35 minute read
CEO’s Message Maintain, Repair, and Replace: An Important Part of Leadership
CEO’S MESSAGE
Raison d’Etre – The Reason for Boards
Maintain, Repair, and Replace: An Important Part of Leadership What a beautiful phrase, raison d’etre (reason for being). It is a poetic way to express what every board member should consider and collectively agree. The phrase engenders humanity. The words roll from one’s tongue. By doing so, it rounds the stark business senses and adds the element of humanity to the clear-cut responsibilities of In the world of HOA management, an axiom for a board is to “maintain, repair, and replace” the common area assets of an association. Properly a board: Strategic planning, execution and evaluation; mission and goals; budgets and risk doing so will improve the quality of life in the management. The business realities should be reflective of community values which are the community and should protect property values. Fair enough. common values of individuals in the community. Communities are imperfect – because they are made of humans. Humans interacting. Humans The board of an HOA, therefore, is responsible for relating. Humans using. Human living. Basically, humans being human. So, in the course of assessing, planning for, and managing the common being human, communities sometimes forget that management and rules are in place to assets of the association. They have important establish norms for a successful community. In a sense, the board is like the conductor of the community. Its purpose is to establish order and elevate or diminish energy. It meters tools at their disposal, such as the reserve study, the budget, and reports from the community. It is the duty of the board to estimate the needs of the progress and pace by establishing norms and constraints to balance the individual notes association and maintain, repair, and replace the common assets as needed. to benefit all. It seems apparent that board leadership must understand and reflect the values of home-For volunteers, this takes time and commitment. As owners in order to orchestrate a sense of community and generate tangible actions to serve we celebrate the holiday season with tidings and and protect community values. The purpose of a board, therefore, is to listen to the voices and joy, let’s remember the immense commitment our build community based on common values for the good of all. boards make to ensure that HOA communities are properly maintained and that assets are repaired It takes time to orchestrate a community. It takes time to know your community. And, it takes or replaced for the benefit of all. For those who time to listen to the voices and build a vision reflective of community values. Take the time serve or have served as volunteer leaders on an and you will be more effective as a board member and satisfied knowing you have achieved HOA board, we simply say thank you. At Echo your reason for being on the board. ECHO is committed to helping homeowner boards and residents through education, network- ing and advocacy – this is our “raison d’etre”. Sincerely, David Zepponi Executive Director
we care and appreciate the commitment of the individual homeowners who step up to build better communities!
Echo Board Leadership
Echo has a similar maintain, repair, and replace axiom as we transition in these challenging times. In 2022, Echo will enter its 49th year. We are the oldest nonprofit association in the state of California devoted exclusively to supporting better management of HOA associations, and one of the oldest in the country. Echo would not have happened without the vision and dedication of its board of directors. These committed HOA industry professionals volunteer for the Echo board of directors, not to build their businesses but to give back to the HOA homeowners and boards they serve. I would like to acknowledge their time and selfless devotion to the Echo mission to build better communities through education, networking, and advocacy. It has not been an easy 49 years, and this year has been one of the most challenging. It was marked by the COVID-19 pandemic, continuing from 2020 and persisting into 2022. We expect that the cost of maintaining and growing our very small nonprofit will continue to rise as we fight inflationary pressures and adopt new ways to deliver value to Echo members. Continued on page 29
Good luck and stay safe,
COMMUNITY LEGAL ADVISORS INC.
Community Legal Advisors provides guidance to HOA board of directors helping them to navigate the complex legal landscape surrounding homeowner association law.
OUR COMMITMENT:
Call or email us today to learn how we can successfully serve your community.
To provide the highest quality assistance, service and representation using the diverse and extensive background experience of our legal team.
Community Legal Advisors provides legal services to homeowners associations throughout San Diego, Orange County, and the Inland and Coachella Valleys.
Members of our legal team have served as association managers, created residential and commercial community associations on behalf of developers, negotiated terms and conditions of CC&Rs with the California Department of Real Estate, advised the State Legislature regarding the new legislation, taught industry education courses, advised community associations in their daily operations and litigated conflicts between associations and their vendors, insurers and members.
The proverbial “ounce of prevention” can save hundreds of thousands of dollars of “cure.” We so completely believe this, that we have implemented a policy of free telephone calls for clients who enter a retainer agreement with our firm. We want our clients to “make a quick call” to confirm that an action they are about to undertake is consistent with the association’s governing documents and California law.
Our general counsel work encompasses the following: • Architectural Matters • Alternative Dispute Resolution (ADR) and Informal Dispute Resolution (IDR) • Board Resolutions • Corporate Matters • Contract Preparation and Review • Elections and Recalls • Enforcement of CC&Rs and Rules • Legal Opinions
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WHEN TO ENGAGE LEGAL COUNSEL AND HOW TO SELECT THE RIGHT FIRM
BY J. SPENCER EDGETT, ESQ.
There is a misconception that legal counsel is only needed when things go wrong, that is, once a lawsuit is threatened or initiated. There are also times when homeowners associations resist contacting counsel to avoid legal fees and instead make decisions (that may require legal expertise or guidance) without advice or assistance of an attorney. However, all communities would be better served by having legal counsel retained and available to provide professional guidance when necessary.
When Should Legal Counsel Be Consulted?
In general, if there’s a question about whether an attorney should be consulted on a particular issue, then one probably should be. That could mean simply contacting an attorney to ask whether they believe a particular issue warrants the expense of legal analysis and assistance. Simply put, not all matters require the assistance of counsel. For example, not every contract warrants legal review; however, it can be difficult to determine which contracts should be
Continued on page 10
DECISIONS CRITICAL
reviewed by counsel, as there is no bright-line test. The amount at issue in the contract does not always drive the decision; take, for example, a $10,000 contract to re-stripe parking spaces and a $750 contract for roof repairs. The attendant risks associated with the scope of work or services being provided must also be considered. The potential exposure to liability for damage or injury is certainly higher for roofing work than for restriping parking spaces.
An Ounce of Prevention Is Worth a Pound of Cure
As the saying goes, “An ounce of prevention is worth a pound of cure.” With that in mind, legal counsel should be viewed similarly to a primary care physician, who performs regular physicals and screenings to protect against illness or disease that can be serious if not detected and treated early. Engaging legal counsel early can often avoid missteps that could unnecessarily land an association in costly litigation. And when litigation is unavoidable, legal counsel can provide guidance to ensure that actions are not taken and things are not said or memorialized in writing that could undermine a successful outcome to the litigation.
Sometimes legal counsel is contacted after a long simmering dispute has come to a head with a lawsuit being filed against the association or board members, at which point the legal fees will be significant and unavoidable. In such a situation, it would have been better to engage legal counsel at the first sign of controversy to allow the attorney the ability to provide guidance that may have avoided escalation to the point of a lawsuit being filed in the first place. Other times, based on the desire to avoid legal expense, associations take action that is contrary to their governing documents or law, which results in costly litigation. In many situations, early intervention by legal counsel can avoid a lawsuit; therefore, spending a few hundred or thousand dollars at the outset may save the association tens of thousands of dollars or more in legal fees and possible monetary damages.
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Fiduciary Duty, Protection from Liability and the Business Judgment Rule
Directors have a duty to use their “best judgment” when making decisions. What this means is that while performing the activities of the board, each director has a duty to act in good faith, in a manner they believe to be in the best interests of the association, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would under similar circumstances. In order to meet this standard, before making a board-related decision, a director must inquire into the matter and rely on others with particular experience and competence when necessary. Those individuals include other directors, committees, or employees of the HOA whom the director believes to be reliable and competent, as well as legal counsel, accountants, and other professionals. Reliance on professionals, including legal counsel, can protect the association and individual board members from liability under a legal doctrine commonly referred
to as the business judgment rule. In general, the courts will not insert or substitute their own judgment for the informed business decision made by the board of directors, so long as the decision was made in good faith, upon reasonable investigation and inquiry that includes, if necessary, reliance on the advice of knowledgeable professionals – for example, attorneys (even if that professional advice turns out to be incorrect).
Engaging Legal Counsel to Help Avoid Litigation Is Money Well Spent
The cost of legal fees for any matter that goes to trial or arbitration will easily range from $50,000 to $100,000 or more –and the cost can be much greater if one side does not prevail and the other side is awarded damages and possibly reimbursement of their attorney fees. In light of this, spending a few hundred or thousand dollars to obtain advice of counsel that may prevent this expense is well worth it and a prudent practice. In fact, boards likely have an obligation, in many instances, to consult legal counsel on matters that require legal expertise to protect the interests of the association and its members.
Selecting and Engaging Competent Legal Counsel Is Critically Important
The representation of community associations is a specialized area of the law, and the counsel selected should have particular expertise in this practice area. There are many firms in California that specialize in the representation of community associations or have attorneys in the firm that specialize in this area of law. There are also attorneys that have more specialization in a particular aspect of community association law. Typically, general counsel will be able to provide guidance on most issues that impact the day-to-day operation and management of a community association. There are some attorneys that are not litigators (meaning they do not represent clients in court) but rather focus their practice on corporate counsel work such as interpreting governing documents, drafting amendments to governing documents, reviewing and revising vendor contracts, and assisting with other matters that arise in the general operation and management of the community.
Litigators are attorneys who represent parties in disputed matters that may lead to a lawsuit
Continued on page 12
Critical Decisions Continued from page 11 and can handle taking a matter to trial if a lawsuit is filed. There are also attorneys who handle corporate counsel work as well as litigation. Finally, there are some specific issues that may require even more specialized legal expertise, including construction defect litigation, insurance claims, disability rights, discrimination claims, fair housing claims, and bankruptcy, to name a few.
Boards should speak with general counsel to confirm whether their firm has the requisite experience to handle the specific issue that is being dealt with. If the firm does not have the requisite experience, they may be able to refer someone who does, and may even associate with or engage outside counsel to assist in a particular matter.
When on the fence about whether to seek guidance from an attorney, it is good business practice to ask whether the expense of the legal action is justified by the potential results and exposure to liability. Many attorneys will not charge to determine whether their services should be engaged and can provide an estimated budget if they are retained for a specific issue. Associations that are professionally managed can request a referral from their community management company. Industry trade groups also can be a good resource for legal referrals. Otherwise, a comprehensive online search for homeowners association law firms can yield a great many of them to select for interviews. As part of the selection process, ask for references from current or former clients. Ultimately, one should not be dissuaded from seeking legal advice based on the initial cost of engaging counsel since the cost of not engaging legal counsel can be far greater and more damaging to the homeowners association in the long run.
J. Spencer Edgett, Esq., is a partner with Chapman & Intrieri, LLP. Since 2004, Spencer has primarily focused his practice on representing community associations both as general counsel and in successfully litigating and resolving numerous complex multimillion-dollar construction defect claims. Mr. Edgett also regularly advises and assists community association managers and board members on all aspects of management and operations including fiduciary responsibilities, drafting and revising governing documents, vendor contract negotiations, collection matters and enforcement issues.
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HUGHES GILL COCHRANE TINETTI, PC
Your HOA’s Best Choice for Superior Legal Representation
Hughes Gill Cochrane Tinetti, PC (HGCT) provides effective, affordable legal representation to community associations throughout Northern California. It’s all they do. And they do it with experience and insight, creating smart, strategic solutions that meet the complex and varied needs of common interest developments.
They handle both general representation and litigation matters for condominium projects, planned developments, and commercial common interest developments of all sizes and are experts in the unique issues facing senior housing communities, co-ops, timeshares, urban in-fill projects, and high-rise developments.
Hundreds of homeowner associations and community association managers trust HGCT to expertly handle their legal needs. Whatever the project, they bring a collaborative, friendly approach their clients find refreshing and rewarding.
Service Specialties
HGCT attorneys have extensive experience in all facets of common interest development law and litigation. They’ve developed a balanced practice capable of serving the complete legal needs of community associations:
HOA Governance & Transactions
HGCT provides comprehensive general legal services for community associations and are experienced in every aspect of operations, governance, maintenance, and financing. Their attorneys are fully conversant with all issues related to California’s DavisStirling Act, governing documents, statutory requirements, and best practices.
Construction Defects
Maximizing recovery is the key to a successful construction defect claim. They pursue every possibility, discover every problem, and fight to obtain every dollar to which their clients are entitled. And they don’t stop there – maximizing recovery is only the beginning. They offer extensive post-recovery services which maximize the economic benefit of the recovery. They are there from start to finish, every step of the way, to ensure a complete, cohesive and comprehensive handling of every construction defect and reconstruction scenario.
About HGCT
Headquartered in Walnut Creek, HGCT is a California law firm, with Bay Area roots, and strong local relationships. They focus exclusively on clients in the greater Northern California area and each of their attorneys is a recognized expert in community association law. They have more than a dozen attorneys who combine for more than 250 years of collective practice experience representing this specialized area. Their attorneys regularly serve as featured speakers at industry educational programs at the local, state and national level and author articles and reference materials to assist community associations in meeting their extensive and complex legal obligations.
Whether you’re a board member, community association manager, or commercial property owner, HGCT is the only law firm you need.
2820 Shadelands Drive, Suite 160 Walnut Creek, CA 94598 (925) 926-1200 | hughes-gill.com
By A. Jeanne Grove, Esq.
This September, the California Legislature passed major land use bills that could end California’s single-family housing zone as we know it. These are Senate Bill 91 and Senate Bill 10,2 set to take effect on January 1, 2022.
Summary of SB-9
SB-9 will significantly reduce the zoning barriers to allow single family residential parcels to be split and allow for building two units on each parcel. SB-9 has two components, a zoning component and a subdivision component. The zoning component requires a local jurisdiction to approve the development of two units on any single-family property. The subdivision component requires a local jurisdiction to ministerially approve the division of a parcel. Each of the two new parcels may not be less than 40% of the original lot. Neither new lot may be less than 1,200 square feet. The applicant must provide a signed affidavit declaring an intent to occupy one of the units for a minimum of three years. The created units may not be used for short-term rental. It also prevents the serial division of lots; the division may only be done once.
Despite the broad brush that SB-9 seems to take, there are many exceptions in the new law that result in its quite limited application. First, SB-9 is limited to urbanized areas and urban clusters.3 Even if the property is in an urbanized area or urban cluster, SB-9 applies only in areas that are not prime farmland, wetlands, very high fire severity zones (see https://egis.fire.ca.gov/FHSZ/), hazardous waste
sites, earthquake fault zones, 1% annual flood hazard zones and regulatory floodways, lands identified for conservation, or habitats for protected species. Second, SB-9 does not apply to properties that have rent control restrictions (e.g., properties that were built 15 years ago or more, or have been tenantoccupied for the past three years4 or are subject to the current Wildfire Anti-Price Gouging Act5 or that have had an Ellis Act eviction in the past 15 years.6) SB-9 also does not allow the demolition of restricted low to moderate income housing.
Summary of SB-10
SB-10 allows a jurisdiction to up-zone a residential or residential mixed-use zoned property to allow for up to 10 residential units on one parcel. It only applies if a parcel is within half a mile of both a major transit stop and an urban infill site. An urban infill site means the parcel is adjoined by 75% urban uses, zoned as residential or residential mixed use, and urbanized or part of an urban cluster.7
Does a common interest development (CID) need to amend its governing documents in response to SB-9?
No, SB-9 does not explicitly require CIDs to amend the governing documents in order to conform to the new law. But it is important for board members who are tasked with enforcing their governing documents to understand that they may need to comply with the new requirements of SB-9. If the subject property does not fall under one of the many exceptions of SB-9 (summarized above), then the new law will allow an owner of a parcel to build two units on a parcel and/or divide the parcel into parcels, allowing for two units on each. It is recommended that CC&Rs and other governing documents be reviewed to determine whether they adequately address such a circumstance.
Does SB-9 affect the powers of an architectural committee, or board powers, when considering homeowners’ alteration approval requests?
Yes and no. SB-9 and SB-10 both address density. They also prohibit a local government from imposing standards that would have the effect of preventing development under these laws. The law does not address board powers to prevent such density. If a homeowner submits an alteration approval request, the board will need to determine whether the property is subject to SB-9, and if so, whether the CID is required to comply with it despite governing documents that may state otherwise. This question will inevitably become the subject of litigation, and courts will eventually need to determine whether CIDs must comport to the restrictions of SB-9 (and SB-10).
How does SB-9 impact leasing rules in HOAs?
SB-9 does not allow the subdivision or development of additional units on parcels that were built 15 years ago or more and are therefore subject to state rent control, properties that have been tenant-occupied for the past three years,8 those that are subject to the current Wildfire Anti-Price Gouging Act,9 or those that have had an Ellis Act eviction in the past 15 years.10 Additionally, SB-9 may limit a homeowner’s ability to erect an ADU (accessory dwelling unit) or a JADU (junior accessory dwelling unit) on their property if the property has been developed based on SB-9.11 However, if an owner is allowed to develop an additional unit on the same parcel of land pursuant to SB-9, then the owner may be allowed to lease that new unit.
Does SB-9 affect occupancy regulations in an HOA?
In general, SB-9 relates to development of units, not occupancy of units. However, it does impose some occupancy restrictions on lots proposed for development. An applicant for a single-family-zoned parcel proposal for a lot split must sign an affidavit that one of the units will be owner-occupied for at least three years. If a unit is developed pursuant to SB-9, it may not be used for short-term rental.12
Presumably, if an owner is allowed to build an additional unit pursuant to SB-9, the governing documents will also apply to that new unit, and the owner will be required to comply with the same maintenance/repair requirements with respect to that new unit.
How does SB-9 affect AB-3182?
AB-3182 generally limits a common interest development from stopping owners of ADUs from renting out those units. It also prohibits HOAs from
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Did California Say Goodbye to the Single-Family Home? Continued from page 15
unreasonably regulating leasing of units. AB-3182 also requires HOAs to amend their CC&Rs if they set a cap on leasing of less than 25%. By comparison, SB-9 relates to the development of additional units on a single-family parcel, including the development of ADUs. If a property owner develops units pursuant to SB-9, AB-3182 will generally allow the owner to rent those units (however, SB-9 does prohibit short-term rentals).
In summary, SB-9 and SB10 do not include affirmative requirements directed at CIDs specifically. The new laws do not expressly prohibit a CID from restricting increased density where the state law and local zoning otherwise allow it. But the laws are likely to have unexpected effects on CIDs, particularly when it comes to architectural controls, leasing, and enforcement of the governing documents. Board members may find themselves in the middle of a battle between local control and state control over land use. There may be questions of whether the state law preempts the control these CIDs once had.
Senator Toni Atkins, the author of SB-9, insists that SB-9 is not intended to remove any powers of an HOA and that “SB 9 would not override CID or HOA restrictions.” Unfortunately, Senator Atkins’ letter is not included in the bill itself, so it is of questionable value when applying the new law. For this reason, expect many issues to arise when board members and homeowners alike grapple with SB 9/10’s applicability to their development and question whether an HOA may restrict or impose limits on parcels where an owner applies to increase the residential density. CIDs and their members will need to affirmatively seek court clarification when such issues arise.
In light of the questionable applicability of SB-9/10 to CIDs in the future, it is recommended that board members consult with an experienced attorney to determine whether the new laws apply to the development, and if so, whether governing documents should be amended to proactively address and prevent issues under SB-9/10 before they arise.
A. Jeanne Grove, managing partner and co-chair of the Real Estate Practice Group at KDV Law, practices real estate litigation, including HOA disputes. She regularly counsels HOAs on their day-to-day operations and compliance matters. Ms. Grove is also a California licensed real estate broker.
1 Government Code Sections 66452.6, 65852.21, 66411.7 (2022). 2 Government Code Section 65913.5 (2022). 3 Go to the following link for a map of the affected areas: https://bit.ly/3FDhn27 4 Government Code Section 65852.21(a)(3)(c) 5 Penal Code 396 (2021). 6 Government Code Section 65852.21(a)(4). 7 Go to the following link for a map of the affected areas: https://bit.ly/3FDhn27 8 Government Code Section 65852.21(a)(3)(c). 9 Penal Code 396 (2021). 10 Government Code Section 65852.21(a)(4). 11 Government Code Section 65852.21 and 66411.7. 12 Government Code Section 65852.21(e).
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ALTERRA ASSESSMENT RECOVERY
Alterra provides comprehensive, attorney-supervised assessment collection services to HOAs and condominium developments throughout California. We’re the HOA collection team you’ve been looking for.
Alterra Assessment Recovery was founded by the principals of Tinnelly Law Group, a premiere California HOA law firm that’s been in business for over 30 years. The firm sought to expand its service offering in response to the frustrations of its clients dealing with the challenging environment of assessment collection. Those clients welcomed the opportunity to work with a collection team who shared the firm’s commitment to quality, responsive and efficient service.
Unlike typical collection firms, Alterra does not believe a “one-size-fits-all” approach is the answer for every file. Alterra guides each client throughout the process, ensuring that any action to be taken is the right one based upon the particular facts of the homeowner, the property and any senior lienholders.
What Sets Us Apart?
• Comprehensive Service Offering. Our team can assist with whatever is
required to resolve your HOA’s collection challenges quickly and cost-efficiently. • Industry-leading Systems. Our highly-automated, paperless platform maximizes efficiency and streamlines our processes to save time and reduce costs. • Innovative Web Portals. Our client portal provides robust 24/7 status reporting. Our innovative homeowner portal streamlines communications to avoid delays and expedite resolution. • Attorney Supervision & Support. Our expert HOA lawyers ensure compliance with statutory requirements and render legal assistance when needed. • Proven Results. Our dedicated team recovers nearly $200,000 of debt every month for our clients.
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systems designed to ensure compliance with complex statutory requirements and to manage the collection process with complete efficiency. Our highly automated, paperless platform gives our team robust management tools and real-time information to avoid delays and reduce costs.
24/7 Client Access to Real-time Status Reporting
Our robust client portal, AlterraONLINE, provides 24/7 real-time status reports and related information to our HOA clients and their management. Reports are highly customizable and can be configured to be automatically generated and sent to our clients whenever they desire, free of charge.
Our innovative homeowner portal, contactalterra.com, helps streamline our communications with delinquent homeowners and assists them in their efforts to bring their accounts current. It provides access to various information and request forms to expedite the resolution of matters and avoid delays.
Our skilled team is supported by advanced systems and expert HOA lawyers to deliver results.
Trust us with your collection needs; we’ll get the job done, done right, and as quickly and efficiently as possible.
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A Christmas Carol
Lessons in HOA Governance
Dickens’s A Christmas Carol tells the story of Jacob Marley, aka Scrooge, and his Christmas Eve visitations by three spirits: the Ghost of Christmas Past, the Ghost of Christmas Present, and the Ghost of Christmas Future. These three spirits take Scrooge on a wild adventure of reliving his past innocence as a young man, his present moral condition, and, finally, his likely future of loneliness, isolation, and neglect.
How does this iconic Victorian tale make for a fitting holiday wish for self-managed HOAs? How indeed! The wisdom of his three spirit visitors reminds Scrooge that life is not deterministic, but that the present and future are built on past experiences, attitudes, and actions that influence the present and shape the future.
HOAs are organic, made up of a community of homeowners (ownership of their separate interest), with joint ownership of common areas. They are bound together by “equitable servitudes,” reciprocal agreements, and covenants between property owners and the association that include, among other things, the payment of assessments, property use restrictions, governance obligations and responsibilities, and the observance and enforcement of rules and regulations. HOAs are also subject to the law of entropy, meaning in its simplest definition that all things tend toward disorder over time.
This is true of organizational systems (boards of directors and HOA governance) and common area components (siding, roofs, landscaping, hardscape, asphalt, balconies and decks, etc.). As in Dickens’s Christmas Carol, HOA boards of directors need to be gently reminded that effective and successful governance is subject to past actions that influence present conditions and decisions that will impact the association and its current and future members. If Scrooge’s spirits took us on a trip to your association’s past, present, and future, what clarity we would have!
The Ghost of HOA Past is the first spirit to visit us. Scrooge’s spirit took him to a simpler time, an age of innocence and optimism. The spirit takes us back to a time of newly built homes and common areas, the smell of construction and fresh paint, meeting new
neighbors, and enthusiasm for self-governance after the transition from developer control. Unfortunately for Scrooge, the past was also the time when he came to value money more than relationships and moral character. For the HOA, past actions of unprepared and ill-advised boards may have planted the seeds of dysfunctional governance, board overreach, inadequate and unrealistic budgeting and reserve funding, and deferral of required or scheduled common area maintenance. At the time, board decisions and policies seemed reasonable and appropriate, and assessments were kept “low.” To ensure the goodwill of the members, board members declared, “It’s a new development, we won’t need to do anything for years,” and now disorder and decay have begun.
The Ghost of HOA Present forces us to confront the consequences of choices made in the past. For Scrooge, this was the comparison of his present life of loneliness and isolation with the joyousness and community of the Christmas season. According to the US Census Bureau, for 2021, the average homeownership duration is roughly 10.5 years. The 10-year mark is when most HOA board members experience their first “uh-oh” moment of revelation. Past priorities and decisions to keep assessments flat and defer reserve funding and common area maintenance because “it’s a new development” have created a present reality of distrust, accusations, and fear of large assessment increases or special assessments. Governance decisions have become more about “what’s the minimum we can do” or “let’s delay the project another year” rather than thoughtful, informed strategic planning. In this environment, board members can become paralyzed and homeowners apathetic. Community engagement, good governance, and proactive problem solving are forgotten and boards are often left with simply kicking the can down the road.
The Ghost of HOA Future is the scariest of the three. Scrooge’s past actions and present attitudes and conditions were predicted by the third spirit to result in the death and lonely funeral of a disliked man, identified by the name on the tombstone, Ebenezer Scrooge.
Successful futures for homeowner associations are highly correlated with effective board leadership (governance) and thoughtful planning, not HOA management. Many California homeowner associations are now 25+ years old. This means that many HOAs are nearing the end of their original 30-year reserve studies. In other words, they have gone through a complete cycle of required maintenance, repairs, and replacement of common area components. Scrooge’s third spirit assures us that past and present actions will have consequences in the future. Scrooge couldn’t be guaranteed a different future, but he woke up Christmas morning a changed man, resolved to be kind, generous, and compassionate.
Many factors are out of the control of the HOA board, including government regulations, inflation, staffing, insurance, utilities, and social and political issues. In the same way that Scrooge hoped to alter his future by controlling his present actions, HOA board members can exert control in several governance areas to shape their communities for a successful future.
• Establish clear governance objectives – These should be concise declarative statements backed up with adopted policies and communicated clearly to community members.
• Establish a board member code of ethics and standards – Board members are bound by the sound business judgment rule and fiduciary duty. A board member code of ethics and standards assures community members that board member expectations are clear and board members are accountable.
• Establish clear written expectations for the community manager or management company – Management expectations should be agreed upon, be ethical and legal, and be regularly monitored by the board of directors.
• Update the reserve study annually and commit to a multi-year funding plan and maintenance schedule – The reserve study is the driving document of the budget. Spend time on it and work with your reserve specialist to make sure that it is accurate. Carefully consider and commit to a multi-year funding plan and follow the suggested maintenance schedule.
• Budget for the present and future needs of the HOA, not the past – Start early, be realistic, and be responsible. Never start the budget with an assessment amount; always start with the recommended reserve contribution and
operating expenses. Those will dictate the assessment amount. Always consider inflation and cost-of-living adjustments for vendors and service providers and increases in insurance and utilities. • Communicate, communicate, communicate – Be transparent and honest with community members. Keep them apprised of reserve projects and maintenance and repair schedules. Most of all, let them know if projects are being deferred or if assessment increases or special assessments are being considered or are necessary to meet future obligations.
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A Holiday Wish
At the end of A Christmas Carol, “Bah! Humbug!” became “Merry Christmas.” The weight of the past and decisions of the present could be changed and possibly alter the future for the better. My holiday wish for California HOA board members is to rise above your current circumstances and past actions. Be courageous, resourceful, and realistic. Commit to leading your communities with integrity and honesty. Commit to establishing governance objectives that provide for your HOA’s financial stability and security. Refrain from deferring scheduled maintenance, and plan wisely for present and future owners. To be sure, 2022 and beyond will be full of challenges and unknowns; make it a Merry Christmas by being rigorous in controlling governance essentials.
John Cligny, AMS, PCAM, CCAMHR, is a veteran portfolio manager and community association management executive. As co-founder of Association Consulting Group, John is a trusted advisor primarily focused on educating and advising community association board members on effective governance to promote a positive public opinion of homeowner associations and community management. John is a frequent speaker and panelist on a wide range of community association topics and issues
