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Condominium Q&A

Lack of Reserves Is Bad Idea but Legal

October 25, 1998|JAN HICKENBOTTOM | SPECIAL TO THE TIMES

QUESTION: I recently bought a unit in a seven-unit condominium complex. After moving in, I realized we have deferred maintenance. Our monthly assessments barely cover the expenses. The treasurer does not believe in having a reserve fund because the interest earned is taxable. The other two board members seem to agree with him. Any unexpected expense, such as roof repair, will require a special assessment.

I am concerned about the poor maintenance. How can I protect my investment? What are my rights?

ANSWER: You had the right to know about the lack of reserve funds before purchasing the unit. The law does not require that the association have reserve funds. However, the association must have a reserve study, and the information in the reserve study must be disclosed to potential buyers as well as to the owners.

Now that you are an owner, you have the right to attempt to change the board's philosophy. Unless you and the other owners can convince the board to adopt a budget that provides money for reserve funds, you will probably continue to have deferred maintenance.

The board has a fiduciary duty to adopt a budget that is adequate to cover the monthly expenses, including routine preventive maintenance.

In addition, it is good business judgment to have some money in the reserve fund for repair or replacement of major components.

If you have no reserves, the association will have problems accumulating money quickly when an emergency occurs. How many of the owners would be able to immediately pay their share if a new roof is needed? If a large special assessment is levied, how many owners will bail out by selling their units rather than paying the special assessment when it is needed? How will the association collect from an owner who refuses to pay?

These are all questions that should be discussed by the owners.

The "pay as you go" method protects everyone's investment. When funds are not available, deferred maintenance is the inevitable result.

When repairs are postponed, you will often pay more in the long run. Most boards will resist approving a special assessment until it is unavoidable. By that time, the downward spiral of deferred maintenance will have taken its toll. The recovery is often difficult and more expensive.

Hiring Board Member to Paint Can Be Conflict

Q: Our association has 161 garage doors that were installed recently. The board meeting minutes state that one of the board members is a painter, and the board unanimously voted to hire him to paint all of the trim around the garage doors at the hourly rate of $20 an hour, plus the cost of materials.

It is not clear whether brushes, ladders and other equipment will be purchased at association expense. There is no estimate of the total cost and no restriction of time. The board member who was hired is a real estate agent, according to information that was distributed with election materials.

A $20-an-hour handyman was hired to repair damaged stucco around the garage doors. It seems that he could have been hired to do the painting also.

Isn't there a conflict of interest when a board member is hired to do work for the association? Who is responsible if he is injured while performing work for the association?

A: Yes, there is a conflict of interest when a board member is hired to do work for the association. The board member should not have participated in the vote to hire himself. The board should have a written agreement with him and someone should be verifying his hours worked. The board member should take steps to ensure that his honesty is unquestionable.

The association should have a workers' compensation policy that covers the handyman and any other paid workers. Volunteer board members should be covered as well as board members who are hired to do work for the association. The insurance agent can answer any questions about the risk of coverage being in jeopardy if a board member works for the association.

In my opinion, it is not appropriate to hire homeowners, especially board members, to do work for the association. Board members who want to work for the association should resign from the board. I have seen many examples and heard many tales of woe regarding the pitfalls of hiring association members.

Must Others Pay for Neighbor's Plumbing?

Q: My condominium association has a rule that states, "All plumbing problems within the walls and ceilings, i.e. waste lines, drains, p-traps, are the responsibility of the unit/units connected to said lines."

The association's declaration specifically states that pipes and utilities that are not within the unit, including sewer lines, are part of the common area.

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