By Rick Minogue, Metron Sustainable Services
In the last 5 to 10 years, prices for the delivery of fresh water to residences and businesses across the United States has skyrocketed. The price for wastewater treatment, which is often connected by percentage or algorithm to fresh water consumption, has increased as well. In Colorado, most new dwelling units are required to have water meters installed during construction. However, that leaves structures and communities 10 years and older available as candidates for water sub-metering.
For Community Association Professionals and their Boards of Directors, here is a brief introduction to water sub-metering.
What is water sub-metering and how does it work?
Many older communities, including single family dwellings, condos, high rises, and townhomes, have one master meter on the water supply line serving all of the units. The water supply lines that feed each individual unit subdivide AFTER the master meter. The master meter shows the total amount of water delivered to the community, but there is no way to calculate how much was used by each individual home, the pool or clubhouse, irrigation, etc.
To sub-meter a community’s water use, a water meter is installed at each home where the fresh water supply line enters the home, usually on the inside. Meters can also be placed in the clubhouse and irrigation lines. In a home, the meter is placed before the water lines divide to hot and cold, before any hose connections, etc. Most modern meters are electronic, and read to a tablet, computer application, and/or a web portal. Some use internet, others use a cellular network. Some meters even have their own phone app, so that a resident can monitor his or her water consumption while texting, calling the kids, checking email, setting appointments, and other essential driving tasks. (JUST KIDDING!)
Once the meters are installed in the community, the management or sub-metering company takes a monthly consumption reading from each home on a designated day of the month via the web. Then, using utility billing software and the local water rates and tiers that have been pre-loaded into it, each home is billed for the amount of water used.
Why would a Community Association sub-meter?
Can any community sub-meter?
The short answer is no, for two main reasons:
If an Association is considering sub-metering, the first step is a thorough evaluation by a qualified contractor.
Can Associations make a profit on water?
Absolutely not. Marking up water effectively converts an Association into a sub-utility, with all the inspection and health monitoring requirements. Don’t even think about it.
Can Associations add the cost of administration of sub-metering to water consumption invoices?
Yes, and many do. Often, when the decision to sub-meter is implemented, the Association may also distribute the costs of wastewater management (which again is usually pegged to potable water consumption using a predetermined formula) with residents.
Are there arguments against sub-metering?
Yes. Let’s look at a few:
What advice would you give Boards and CMs?
Water sub-metering is growing exponentially across the entire United States. Some of our company’s fastest growing states – Michigan, Wisconsin, Minnesota, might seem intuitively incongruous. Everywhere, city and utility managers have become more conscious of our water resources, and are pricing water more accurately as scarcity and aging delivery infrastructure is replaced and upgraded. At some point, most Community Associations in the Rocky Mountain Region will probably consider sub-metering as a way of getting control of escalating water costs.
There are many great sub-metering companies out there, and when reviewing proposals, be sure to ask about warranty, accuracy, auxiliary services (such as installation, billing and collection, data management, software platforms that can communicate properly with the management company’s software, etc.). Your association counsel should always be consulted before and during the process.
We are always here to help and to answer questions. Thank you for conserving our most precious natural resource.
Rick Minogue is Managing Director of Metron Sustainable Services, and VP of Operations at Transparent Technologies and Metron-Farnier. Rick Minogue agreed to run Frankfort, Germany-based Techem GmbH’s US water sub-metering start-up in 2014 . Later, he helped guide the sale of the company to Boulder-based investors, who renamed it Metron Sustainable Services. His background is in construction and real-estate.
By Joel Perri, Park It Right
Being asked to write about the latest in technology in the parking industry had me thinking. The reality is parking enforcement tech is never designed with the multi-family and apartment communities in mind. There is a constant flow of ideas to improve the parking enforcement industry with a majority of the focus on municipalities and other government-based agencies.
The tech is limited to the larger budgets of a government or tax funded parking enforcement program. This is due to the extremely high cost of technology-based enforcement such as License Plate Recognition (LPR) systems that cost tens of thousands of dollars with little real return on the investment. Cloud Based Parking Permits is the most user friendly for a multi-family community. Most other tech pertains to meters, gates, sensor parking and other components used for parking compliance and enforcement.
The latest tech introduced was the Barnacle which is an electronic windshield boot that looks like a large folding orange rectangle. It is attached to the windshield via two large suction cups that attach to the windshield with 1000 pounds per square inch of force. The booted person calls in to pay to release the boot. The Barnacle is then returned to a small building located on the property.
Parking enforcement and compliance companies focus is on the government sector which leaves few options for private communities such as HOA and apartments. Most enforcement is still conducted mainly by towing companies that may use a digital camera, warning stickers, and email with a few using cloud-based enforcement programs.
Trying to solve parking with technology will not accomplish the goal. The technology available is only designed to support the actual act of walking the property and physically looking at each vehicle to ensure their compliance with the property parking rules. The real goal of any community is to gain compliance with as little impact as possible. Unfortunately, the enforcement action always creates a reaction. These reactions are what the technology has been designed to refute or verify.
There are two driving factors creating the huge parking problem multi-family communities are now facing. The first reality is that our society has empowered people to feel entitled to do as they please regardless of its effect on others and often without consequences. The second contributing factor is high property values have increased the need for people to live together in units and communities not designed to handle the additional vehicles. These realities have dramatically affected parking in a negative way for most multi-family communities.
When a community begins enforcement there becomes a real need for the capability to ensure that enforcement action is valid and proper. If the vehicle was in violation of no permit parking, proof is going to need to be readily available to refute the automatic claim that “my permit was in the car.” If they were enforced for parking in the fire lane, they will state “I was only there for a minute” even though they call an hour later.
It is these areas where parking technology is designed to provide verification of violation when an action is taken. We use an automated phone service that records all incoming calls allowing our company to forward any conversation to the management company or board. Our field agents wear body cameras for use during any interaction with a violator or just a passerby. These are to refute the false allegations heard daily by management companies and HOA boards about the conduct of parking enforcement employees.
Cloud based parking enforcement management programs allow for GPS location of any violation. Pictures with time and date stamp allow for instant verification. Notifications to the management company and board members are often provided if desired, when an enforcement action is taken. An email notification with pictures and reason for enforcement is automatically sent to the appropriate designated parties. This ensures that the enforcement action is known with supporting documentation that the management company will need when the phone calls start.
Parking Enforcement tech is just a support tool for the foot patrols of the enforcement agent. Parking enforcement begins by getting out of the vehicle and walking a property to ensure all vehicles are in compliance with the property parking rules. Most companies don’t bother to take the time to put in the foot work needed to ensure people are complying with parking rules.
Joel Perri developed Park It Right, after 40 years in the towing industry, to provide a much softer approach to parking enforcement. Taking into consideration all the problems facing multi-family communities, he developed a Remote Release Vehicle Boot and Boot Return Station receiving our Patent in April of 2017. We took into account the Colorado sun, the problems electronics encounter in the elements and the boot had to be inexpensive. Our No Tow Solution boot was designed without the bells and whistles but is extremely effective for multi-family communities.
By Justin Bayer, CAI-RMC Editorial Committee
Every industry eventually has to get smarter. Some take longer than others, to be sure, but eventually there comes a time when ignoring the future of technology and advancement can only be done to the detriment of a successful business.
Change isn’t easy, and more often than not, change does not come without cost. In a day and age where our iPhones and Androids rarely leave our hands, companies like Rainbird, Hunter, and Rachio (to name a few) are revolutionizing the way irrigation is managed. They are doing this by keeping up with the curve of technological advancements, and these developments in irrigation controller tech have distinct advantages.
Easier User Interfaces:
Something that immediately stands out about the use of Smart Controllers is the way in which an irrigation system for an HOA, commercial business, individual home, or multi-family complex can now be accessed from your fingertips. Let’s face it, in the past (and even present) irrigation controllers don’t exactly have a reputation for being user-friendly. Setting up timers and running water to various zones for specific amounts of times can be learned with proper training or research, but as with all technology, there are ways to make this easier. Technological advancement doesn’t always lead to an easier user experience; the more options there are means as a user you need to know more about the controller, more about how to set it up, and more about what different functions can provide to make for a more efficient experience.
That being said, the companies developing intuitive technology around irrigation are creating avenues which make understanding their products infinitely easier for the “average person.” This isn’t an insult to those who are not irrigation techs, this is just saying that functionality and user interface through a smartphone application developed in-house by these companies can be easier to digest than reading a 100-page manual on an irrigation controller. No offense to Rainbird and Hunter, but that’s some pretty dry reading.
By making the options within the applications simple and concise, and the access to these applications more readily available than ever (you can check your Facebook, change your irrigation settings, and order yourself some take-out all from your couch!) understanding your irrigation system and making the proper changes is now more understandable and accessible than ever.
So you can access your irrigation controller from your phone, what other advantages are there?
Water is a hot topic, and rightfully so. The effects of over-usage of water is noticeable in everyday life, with many advocates pressing for more efficient water-management. Irrigation is important to the consumption of water, and this topic comes up often at Board meetings and walks with members of communities. The water bills are too high, how can we lower them?
Smart Controllers have the capability to connect to Wi-Fi (which is how you access the controller from your phone) and take into account weather in order to make changes in the irrigation schedule for days when irrigation may be completely unnecessary. So not only are you able to access and make changes to your controller from anywhere you have cell-phone service or wireless internet, but there are systems available which can make the changes for you. If you’re managing a large portion of common area for an HOA and your system waters everything during a rainy day, you’ve not only wasted countless gallons of water, you’ve also wasted you or your Association’s own money. Utilize the advanced technology enough times and the controller has paid for itself, not to mention that water is no longer being needlessly wasted.
Smart Controllers are not for everyone. A lot of people struggle with new technology, and with change. There is a learning curve to every advancement, and if running irrigation through an application is not for you, that’s okay. Companies like Rainbird and Hunter have additional options for rain sensors that monitor the weather to turn-off controllers during rain storms which are physically connected to the controllers, or through Wi-Fi. The point is there are options to make positive change, and the companies on the cutting-edge of irrigation technology will continue to create systems that make managing an irrigation controller easier, but most importantly, more sustainable.
By Clint Larson, 303tech
What is the cloud even about?
The “cloud,” as it was originally described, was meant to define the space between the owner of the data, and where the data was physically stored. Many were skeptical of the viability and longevity of this emerging technology. Almost 20 years later, there are “clouds” almost everywhere: iCloud, Google Drive, Drobox, OneDrive, SharePoint, AWS, and several others. Now, cloud services are becoming common place and even sought after by business of all shapes and sizes for several good reasons.
Why should the data be moved to the cloud?
Security, Reliability, and Expandability. Companies like Microsoft are spending more than $1Billion dollars per year in security and security related areas, every single year. The very best datacenters (the physical location for the data) have redundancies built in at every possible point. Multiple locations in the United States, multiple internet connections, multiple power sources, routers, firewalls, and especially multiple servers. All this redundancy so the data can be accessed at anytime from anywhere on any device. When more space is needed, it can just be added. No need to purchase additional servers or buy more hard drives. The storage systems are almost limitless.
Are all clouds created the same?
No, these clouds are not created the same, there is no water cycle here. There are many different options and tons of ways to connect and develop these options. People have used the analogy of a tool in a tool box. When you first start looking at cloud services and options, it is like going into a lumber store for the first time. Hammers and nails and boards, Oh My! It can be overwhelming, intimidating, and even daunting to figure out what pieces and parts are needed to build the proper cloud solution. Choosing a great technical partner is essential in finding and deploying the proper cloud service that will provide a long-term solution.
How does this relate to the community or Management Company?
For Home Owner Associations and Management Companies alike, the data that is generated and the records that are created are the second most important asset to the association, the first being the physical property itself. Just like the physical property, the digital assets need to be protected and maintained as well. When you look at the total cost of ownership of the other options available, the numbers just don’t add up. Cloud services can provide better security, reliability, and expandability than owning and managing any physical device. In the proper cloud solution, the Association’s data can exist on several different servers, across several different data centers, around the United States. This ensures that the Association’s next biggest asset is being protected and maintained properly at all times.
How to get started with the cloud.
First you need to get the right cloud and choosing a great technical partner is essential. Choosing a cloud provider is a marriage of sorts, and there needs to be confidence that it’s a relationship that the community can live with for the foreseeable future. Secondly understand that it is more about the people than the process. Adoption to the cloud can be challenging for some people. Simplification and proper training will go a long way to help organizations use and get the benefit of cloud services. Getting over the psychological barriers of not “owning” the data. It is not true. Owning a physical server in a building does not allow any more “ownership” of the data then storing it in the cloud. Hackers and viruses can more easily breach the security on a small business than one that is spending more than a billion dollars a year keeping the data secure.
Changing servers to cloud services or changing board members or management companies, the end goal is to keep the association data safe. Emails and documents alike contain important and valuable information about the community and this needs to be protected. Proper cloud services can eliminate many of the challenges and allow the community, the Board, and the Managers to be confident that the assets are being protected and secured.
Clint Larson is the principle of 303tech and he is a Microsoft Certified Silver Cloud Solutions Provider for Small and Medium Business. Clint is currently serving as the President of the IAMCP chapter for Colorado. He has served the HOA community as a technical specialist and board member for more than 15 years. To find out more please visit 303tech.com
By Adam Brown, Esq., Moeller Graf, P.C.
Recent studies show that as of 2018, 95% of Americans own a cell phone of some kind, and 77% of Americans now own a smartphone. We are increasingly able to communicate instantaneously with almost anyone we know via email, messaging applications, voice calls, and even through video chat applications such as Skype and FaceTime. With the ability to conduct business through these means, Boards of Directors have the ability to streamline communication and share information quickly and seamlessly.
This Article will briefly address both some of the practical benefits, as well as some of the potential pitfalls, of using technology to conduct community association business.
The first of these practical benefits is the ability to conduct meetings when one or more members of the Board are unable to attend a live, in-person meeting. Unless otherwise provided in the bylaws of the community, the Board of Directors may permit any director to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may hear each other during the meeting. This may be just a simple telephone call, but could also include other telecommunication applications such as the ones mentioned above.
The second way that Boards often make use of technology to conduct business is by taking action outside of a meeting, through the use of email voting. In general, many communities have the necessary authority for this – although not all communities do. Under the Colorado Nonprofit Act, unless otherwise provided in the bylaws, any action to be taken at a directors’ meeting may be taken without a meeting if a notice stating the action to be taken and the time by which the director must respond is transmitted in writing to each member of the Board and each member of the Board, by the time stated in the notice either (a) votes for such action; or (b) votes against action, abstains from voting or fails to respond or vote and fails to demand that the action be taken at a meeting.
The pitfalls of voting via email come in when trying to keep sufficient records of these communications. This raises the practical questions of how Boards should determine which e-mails to save, how to retain such e-mails, and other related issues. The following are some practical ideas to help your Board avoid these pitfalls:
First, it is always recommended that Board members set up a separate email account (other than his/her personal email account) to conduct Board business. The reason is that if a Board member is served with a subpoena for his or her e-mails, not only will the e-mails related to Board business be subject to it, but all other e-mails sent and received from that account could also be discoverable. A practical idea that many Boards utilize is to create Google or Yahoo accounts to tie email addresses to certain positions on the Board, e.g. firstname.lastname@example.org – which can then be passed on to subsequent officers holding that position.
Second, Boards should keep in mind that under the Colorado Common Interest Ownership Act, the Association is required to keep minutes of all meetings of the Board, including written communications among, and votes cast by, the Board members that are directly related to an action taken outside of a meeting (if permitted under the Bylaws and/or Colorado law). With this in mind, if your Board conducts voting via email, either the community manager or the Board secretary should be designated to save and file all such voting records of the Board, in order to comply with the statute and to be able to produce these records if requested by an owner. These voting records should also be filed with the minutes of the Board at the next live meeting.
With the above issues in mind, it is typically recommended that actions and decisions outside of a meeting be kept to a minimum, and to limit these situations to urgent matters where the Board cannot call a special meeting or wait until the next Board meeting to discuss the issue.
And, call me old-fashioned, but despite the convenience of technology, my experience strongly suggests that important community association issues are often addressed most positively in face-to-face meetings with your fellow Board members.
Adam Brown is an associate attorney with the law firm of Moeller Graf, P.C. in the Denver metro-area. Adam has practiced community association law exclusively since 2015. He has extensive experience advising associations in all areas of community association governance, including drafting and interpreting governing documents, reviewing and drafting contracts and real estate documents, and advising communities regarding compliance with applicable state and federal laws. Adam regularly attends Board meetings and homeowner meetings, and particularly enjoys mediating the high-conflict situations that sometimes arise in those settings through a practical, solutions-focused approach.
By Ashley M. Nichols, CAI-RMC Editorial Committee Member
With popular social media platforms like Facebook, Next Door, and Twitter taking over the way that many people communicate, questions abound about the use of social media in community associations. The use of social media can certainly be a tool to build community and engage your members, but there are also risks. This article will update the status regarding the use of social media, but it will take more than 280 characters to do so. #readon #socialmedia #community
According to results of CAI’s National and State Statistical Review for 2016, an estimated 69 million Americans – 21.3 percent of the US population in 2016, lived in common interest communities. In that same year, the United States had 197.7 million Facebook users, 68 million Twitter users, and approximately 68 million NextDoor users (with that company expecting this number to grow to 100 million by 2020). Almost certainly then, your community association has experienced the effects of social media in some context. Unfortunately, you’ve also seen that the effects have likely been negative. Why is that and how can we change that to improve our communities?
Think about this: A Florida State professor of social psychology did an experiment in which participants gained or lost the same amount of money. Participants were more upset about losing $50.00 than they were happy about gaining $50. In another study where children and adults up to 50 years old were interviewed about their childhood memories, the study “found a preponderance of unpleasant memories, even among people who rated their childhoods as having been relatively pleasant and happy.” Conflict is what people talk about. If things are going well, no one generally praises in public. People will always vent in public, and social media platforms provide an easy way to do that. You also know why this is, but you may not know that it has a name: the Disinhibition Effect. In a nutshell, it means, you can’t see me, you don’t know me, and I can say whatever I want behind the safety of this computer screen.
Social media has changed the way that nearly all of us live (and communicate) in this world. Because of this, there is an opportunity for community association boards to use the platforms in a way that will build community and engage your members. Using social media effectively can also be a great way to keep members informed, as well as curating a brand for your community. The use of social media should not be to give opinions about Board decisions. It should be informational. Provide time/location/agenda for Board meetings. Post about community events. Do you have an ice cream social in the summer? Post about that – put pictures from the event up (request permission before posting any pictures of children). Post about when the pool will be open. These are all things that members will, hopefully, find useful.
When it comes to the risks of using social media, it comes down to “netiquette” – the correct or acceptable way of communicating on the internet. Be clear, be concise, and be unemotional. If you keep these three things in mind, the risks will be minimized. Board members, as a rule, should be mindful of speaking about the community on any social media using their personal accounts. Engaging in comments (even just “liking”) can indicate favoritism (perceived or real) and that can lead to issues within the community. You are sure to find that there are instances where your Board or manager may feel the need to respond to posts and comments. Again, be mindful of getting too involved in any conflict and really use the platform to provide information. For example, if owners are in an uproar about a topic, consider commenting about when/where the next Board meeting is taking place and encourage members to take issues/concerns to the Board meeting to discuss. Remember it is often easier for people to say things online than it is in person, and encouraging owners to move the discussion to a Board meeting may diffuse the situation.
Some of the risks that may arise when discussing the use of social media are as follows:
With the right enhancements, most business insurance policies can include personal and advertising injury provisions that cover these types of claims. “Advertising” is any notice – including a post on social media – that is broadcast or published to the general public or specific market segment about your goods, products, or services for the purpose of attracting customers. Limits on this type of coverage may be too low, so an umbrella policy is smart.
There are also federal laws that protect associations that may worry about the risks of social media. The Communications Decency Act, in short, eliminates liability for information posted by third parties. And the Digital Millennium Copyright Act eliminates liability for copyright infringement claims involving content posted by third parties.
Another concern that is often seen (whether an association is using social media or not) is escalated neighbor to neighbor squabbles. Again, because of the ease in which people tend to “spout off” on the internet, when neighbors take their disputes to a public venue, it could lead to “bad media” if someone takes it to the news. Any negativity seen in public could certainly tarnish an association’s reputation, and more importantly, if significant enough, could depreciate property values. Further, if Board members are considered to be “meeting” because of their discussions on social media platforms, one could potentially argue that it is constituting a quorum and “conducting business” outside of the law.
So, what can your association do to help grow community and avoid pitfalls? HAVE A POLICY! Some provisions that your Board will want to address in the policy are as follows:
The use of social media platforms can be great tools to keep your community members connected and engaged. Be cautious and heed the advice that we give to our children – anything you put on the internet is forever, even if you delete it. I always remember (for myself) and advise (for my clients) to THINK.
Having a policy will provide notice to owners in your community about the association’s use of social media and expectations. Remember, one of the great things about community associations IS the community. Grow it and cultivate it – and social media platforms, used smartly, can help you do that! To help promote these principles in your community or for questions about the potential impact of using social media, contact your insurance agent (to ensure coverages) and legal counsel.
By Alicia Granados, CMCA, AMS, PCAM, Pacific Premier Bank, HOA & Property Banking
“Should my association consider a loan?” There are a number of scenarios where this question comes up, and times when it doesn’t but perhaps should.
“We have deferred maintenance and we don’t have enough in our operating budget or reserves to make needed repairs . . . what should we do?”
“Our construction defect litigation settlement was not enough to correct all of our issues . . . what should we do?”
“We had a catastrophic loss but our insurance coverage has a deductible we can’t afford . . . what should we do?”
“We want to add a new community playground . . . what should we do?”
In trying to answer these difficult funding questions, Boards often assume that their only option is to special assess each owner for their share of the association’s shortfall. Owners are then left with the option of using cash on hand or obtaining individual financing through a second mortgage or other means. This can be difficult for those who may not be good candidates for a loan; some may have poor credit while others rely on fixed monthly incomes. Undoubtedly, large special assessments can place a great burden on members of a community.
For many communities, an association loan is a very attractive solution, allowing the Board to quickly obtain needed funds. In the absence of an adequately funded reserve account, an association can borrow money and often avoid a significant and urgent special assessment against its members.
One of the most common reasons for borrowing is the need to fund deferred maintenance through a large scale repair or renovation project. A loan allows the community to escape the inconvenience and expense related to multi-year phasing of a project, while still allowing the membership to spread payments out over time. Needed work can be performed right away, enhancing the value of the community, while the cost remains more manageable for each owner.
When considering a loan, the following questions often arise about the type of collateral required and the impact on individual owners, as well as the typical terms and structure of an association loan.
What type of collateral does the bank require?
Typically, the association will assign the bank its rights to collect future assessments and other accounts receivable. In other words, if the association failed to make its loan payments, the bank would have the right to step in and collect assessments on behalf of the association. Except in the case of a loan made specifically to purchase real estate, an association does not generally pledge its property, such as a pool or clubhouse, against a loan. There is no personal liability for an association loan. Board members are not asked to provide personal guarantees, nor are there liens placed against individual units to secure the loan.
What is the impact on individual owners of the community?
Individual owners are not directly obligated for an association’s loan, therefore homes can be bought and sold regardless of whether there is a loan in place. A loan is also not reported on any member’s personal credit report. The most common impact on owners is that the association’s assessment income often needs to be increased by some amount in order to support the loan payment. Depending on the governing documents, a vote of the owners may be required to approve the Board’s ability to pledge assessments.
How does an Association qualify for a loan and what is the typical structure?
An association can expect to be required to meet various qualifications related to the size of the community, delinquency rates, percentage of absentee owners, concentration of ownership and amount of the proposed assessment increase. The structure of the loan will depend on the type and length of the project being funded. Banks may offer either a line of credit or a traditional term loan, typically amortized over ten years or less. It is best to look for a loan with no prepayment penalties so that the loan can be paid off more quickly if funds become available.
A loan sounds like a great idea – now what?
It’s never wise to rush into applying for a loan without first consulting your governing documents and the association’s legal counsel. It is important to ensure that the documents and applicable state statutes permit the association to borrow funds and also to determine whether a vote of the membership is required. In some cases CCIOA (The Colorado Common Interest Ownership Act) requires that the Declaration provide express authority for the association to assign future income, so a document amendment could be required.
Once the Board believes that a loan is a viable solution, it is best to contact a bank that specializes in lending to community associations. Like other knowledgeable industry partners, banks most familiar with associations will be able to successfully guide the manager and Board through the process, avoiding many obstacles and securing a loan that will best meet the needs of the community.
Alicia Granados, CMCA, AMS, PCAM is an experienced HOA & Property Banker in Colorado. Pacific Premier Bank HOA & Property Banking specializes in lending and innovative banking solutions for the community association industry. Their advanced technology and API integration with industry accounting software packages creates meaningful efficiencies for management companies and community associations across the country.
National reserve study standards define reserve components according to four criteria. A component must:
These four criteria are the building blocks necessary to develop an accurate, reliable, and repeatable list of components necessary for long term community planning purposes. What to do with this list is where many associations find themselves at a crossroads.
A typical community association has 25-35 reserve components. Small communities may have only a couple components, while large communities with amenities such as golf courses, restaurants, and recreation centers may have hundreds. Regardless of community size, the following five items typically have the largest impact on long term financial planning:
Our research of ten randomly selected and recently completed Colorado reserve studies shows how significant these components are. Analyzing the projected expenses of the above five components over the next 30 years shows that they consume about 61% of the necessary reserve funds for the average community.
In analyzing a few of the individual communities, we found the following:
Errors with future planning for these five items will have a disproportionately significant effect on overall reserve fund needs. To properly “sweat the big stuff,” communities should plan for these five major items appropriately by ensuring the accuracy of the quantity and cost estimates assigned to these components.
Associations should ensure the accuracy by soliciting reserve studies from providers who have firsthand knowledge of the local construction environment for the communities they serve. Instead of looking up unit costs in a book or just googling it, a good reserve study provider should constantly be coordinating with general and specialized sub-contractors that provide roof, façade, deck, asphalt, and concrete services. By updating and citing their cost resources in the studies they provide, reserve study providers improve the accuracy of the costs assigned to reserve components.
Reserve study providers should also conduct quantity measurements of the site utilizing appropriate methods. Measurements should be completed first from As-Built drawings, if available. When As-Builts are not available, quantity estimation should still be completed utilizing field measurements and aerial image measurements. Associations should also be cautious of reserve studies that provide measurements of components as “1 unit” with no definition of quantity. These “1 unit” measurements often end up allocating a lump sum price to a component replacement, which can result in either a large surplus or deficit in the community’s largest impact items due to inaccuracy. The worst part of the “1 unit” measurement is that it is impossible to verify the true quantity.
Reserve study providers that work with both general contractors and associations understand the effect of accurate measurements and unit costs. Select a reserve study provider who can assist in guiding your community through your reserve planning so you don’t have to Sweat the Big Stuff alone.
Justin Foy is a Senior Vice President and Reserve Specialist with SBSA. Justin has over 18 years of experience in engineering management and 15 years of experience providing Reserve Studies. Justin and his team are one portion of SBSA’s staff of engineers and architects that work with communities throughout building and component lifecycle.
On my tenth birthday I was given the greatest gift a kid could ever ask for. That gift, which every adolescent looks forward to, was of course… braces. Not only did I look silly (my grandma affectionately called me ‘train-tracks’ since my teeth looked like they could support a steam engine), they also required ongoing upkeep and maintenance. One of the daily maintenance tasks was to hook these small rubber bands into the braces to improve my overbite. The problem was that I found the bands to be a nuisance and preferred not to wear them. My thought was that the orthodontist wouldn’t notice my lack of discipline. Unfortunately he did notice, but in my infinite wisdom I still thought that it wouldn’t make much of a difference whether or not I wore the bands. Finally after a year, the orthodontist told me that the more consistent I was with my daily maintenance, the sooner the braces and bands would come off.
Just as I assumed that my daily maintenance negligence would go unnoticed, many Boards assume their annual Reserve Study maintenance will go unnoticed. A Board may assume that Reserves are something that a future Board may need to think about. Or, the Board may assume that the owners may not notice that the association is lacking proper funding for the upcoming summer projects. The lack of Reserve Study updates is an issue that many Board members fail to realize. Because the physical condition of the association’s assets and the size of the Reserve Fund change on an annual basis, Board members need to know how much to budget for their Reserve contributions each year.
The problems that occur when a Board does not update their Reserve Study include; higher special assessment risk, increased dues, deferred maintenance, and cash flow deficiencies:
Special Assessments – Based on a analysis of over 19,111 of our most recently completed Reserve Studies, we found that when clients only updated their Reserve Study every five years, the risk of special assessment increased by 35% when compared to a client that had updated their report every year. If a client updated their Reserve Study every three years, the risk of special assessment increased by 28% when compared to a client that updated their report every year. Why does special assessment risk decrease when the Reserve Study is updated regularly? One factor could be that it is harder for a Board to ignore an upcoming project when the Reserve Study is constantly reminding them each year of their annual fiduciary responsibility.
Increased Dues – Increased special assessment risk will also require higher reserve contributions, which will affect the overall dues assessment. On average, reserve contributions should make up anywhere from 15%-40% of the total annual budget for a well-run association. When an association falls behind in their funding, they will need to increase their contribution rate to catch up with the ongoing deterioration of their property. When a client updates their Reserve Study annually, the year-to-year variation in Reserve contributions will, on average, drop by 9%.
Deferred Maintenance – When an association neglects to update their Reserve Study, scheduled projects tend to be deferred, and deferred maintenance will only become more expensive. For example, suppose an association completed a Reserve Study in early 2013 but the Reserve Study has not yet been updated since. Since 2013 there have been at least two major hailstorms, one catastrophic flood, and countless wind storms. The unexpected surprises may cause an association to defer the expected, inevitable projects such as exterior painting. However, by deferring these projects, the costs of the routine painting maintenance may increase by 50% due to wood rot or other carpentry issues.
Cash Flow Deficiencies – An association that has not updated their Reserve Study will be unprepared for inevitable expenses of expected deterioration. How will a Board know how to set their annual reserve budget unless they know what their annual reserve costs are? It would be like packing for a vacation but not knowing if you are going to Hawaii or Iceland (unless you can handle a bikini in the snow). A budget must be set with the end in mind; what is the projected roof replacement cost, what is the projected asphalt sealing expense? If an association does not know what the inevitable costs will be, the most likely scenario will be that the Board will underfund the reserve account.
Updating a Reserve Study requires that a Board be disciplined, however this discipline today will bring financial freedom for years to come.
Once I had understood that my daily routing of rubber band wearing would eventually bring me freedom, I became driven to be the best rubber band braces-wearer I could be. At the wise old age of eleven, I had finally realized that positive results require diligent routine and discipline. Similarly, boards that pay attention to their financial situation have demonstrably fewer special assessments and more stability to their budget. They tend to be on-track, setting the right amount aside towards Reserves, with owners all paying their fair share (the true cost of home ownership). The result is their property is significantlymorelikely to have the necessary Reserve funds on-hand when they are needed to perform those major, predictable common area repair and replacement projects.
Bryan has completed over 1,500 Reserve Studies and earned the Community Associations Institute (CAI) designation of Reserve Specialist (RS #260). His experience includes all types of condominium and homeowners’ associations throughout the United States, ranging from international high-rises to historical monuments.
By Gina C. Botti, Winzenburg, Leff, Purvis & Payne, LLP
The Colorado Common Interest Ownership Act (“CCIOA”) does not define the term “special assessment” or address when or how a special assessment may be levied. So, what is a special assessment and when can a special assessment be levied?
We know common expense assessments are based on a budget adopted no less frequently than annually by the association. Generally speaking, a special assessment is an expenditure or liability, such as a capital improvement, that the association has not budgeted for either in its annual budget or in its reserves. Special assessments allow associations to meet or cover an unanticipated budgetary shortfall.
A good example of this is when the community is devasted by a hail storm and the roofs are damaged. This is not something the association would typically budget for annually, as it’s unknown when or if a hail storm will occur. If the association is hit with paying a high insurance deductible and the association does not have the funds in reserves, the association may need to special assess all of the owners to cover the costs for the insurance deductible.
Before doing so, however, the association should look to its declaration and bylaws to determine if the authority to special assess exists; the authority and procedure is always document specific. An association may exercise its powers only in compliance with the authority and procedures outlined in its declaration or bylaws. The association should look at its documents closely as there may be an owner vote requirement to specially assess. If the association’s declaration and bylaws are silent, or specifically prohibit the board from levying special assessments, the association may not levy a special assessment and may need to look at other options to pay the costs, such as taking out a loan, or assessing only those owners who benefit from the expense as an individual purpose assessment if the declaration or bylaws allow. The association may also want to consider amending its declaration to provide the authority to specially assess.
The association should also weigh the priority of its maintenance obligations as part of exercising its reasonable business judgment. For example, if the limited common element balconies are in need of painting, but the railings are falling off, the safety concerns of the railings should take precedence over the painting for any special assessment obligation.
The association should also determine if the special assessment will come due all at once, or if an owner will be permitted to pay the assessment in installment payments. If a special assessment is not paid by an owner, the association should follow its collection procedures as it would any other unpaid assessment.
The ability to special assess owners to perform the maintenance obligations under the declaration can save the association the expense of paying interest on a loan and deferring projects that are needed in the community.
If your association does have the ability to special assess, I guess that makes you special!
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