But We Can’t Afford It!Dec 10, 2022
By Kelly G. Richardson, Esq. CCAL
Homeownership entails dealing with occasional unanticipated expenses. Recently, I didn’t plan on a main water line breaking, but it happened. Days (and much money later), the problem was resolved. I didn’t want the expense, but it happened. I couldn’t say to the water company or my neighbors, “I’m sorry, I can’t stop this flooding right now, I can’t afford it.”
HOAs are a collection of interconnected homeowners, and major common area repair expenses affect them all. One of the many benefits of HOA living is that homeowners share costs of keeping up the HOA community, with economies of scale usually reducing the individual cost. The association’s duties are really nothing more than the individual homeowner has – they’re just shared.
I hear frequently from readers that the HOA needs replacement or repair of building components, but the HOA “can’t afford it this year.” However, nothing in the Davis-Stirling Act references financial hardship as an excuse from any of its requirements. Here is a quick review of some major requirements.
Maintenance – Civil Code Section 4775 requires HOAs to maintain and repair common areas. Nothing in that statute says “if the finances are in order,” or “if the money is in the budget.” Leaky roofs or pipes or unsafe balconies need to be repaired. Just like the individual owner who has to dig up their water supply line, it has to be done. Delay almost always makes things worse.
Termite treatment and repair – Civil Code 4780. Condominiums, stock cooperatives and community apartments are required to deal with termite prevention and damage repair. The statute does not have an exemption for times in which the HOA funds are low.
Balcony inspection –HOAs must complete inspection of “elevated vertical elements” no later than January 1, 2025, and to repair anything found which could be a safety threat. The statute, Civil Code Section 5551, does not mention ability of the HOA to pay for the inspection or repairs.
Assessments – Civil Code 5600(a) – “the association shall levy regular and special assessments sufficient to perform its obligations,” which means that HOAs are required to budget for its reasonably anticipated costs of operation – not its hope-for costs but its anticipated costs. Target-based budgeting, in which the board dictates to its manager what assessment increase to budget for, has the process backwards and violates this legal requirement.
Reserves – Associations should set aside money to offset the ongoing deterioration of common area components which the HOA replaces or repairs. Some HOAs skimp on those savings contributions to reduce pressure on assessments, but that means the HOA is quietly slipping into debt. The reserve fund can also be a very valuable emergency fund from which the HOA can borrow for up to one year, during which time the HOA can rearrange its finances (as would any homeowner experiencing major unexpected expenses).
Emergency assessments – The law allows HOAs to deal with major surprises. Civil Code Section 5610 allows boards to pass emergency assessments to deal with major expenses which were unanticipated when the last budget was prepared. That must be accompanied by a written board resolution explaining to the membership why the emergency assessment became necessary.
Homeownership, including shared ownership, involves occasionally unavoidable expenses. Those expenses are best addressed head on, since they don’t go away or diminish with time.
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