AND NO RESERVES
What happened to Champlain Towers is relevant to California associations. The towers were built in 1981. (Condo construction in California started in the 60s and took off in the 70s.) The Association had no reserves and decades of deferred maintenance. It had low assessments, very likely because it was not funding its reserves, nor was it maintaining and repairing common areas.
Low Reserves. Unlike California, Florida has no requirement for reserve studies. Everything is voluntary. When the board finally commissioned a study in 2020, Association Reserves, Inc. found the Association was only 6.9% funded — a frighteningly low level that guarantees large special assessments in an association's future.
Water Damage. The enormous amount of deferred maintenance was catalogued in a 2018 structural engineering survey commission by a board that was trying to do the right thing. The recurring theme throughout the 9‑page report is water intrusion leading to structural damage. The engineer noted that window frames, balconies, the pool deck, planters, and the entrance drive (over the underground parking) all had waterproofing problems. The report highlighted “abundant cracking and spalling” in concrete columns, beams, and walls. There was also “significant cracking in the stucco exterior façade” (another source of water intrusion and possible mold).
Balconies Damage. Windows and exterior doors in the entire complex were at the end of their useful life and needed to be replaced. Half the balconies had evidence of deterioration. The engineer noted extensive soffit damage and balcony concrete slab edges experiencing concrete spalling or cracking and water infiltration. He expressed concern about deteriorated framing and recommended further investigation of the balconies. (See Structural Field Survey Report.)
California Associations. There may have been original design problems, but the lack of maintenance described in the report is stunning. This should be a wake-up call for boards of directors to (i) immediately comply with California's balcony inspection requirements; (ii) work with their reserve analysts to keep their reserve studies updated; (iii) fund their reserves to at least 70% — even if that means raising assessments; and (iv) spend reserve monies to keep their common areas properly maintained.
Legislation Needed. Even though I am not a fan of additional legislation, California's Legislature should mandate reserve funding. It would help boards overcome member resistance to increased assessments needed for reserves and ongoing maintenance. Doing so would not only protect the safety of millions of California residents, it increases property values. A study conducted by Robert Nordlund, founder and CEO of Association Reserves, Inc., found a correlation between reserves and property values.
RECOMMENDATION. The most important thing a board can do is properly fund its association's reserves and then spend the money to maintain the common areas. A guide on the best practices for "Reserve Studies & Reserve Management" was put together by the Foundation for Community Association Research and is available as a free download. Boards, treasurers and budget committees should read it. (Additional "Best Practices" guides on matters such as security, ethics, financial operations, and governance are also available from the Foundation.)
Fabulous newsletter issue on the Surfside collapse. Excellent analysis & writing. Kudos to Ryan Gessell too. -Linda H.
Love your website. –Paul P.
Its one thing to require inspection, maintenance and repairs, as with the balcony bill. It is quite another to pay for it. And money was the ultimate issue in Florida. While I do not care for more knee-jerk legislation, I think the most common problems with HOAs arise not just from deferred maintenance, but its related bedfellow, inadequate reserves. We all know failing to “assess as you go” is philosophically unfair to more recent buyers who eventually must make up the difference from previous under-assessment. Well-meaning boards are hamstrung by resistant owners and will often get immediately recalled when they try to make ends meet. With a legislative mandate, that trend may slow down and associations can start to the their reserves in order without boards fearing retribution. -Wayne L.
A number of years ago, in an attempt to reach the “mind” of Marjorie Murray, I attended two of her workshops and engaged in email conversations with her. I tried to explain that CAI and CCHAL want boards to make informed decisions, fulfill their fiduciary duties, comply with their governing documents and any applicable laws. How we achieve those goals is where our paths diverged. CAI wants board members and managers to be armed with the knowledge and tools they need to succeed. Marjorie wants people to SUE their associations. From what I read of Marjorie’s bio when I first met her, she was some sort of a housing advocate before she founded CCHAL and started on her campaign to destroy HOAs. Marjorie is a nut job; I think we all know that. The real question is: Why doesn’t Sacramento realize it? –Victoria C.
Keep up the good work. You are NOT a lonely voice in the wilderness! ‑Barry C.
|DISCLAIMER. Our newsletter provides commentary only, not legal advice. Boards need to retain an attorney to review all the facts and give a legal opinion on the issues they face. We serve as corporate counsel to California associations only. Request a proposal to represent your association.
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