Adams Stirling PLC


QUESTION: Can the board install a new component (speed bumps) from reserves? If I understand correctly, it can't come from reserves since it is a new component which will alter the appearance of the complex, and it can't come from the operating fund either.

ANSWER: Speed bumps are asphalt mounds constructed on streets for the purpose of slowing down traffic. Some argue the installation of speed bumps is a capital improvement, i.e., the addition of a component that did not previously exist. As such, their installation cannot be funded from reserves since reserve monies are set aside for existing common area components.

Funding from Reserves. However, private streets are existing reserve items and should include safety features such as reflectors, striping, signage and the like. These are components that legitimately fall within the discretion of the board of directors. If the cost to install speed bumps is reasonable, it could justifiably come from street reserves. If the cost is significant and reserves are insufficient, it would require a special assessment to pay for the installation of speed bumps. If a safety concern can reasonably be demonstrated and the cost to install is a small percentage of the street funds, I suspect a judge would side with the board on using reserve funds for that purpose.

Fire Department. Before installing speed bumps, associations should contact appropriate fire authorities. They have jurisdiction over their installation since it may affect their response time to a fire. They may require particular size, placement, signage and striping.

Insurance. An association's existing insurance should cover any injuries or damage related to the speed bumps. At the time of this writing, Farmers Insurance covers an association that gets sued due to an accident related to speed bumps, regardless if the speed bumps were present at the time the policy was written or installed subsequent to policy inception. Under their policy, boards do not need to make changes to the policy in order to be covered.

Even so, boards should notify the association's insurance agent of the installation to make sure they are covered and to find out if the insurance carrier has guidelines about how the speed bumps should be marked so as to minimize risk. For example, Farmers provides a Loss Control Guide that property managers and directors can use when evaluating potential hazards on the property. It includes a checklist that asks if speed bumps are installed in necessary areas and painted a contrasting color so that they are clearly visible to drivers.

Recommendation: Since this issue is open to debate, boards should discuss with legal counsel how best to balance safety and cost concerns related to reserve expenditures.

ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.

Adams Stirling PLC