you would like the management company to provide.

Here is a list of some of the many services that property management companies will perform for your association:

1--Collect assessments, pay association bills, keep financial records of receipts and expenses, prepare financial statements, carry out the association procedures for collecting delinquent assessments.

2--Prepare the annual budget showing estimated income and projected expenses,

3--Oversee the operation and maintenance of the building and grounds by supervising the landscape and janitorial staff or contractors.

4--Assist in finding insurance agents, attorneys, accountants and other professionals who will provide services to the association.

5--Receive and respond to homeowner complaints and correspondence or refer homeowner concerns to the board of directors for further action.

6--Attend board meetings and report on the status of current projects.

7--Assist with the preparation of notices and voting procedure for the annual meeting.

8--Keep the current owner roster list and respond to escrow demands for resale.

9--Assist with communication to the owners, such as preparation and mailing of an association newsletter.

As a consultant, I have helped many association boards analyze their needs so that they fully understand what they want the management company to do for them. This is an important step. Written specifications should be submitted to the management company when you request a management proposal. Miscommunication at this stage can lead to dissatisfaction or disputes about services at a later date.

I urge you to contact companies that are knowledgeable about the legal requirements for community associations. Find out what professional affiliations or licenses the managing agent holds. The local chapters of Community Associations Institute can provide a list of management company affiliates.