Deferred Maintenance

HOW A MANAGER CAN EFFECTIVELY APPROACH THE BOARD.

By John F. Baumgardner

The recent tragic collapse of the Champlain Towers in Surfside, Florida has renewed focus on addressing deferred maintenance in community associations. Performing required maintenance and repairs is necessary to ensure that associations are financially secure while also reducing the potential for costly special assessments or litigation.

There are many causal factors resulting in deferred maintenance, including lack of funding, poor maintenance practices by hired contractors, and/or the failure to follow recommended maintenance guidelines. Community associations often fail to adequately raise assessments over the years when necessary, or they rely on inadequate reserve studies, which results in a lack of reserve funds to pay for maintenance or repairs. Deficient construction or defective building components can also lead to premature failure and unexpectedly reduced useful life. Additionally, missing maintenance manuals or manufacturers’ recommended maintenance guidelines can lead to delayed inspection or maintenance cycles. Many times, these problems are exacerbating and interconnected.

While rarely resulting in major catastrophe, there are many negative outcomes associated with deferred maintenance. The most obvious effect often is the declining aesthetic of the community (i.e., faded paint, stained deck edges, and dying landscaping). These observable conditions can cause decreased property values and increased owner complaints. However, these are not always the most expensive consequences.

Deferring necessary maintenance can reduce the useful life of building components, increase the potential repair costs, expand the scope of repair, and compromise other building materials, such as wood framing or other structural components. Additionally, homeowners may bring expensive and time consuming litigation against the association as well as individual board members seeking court orders requiring repairs or emergency assessments.

Lastly, there are potential worst-case scenarios that can result in life-safety issues,condemnation of common areas or buildings,and damage to personal property. Based on these outcomes, board members must be educated regarding the causes, risks, andsolutions for tackling this compounding problem.

EDUCATING BOARDS THROUGH INSPECTIONS AND RESERVE STUDIES

Although most managers are not on-site daily, they possess a wealth of information that can assist boards in determining proper maintenance schedules. During site inspections, managers observe and detail potential common area maintenance issues.Additionally, through their communication with owners, either directly or at board meetings, managers receive information regarding problematic or failing building components, common area issues, and owners’ general satisfaction with their community. These personal observations allow managers to identify problem areas and engage appropriate consultants to perform appropriate evaluations.

The Davis-Stirling Act also provides managers with tools to identify problematic building components and determine appropriate maintenance timelines. Pursuant to Civil Code § 5550, “[a]t least once every three years, the board shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account.” Using a licensed and experienced construction contractor/consultant can assist in identifying necessary maintenance inspection periods, life expectancy based upon actual performance, reserve requirements, and the repair/replacement costs.

Similarly, Civil Code § 5551 requires that “at least once every nine years, the board of an association of a condominium project shall cause a reasonably competent and diligent visual inspection to be conducted by a

licensed structural engineer or architect of a random and statistically significant sample of exterior elevated elements for which the association has maintenance or repair responsibility.” Boards must plan accordingly to ensure that proper reserve funds are set aside since there will be potential repair costs associated with the required balcony inspections. Both Civil Code §§ 5550 and5551, provide managers with the opportunity to address identified inadequacies in prior reserve studies, inspection and maintenance timelines, and funding levels.

EDUCATING BOARDS REGARDING THEIR DUTY TO ASSOCIATION

Even the most experienced boards should be reminded regarding their duties to the association. Association directors “are fiduciaries who must act for the benefit of the corporation and its members”(Coley v. Eskaton (2020) 51 Cal.App.5th943, 958.). “Generally, fiduciary duties owed by a homeowners association to its members are limited to those arising from its governing documents and relevant statutory requirements” (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn.(2018) 19 Cal.App.5th 399, 425.). However, this“fiduciary relationship . . . requires directors to exercise due care and undivided loyalty for the interests of the corporation” (Frances T. v. Village Green Owners Assn. (1986) 42Cal.3d 490, 513.). Although they are also individual owners, these directors have been elected to make tough decisions on behalf of the entire association and must act in a reasonable and diligent manner when making these decisions in the best interest of the community.

While board members and associations can be protected under the business judgment rule (Corporations Code § 7231) and the rule of judicial deference, these are only defenses and not absolute protections from liability.Furthermore, board decisions and individual board members will not be shielded from liability if their decisions are outside their authority under the governing documents or California law. Boards also cannot simply ignore an association’s problems and hope to be protected by these defenses. (See Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal.App.4th 268, 280.) Some board members may also be held to higher standards by courts if they have special expertise (i.e. contractor, accountant, lawyer,etc.). The business judgment rule also “does not apply when . . . the director is acting under a material conflict of interest” (Coley, supra, 51 Cal.App.5th at 959.).

Since not even the best-run associations can eliminate the potential for litigation, boards must ensure that they have the minimum statutorily required insurance coverage for both the general liability of the association as well as for the individual board members. This is critical as it can protect board members from being personally liable for damages “in excess of the coverage of insurance” (Civil Code § 5800.).

Regardless of the cause or scope, potential solutions to deferred maintenance issues must be presented to boards to mitigate worst-case outcomes. Even if it does not result in injury or condemnation, there are significant negative outcomes associated with delaying necessary inspections,maintenance, and repairs. Using their own personal observations and the experience of trusted vendors, managers can highlight potential issues and resolve the maintenance problems before they manifest into larger challenges.

John F. Baumgardner

John F. Baumgardner is an attorney with Chapman & Intrieri, LLP in their Roseville, California office. His practice focuses on representing homeowners associations in general counsel matters, construction defect disputes, general civil litigation, and revision of governing documents. He has been serving the community association industry for the past six years.