Homeowners Associations Must be Proactive in This Economy
December 26, 2011
My firm, the Van Dyke Law Group, has represented homeowners associations in litigation all over California for over 10 years. I say “litigation” because we do not serve as general counsel for the associations but rather, we are called upon to pursue lawsuits on behalf of an association. While lawsuits should always be a last resort, the Board of Directors of a homeowners association today should definitely be proactive in fulfilling their fiduciary (duty of utmost loyalty) obligations to their members.
Today more than ever associations are faced with declining income combined with increasing expenses. At the same time association members are struggling to pay current assessment obligations and generally cannot afford an increase in monthly dues or special assessments to help meet these added expenses. This column will address litigation in regard to increased expenses as well as litigation options to keep an association’s revenue at necessary levels to operate.
Case study on an association’s ability to meet expenses
Consider this scenario: A large homeowners association included in its common areas, a large recreation facility for its members to use and enjoy. This “rec center” included a weight room, yoga and karate room, gathering room, conference room, locker rooms, kitchens, several exterior pools and spas, grass lawn areas and a pool maintenance structure. The facility was about six years old when the Board of Directors was faced with a financial dilemma. The exterior stucco cladding was cracking so significantly that it appeared water was intruding into the building. The parking lot was also experiencing cracks and needed significant patching or replacement. The pools were requiring the use of significantly more chemicals than a pool maintenance professional advised and the concrete along the exterior pool decking was deteriorating so that it was not only unsightly but creating unsafe conditions.
The projected cost to repair even some of the problems would require a significant additional assessment of the homeowners. Adding to the problem, the prior Board of Directors, which was controlled by the developer which had ignored these problems and/or had failed to properly maintain the facilities, had therefore arguably breached its fiduciary obligations to the association; we will focus on this topic in a future article.
Representatives from my firm met with the members of the Board of Directors, and advised them that in order to perform repairs, they first needed to determine the cause of the various problems. If the cause of the problems resulted from improper original design or construction, improper maintenance or upkeep by the developer and the previously installed Board of Directors, then we recommended that the current Board pursue, if cost effective, its legal rights against the responsible parties instead of making the current association members pay for unnecessary and expensive assessments.
In the end, the facility was repaired almost exclusively by money from the project designers, contractors, and other responsible parties. The association members now have a facility that is repaired and which they can safely enjoy, and which they should have received initially. Furthermore, the association members did not have to pay increased assessments or increased dues to have the problems addressed.
The lesson to be learned here is that any Board of Directors that is faced with increased maintenance or repair costs to common facilities or to the exteriors of association buildings should consider the reason for the increased cost. If the issues can be attributed to poor initial design, improper construction, defective products (like exterior siding or windows) or improper maintenance, the Board must carefully consider pursuing the money from the responsible parties through the legal process instead of increasing member dues and levying special assessments.
This article was written by attorney Glen Van Dyke of the Van Dyke Law Group, which has offices in Truckee, Eldorado Hills, San Francisco and Las Vegas. Van Dyke has represented thousands of residential and commercial property owners and homeowners’ associations in the resolution of disputes over the construction of their homes or buildings. Property owners who have questions about possible legal issues in both California and Nevada can call 877-868-7013 for more information.
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