Under this plan, resident will be 118 when projects are done
Question: I’m 88 years old and live in a 194-unit condominium project in West Hollywood where the monthly dues are $500. I was hoping to move, but the board paid for a reserve study and is now recommending a $6,000 assessment per unit for both nonessential and nondiscretionary projects over the next 30 years. The board submitted a written statement informing homeowners that if we vote this assessment down, they have a fiduciary duty to increase monthly assessment dues 20% and will continue to do so yearly without a vote from owners. Most of our owners are elderly and won’t be alive in 30 years. I don’t see how I can recoup my money when I sell. Do the board’s fiduciary duties include supporting an assessment based on 100% funding of “nonessential” projects over a 30-year span?
Answer: Studies and reports, including reserve studies, can say anything that the writer, publisher or contracting party wants them to say. The Davis-Stirling Act does not state that an association must buy a reserve study.
The association board of directors’ fiduciary duty is to act in good faith and live within its means, which includes preparing a realistic budget and sticking to it. There appears to be no guarantee by the board that there will not be more assessments for the same issues once the $6,000 is levied. The danger for owners approving open-ended assessments such as these is that they can lead to endless expenditures without adequate justification.
The only essential projects that the board has a statutory responsibility to perform are to repair, replace and maintain the common areas. By definition, all else is nonessential.
Few, if any, items in a common-interest development have a legitimate 30-year life span. Fully funding any project, even an essential one, is an exercise in futility simply because future costs cannot be determined accurately. If funded at all, it is better to under-fund, limiting the possibility that any of those funds could be spent on other items or attached by a judgment against the association.
Even if earmarked for specific, legal purposes, monies collected for reserve accounts are essentially gifts from the titleholders to the association.
Reserve monies cannot be returned to owners unless the amount collected is more than that required for the specific purpose for which it was collected, and then it must be returned to the current titleholders, whether they actually paid them in the first place. These paid-in funds must be left behind if the earmarked work is not performed before the titleholder sells and may not be deducted from that owner’s taxes.
If the money collected for the reserve fund is not spent, or is spent on something other than that for which it was collected, owners and sellers alike are out of luck.
Pursuing a board that fails to provide a proper accounting of reserve monies, or that recklessly or illegally withdraws reserves to spend on nonessential projects, can be costly but is not impossible. However, it often means bringing a lawsuit, something many boards that act this way doubt will happen.
Should a suit be brought and it is proved that the board acted beyond the scope of its authority, wasting association assets, or failed to adequately account for reserve-fund expenditures, a court may order the individual board members to repay the association. The court may also order them to pay the plaintiff’s attorney’s fees.
The Davis-Stirling Act allows an association board of directors to raise the monthly fees 20% a year without a vote of homeowners. In your circumstance, the first year a 20% increase is applied, the monthly fees would be $600, in three years the monthly fees would be $864.
A board that insists on raising monthly fees without adequate justification can be removed. Elect a new board and rescind the increase.
Send questions to P.O. Box 11843, Marina del Rey, CA 90295, or e-mail noexit@mindspring .com.
