The Communicator - Volume 1, Issue 1 - (Page 16)

ask the experts By Adrian Adams, Esq. Deferred Maintenance QUESTION The board claims our reserves are badly underfunded and raised our dues by 20 percent. They plan to raise them again next year because our manager said we have too much deferred maintenance. I disagree. When I was on the board we always minimized repairs because we have older people who can’t afford high dues. Don’t you agree that boards have to take into consideration people who can’t afford their assessments? Can’t we wait until something breaks and let insurance pay to replace it? Want to Know More? The Davis-Stirling Act Civil Code §1366. Duty to Assess, Limitations on Assessments (a) Except as provided in this section, the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this title. However, annual increases in regular assessments for any fiscal year, as authorized by subdivision (b), shall not be imposed unless the board has complied with subdivision (a) of Section 1365 with respect to that fiscal year, or has obtained the approval of owners, constituting a quorum, casting a majority of the votes at a meeting or election of the association conducted in accordance with Chapter 5 (commencing with Section 7510) of Part 3 of Division 2 of Title 1 of the Corporations Code and Section 7613 of the Corporations Code. For the purposes of this section, “quorum” means more than 50 percent of the owners of an association. (b) Notwithstanding more restrictive limitations placed on the board by the governing documents, the board of directors may not impose a regular assessment that is more than 20 percent greater than the regular assessment for ANSWER Wow. Where do I start? The fundamental duty of boards is to properly maintain the common areas. Collecting sufficient assessments to carry out that duty is required by statute. Civil Code §1366(a) Deferring maintenance for the wrong reasons can be a serious breach of the board’s fiduciary duties. IMPROPER DEFERRALS – Deferring maintenance to avoid spending money or raising dues is harmful to the membership because it (i) exposes the association to litigation and potential liability for damage caused by the deferrals, (ii) lowers property values, and (iii) increases the cost of the eventual repairs (which can result in huge special assessments). In addition, it may expose directors to claims of gross negligence, breach of CC&Rs, breach of statute (Civil Code §1364(a)), and breach of fiduciary duties. Under those conditions, the business judgment rule will not protect the directors from personal liability. PROPER DEFERRALS – Planned short deferrals (i) to raise funds for making repairs, or (ii) to stagger repairs for scheduling purposes, are considered acceptable business practices. Even so, boards must take care to protect members from any damage that might be caused by the delays. INSURANCE – Boards who ignore their duties hoping to shift repair costs to the association’s insurance company are in serious breach of their duties. Insurance companies will not pay for deferred maintenance. The purpose of insurance is to pay for unexpected catastrophic losses, such as fires, storms, floods, etc. By floods, I do not mean plumbing failures due to negligent maintenance practices. Boards who think they can get a free ride by dumping it on the insurance carrier are incredibly misguided. ■ This article reprinted from the Davis-Stirling.com Newsletter by Adams Kessler. 16 • The Communicator http://Davis-Stirling.com

Table of Contents Feed for the Digital Edition of The Communicator - Volume 1, Issue 1

The Communicator - Volume 1, Issue 1 Contents President’s Message Capitol Recap Complying with California’s Reserve Study and Disclosure Laws The Devil Is in the Details Ask the Experts – Deferred Maintenance HOA Banking, Then and Now 2008 Events & Education Calendar Welcome to CAI BayCen Index to Advertisers

The Communicator - Volume 1, Issue 1

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