Are Owners Stuck With Toilet Bill?

QUESTION: Our homeowner association pays the water bill for the entire complex. To decrease our water usage, the association promoted replacing our regular toilets with low-flow ones.

The board of directors negotiated with a plumbing contractor to replace the toilets at a nominal charge. The association received a rebate from the Department of Water and Power. About 1,500 toilets were replaced in the complex.

Because of improper installation of the wax ring in one of our toilets, we had water damage in our unit that cost more than $10,000 to repair. Our homeowner’s insurance policy that covers our individual unit paid for about $7,000 of the damage. We are trying to get the rest from the plumbing contractor. The contractor refuses to take responsibility because he feels that the failure of the wax ring was “probably earthquake related.”

Our association’s declaration of covenants, conditions and restrictions states that individual unit owners are responsible for the interiors of our units. Therefore, we believe that we will have to pursue recovery of the remaining $3,000 through Small Claims Court.

Does the association have any obligation to assist us in covering our loss because the association promoted this project and contracted with the plumber?

ANSWER: The association recommended the installation of the new toilets so that you and the other owners would have a reduction in your water and sewer costs. From the information that you have given me, I believe that the association was able to negotiate a reduced cost for the installations because a large number of unit owners were having the work done at the same time. The board’s actions appear to be in the best interests of the association.

You went along with the project and allowed the contractor access to your unit so that the installation could be done. As the association declaration states, you are responsible for your unit, so it is your responsibility to go after the contractor to recoup your loss. However, if the association contracted directly with the plumber, the association should assist you in your attempt to recover your $3,000. The association should have required that the plumber had liability insurance.

In my opinion, the association is not responsible to the point of actually paying for any damage that resulted in your unit. The plumbing contractor might be liable, especially if the wax ring was watertight for an extended period after the earthquake.

There are lots of legal issues relating to the length of time that passed before the wax ring failed, the contractor’s liability and the contractor’s and the association’s insurance. I recommend that you consult an attorney who specializes in community association law if you want to fully explore your alternatives.

The Association Tie Truly Binds Members

Q: I live in a planned unit development. I want to secede from my homeowner association by quitclaim of all my interests in the common area. My unit does not abut any common area, and the city tells me that I can have my own water meter installed.

The following factors are significant: 1) The association is powerless to collect delinquent assessments because property values have declined and most unit owners owe more on their mortgages than the units are worth. 2) The roofs are in need of repair or replacement, yet there is no money in the reserve fund for roofing work.

Secession is the only way to protect my investment and my credit history. I would appreciate your comments.

A: So you want to divorce your association? It can’t be done. If you refer to the association’s legal documents, you will probably see a section on “nonseverability.” It means that you cannot sever the ties that bind. The association was set up with a specific number of owners who are responsible for sharing the expenses, including contributing to the reserve funds. When you bought your property, you accepted the legal documents and you are bound to comply with them. You are in this “marriage” for better or worse, for richer, for poorer, in financial sickness and in financial health.

The association does have the power to collect the assessments. Perhaps some of the mortgages are upside down, but most of those owners are not walking away from their units. They are paying their monthly assessments. Those who do abandon their units still have an obligation to pay the monthly assessments to the association. If they default, the other members may have to cover the delinquent owner’s share of the expenses temporarily, but as soon as the unit is sold, the association can start billing the new owner.

Homeowners cannot divorce associations. If they could, some attorneys might be ecstatic but the entire community association industry would be in chaos.

Incorporation Makes Sense for Association

Q: Our complex was built in 1972, and the association was not incorporated at that time. What are the benefits of incorporating our association?

A: There are at least two big reasons for your association to incorporate: liability and the ability to borrow funds.

If your association is operating as a corporation, it reduces the possibility that the volunteer board of directors will be held personally liable for mistakes in judgment or other claims against the association. Talk to your association’s attorney and your insurance agent so that they can explain. If you are having difficulty finding people who are willing to serve on the board, the corporation status may make a difference.

The second reason to incorporate is financial. At some point, the association may need to borrow money for a major repair or for disaster recovery. Most lending institutions will not lend money to your association unless it is incorporated.

All community associations should be operated in a businesslike manner. If board members are lax in handling the business affairs of the association, they may not be filing tax returns and abiding by the state laws that govern common interest developments.

Some association boards think that if they are small or unincorporated, they can run the association without regard for state statutes and tax laws. Every form of community association (condominium, planned development, stock cooperative and own-your-own community apartment project), whether it is incorporated or not, must comply with the Davis-Stirling Act, Sections 1350 through 1372.

Managers’ Designation Indicates Education

Q: A few weeks ago, your column explained the certified community association manager designation that is awarded from the California Assn. of Community Managers. What is the PCAM designation?

A: The PCAM designation is the professional community association manager designation from the Community Assns. Institute. Such a manager must take CAI educational courses and pass examinations in a number of subjects relating to common interest developments. The recipients adhere to a code of professional ethics and must participate in industry-related functions and obtain continuing education credits. Managers who want to increase their knowledge and professionalism often belong to both organizations.