Reserves Wise, But Not the Law
QUESTION: My wife and I live in a 30-unit condominium in Santa Monica. Our property manager recently attended an association board meeting and reported on the results of a reserve study that had recently been completed. The manager stated that California law does not require the accumulation of a reserve fund, only that a reserve study be completed and distributed to the members.
Several of the board members and homeowners who attended the meeting were very surprised to hear the manager’s explanation.
We would appreciate your comments and a clarification of the law regarding reserve funds.
ANSWER: Your property manager is correct. The law requires that the association’s major components, such as roofing, boilers, mechanical equipment, carpet and common area furnishings, must be identified. The pro forma budget must include specific information about each components’ current replacement cost, the estimated useful life of the component, and a disclosure of the methods for funding the repair or replacement.
Even though the law does not require that funds be set aside for future repairs, your board of directors must make prudent business decisions about reserve funding. In my opinion, after the needs have been identified, the board has an obligation to establish a plan to meet those needs.
These are just a few of the reasons why I feel that adequate reserve funds should be set aside. Associations that lack adequate reserve funds tend to suffer from deferred maintenance. Deferred maintenance will eventually affect everyone’s investment. Underfunded reserves will have a negative impact on the marketability of the individual units because buyers are becoming aware of the risk in purchasing a home in a community association that is not financially secure.
The California Department of Real Estate requires that the budgets for new developments include allocations for both operating expenses and reserve funding. This is simply sound business planning.
File of Keys to Units Can Bring Liabilities
Q: Our condominium association has several elderly residents. Some of these residents are deaf. An emergency could be life-threatening for any of these people. Our board is also concerned about residents who might become ill and need assistance.
Is it reasonable for the association to require that owners have a key to their unit kept in a locked key box in the office?
A: You are to be commended for caring about your neighbors’ welfare, but bear in mind that having the keys on file in the office brings certain liabilities on the association. If a burglary occurs in one of the units, the owner may accuse a staff person or try to hold the association responsible because the key could have been obtained in the office.
If an owner dies, will relatives complain that the association was negligent for not entering the unit to check on the owner? These examples of possible insurance liabilities should be discussed with the association’s insurance agent.
It is certainly reasonable to request that owners have their keys on file in the office if the association wants to accept the accompanying liabilities. I don’t think that you can demand that an owner provide a key unless there is provision in your association legal documents that requires it.
Perhaps if the association board provides a safe place for unit owners’ keys and establishes the proper security procedures to control the use of the keys, then the owners will cooperate.
It is very beneficial to have a “buddy system” in the building or to have resident captains on each floor who will see that each unit is checked in an emergency.
If an emergency arises and you don’t have a key to gain access to a particular unit, you should rely on the judgment of the police or paramedics regarding forced entry.
Board Has Duty to Fix Hazardous Sidewalk
Q: I live in a planned development consisting of attached townhouse-type units. I have informed the association that tree roots have elevated a section of sidewalk in front of my unit.
The uneven concrete is a hazard especially at night because the lighting is not adequate. My family and guests are more at risk than anyone else.
Since the raised concrete is a part of the common area, am I allowed to correct the problem if the association fails to take care of it?
A: In general, the association has the exclusive right to maintain, modify or improve the common area. Technically, you would not have the right to take care of the repair yourself.
I recommend that you report the problem in writing to the board members. You could remind them of the association’s increased liability when a common area hazard is knowingly allowed to exist. If your association is professionally managed, send a copy of your letter to the property manager.
The board has an obligation to see that the problem is corrected. If the members continue to drag their feet after receiving your written notice, I would suggest that you report the problem to the association’s insurance agent.
Perhaps as a last resort, you could find out the cost of the repair work and inform the association that if the work is not done by a specific date, you will pay for the repairs yourself and submit the bill for reimbursement. Keep your written documentation and take pictures before the work begins and after completion so that you will be prepared for small claims court, if necessary.
Withholding Payment Wrong Way to Protest
Q: I live in a 34-unit condominium. I am concerned that the association’s money is not being handled responsibly. I have refused to pay the monthly assessment for the last four months because the board president will not show me the bank statements.
Recently, I received a letter from an attorney that the association has hired. I am furious that they are spending the association’s money to hire an attorney for this purpose. What are my rights?
A: First, you must understand that they are not using the association’s money to pay for the attorney. It’s going to come right out of your pocket.
You have an obligation to pay your monthly assessments, even if you disagree with the way the association is being run. The association has the right to demand payment from you for reasonable expenses incurred for collection purposes.
The longer you delay paying the money that is owed, the more you are going to be paying in the long run. The association has the right to file a lien and even foreclose on your property if you refuse to pay. Each legal step along the way costs you more money.
You have a right to see the association’s bank statements but you will have to find some other way of exercising your rights instead of withholding your assessment payment.
I suggest that you write to all of the board members and request the opportunity to review the association’s financial records. Give them a reasonable deadline for their response.
If the board fails to respond to your request, you may want to contact an attorney who specializes in community association law. This doesn’t mean that you should file a lawsuit against your association. Perhaps just a letter from an attorney will make the board aware of their obligation to allow access to the records. Filing a lawsuit against your board of directors should be the last resort.