By Heidi E. Storz, Esq., Benson, Kerrane, Storz & Nelson, P.C.

During the last legislative session, the Colorado legislature passed House Bill 17-1279. The new law, now codified as C.R.S. § 38-33.3-303.5, creates additional hurdles for community associations to jump over to hold developers and builders responsible for shoddy construction. The law does this by creating new requirements that must be met before a community association is entitled to bring a claim in court or arbitration. 

The requirements of the new statute kick in when the notice of claim process has failed, and community associations are left with no other choice but to take legal action against developers and builders. Before taking such action, however, a community association must now provide additional disclosures to homeowners and must hold a homeowner meeting. The developer/builder is entitled to attend the meeting with the presumed purpose of trying to convince homeowners not to vote in favor of further legal action. After the homeowner meeting, the association must collect written votes from a majority of the homeowners within a specific timeframe.

Happily, the additional disclosure requirements in the statute are relatively evenhanded and are disclosures that most construction defect attorneys have typically already provided to associations and homeowners. Per the statute, homeowners must now be informed that:

1. The construction defects might result in increased maintenance and repair costs;
2. The association’s claims will expire if it does not take legal action;
3. Sellers have a duty to disclose the defects until the defects have been repaired;
4. The association has hired attorneys and must identify the terms of the attorney fee agreement;
5. Legal costs may be incurred and must identify what those legal costs are estimated to be;
6. The association may have to pay its own attorney fees if the association does not prevail on its claims;
7. A court or arbiter may require the association to pay the developer/builder’s costs and fees if the association does not prevail on its claims;
8. There is no guarantee that the association will recover enough to repair all of the defects;
9. The value of the home may be less until the defects have been repaired;
10. It may be more difficult to sell or refinance the home until the legal action is resolved or the defects are repaired.

With respect to the homeowner vote, the legislature did try to even the playing field by limiting whose votes will count to meet the majority requirement. For example, the statute specifically excludes votes for units that the developer/builder still owns, votes from bank-owned units, votes from unit-types that do not have defects, and votes from units where the owners are deemed “unresponsive.”

If an association is within a city that has enacted a construction defect ordinance that spells out different disclosure and voting procedures, the new state statute is expected to override the city ordinance. Similarly, if the association’s governing documents spell out different disclosure and voting procedures, it is anticipated that the new state statute will override the association’s governing documents.

Though the new statute creates additional hurdles for associations to jump over to hold developers and builders responsible, the hurdles are manageable and will not stop associations and homeowners from obtaining redress in court or arbitration. Given that developers and builders were originally pushing laws designed to provide them with a complete shield from liability, the legislature did well in enacting House Bill 17-1279.

Heidi E. Storz, Esq. is the Managing Partner of Benson, Kerrane, Storz & Nelson, a law firm that represents homeowners and community associations with construction defect cases.

By Jason Domecq, R3NG, LLC

As a licensed roofing contractor serving the HOA industry, one of the most common questions I receive when meeting with different community association boards is “What do you recommend we do about our roof situation?” For any property, the roof is one of the most important systems.  An informed roofing selection, along with proper installation, will protect your investment, add immediate value, and most importantly, shelter residents from the elements.

If you’re planning to maintain or replace your roofing system, here’s are a few things to consider:

The Contractor

A contractor who is licensed, insured, supported by a major manufacturer and highly respected in the industry are just a few key aspects to consider when selecting a contractor. These qualifications can be validated by:

• A verifiable and diversified reference list
• Evidence of current licensing within the county the work is to be performed
• Evidence of the appropriate type of contractor’s insurance
• Documentation stating support from a major manufacturer
• The contractor’s history of availability after completion to support the community and any issues that may arise

Choosing the right contractor is like choosing a great pair of shoes: there are a lot of contractors to choose from, but it’s crucial that you identify one that’s a good fit. Consider a contractor the community trusts and is comfortable with.  Nancy Sinatra said these boots are made for walking. You don’t want the boots running all over you!

The Shingles

Think of the future when considering the type of shingle to be installed. Which direction is the board taking the community and how does the community want to look in 10-15 years? Is there a potential to paint next year, or in five years? The type of shingle selected will define the look, feel, and contribute in the future property value. When determining the type of shingle there are, primarily, three different types:

• 3-tab – An older, linear type of shingle that is slowly starting to disappear from use  
• Dimensional – One of the more popular shingles that provides adequate coverage, while delivering a great updated look, to nearly all kinds of roofs. This type of shingle comes in a variety of colors and most manufacturers offer an impact-resistant option.
• Designer – A stylish way to alter a community’s look while also upgrading the community’s value. These shingles provide superior coverage and provide a similar look to the high-end custom materials at a fraction of the cost.   

A few accessory items to consider when replacing the roof system are:

• Underlayment Felt – This is a crucial layer of protection between the shingles and the roof decking 
• Ice & Water Leak Barrier – This creates a seal around the perimeter and in areas that are susceptible to water penetrating the unit (i.e eaves, rakes, valleys and chimneys).  
• Ventilation – Proper ventilation throughout the attic will allow for continued airflow and will work in conjunction with the unit’s HVAC system help to keep you house cool in the summer and warm in the winter.  

The Installation

Once a contractor and materials have been selected, it’s important to know that the roof system is being installed correctly. Best practices by contractors include:

• Documenting the installation while it’s in production  
• If a permit has been pulled, ensuring the contractor is following the permit guidelines
• Manufacturer inspections of how the contractor installed the product  

The Warranty

Most states require a licensed contractor to provide a minimum 2-year warranty for a roof replacement. When reviewing warranty options, consider a contractor that is supported by a manufacturer. GAF, for example, stands behind a select few contractors, supporting the availability of a 25-year workmanship warranty. These select contractors are licensed and insured, have a proven track record of superior installations, enjoy respectable relationships within the industry, and will stand behind their work. It’s important to know that you can count on both the contractor and manufacturer to be there for the community after the project is complete.

The Maintenance

The climate your community resides within plays a huge factor on how much and how often your roof may need a little TLC. For example, a climate that experiences hot and dry summers followed by cold and wet winters needs to have the sealant used on the roof inspected on a yearly basis.  This will ensure there isn’t water penetrating the building.  Preventive inspections mean less maintenance, and will significantly minimalize the costs associated with larger repairs caused by water penetrating the roof.

The Decision

There are clearly many things to consider when you need a new roofing solution. With my decade of industry experience with R3NG, I believe the most important is your community’s needs both today and 10-15 years from now. Once your goals are set, remember these key points:

• The contractor you select will support the community over the next few years. Examine a company’s work history and culture. Will they offer a cohesive relationship with the community? The completion of the roof installation should not be the last time you see the contractor.
• Protecting residents and the community’s investment against the elements should always be of primary concern. Choose the type of shingle that will ensure the community’s future growth, integrate seamlessly with future projects and increase the community’s overall property value.
• Consider a warranty that covers an extended period for both workmanship and manufacturer’s defects. This will allow you to rest easy knowing that you have prolonged coverage, ensures the contractor and manufacturer are committed to your HOA, and provides your community peace of mind knowing they are supported by both the contractor and manufacturer. 
• Lay out a maintenance plan to protect your investment. Annual inspections of the roof system and its critical areas are essential for its prolonged life.

R3NG, LLC is an affiliate of Community Preservation and Management, LLC (CP&M) a licensed and Insured, locally-owned-and-operated Colorado General Contractor with more than a decade of experience serving our residential and commercial customers.

By Bryan Farley, RS, Association Reserves, Colorado

As the population in Colorado continues to grow a steady rate, one may notice the many new housing developments, high rises, and condo complexes popping up around the state. These properties look great, with fresh paint on the walls, roofs that do not leak, and elevators that work when called. However, within a few years these buildings will start to experience the same issues that plague every other building in the area, asset failure. 

This dilemma is not only limited to new projects, but also to older buildings that have just undergone a renovation or remodel. In fact, all new construction will experience a state of deterioration once the project has been completed. 

How can owners be motivated to raise Reserve Contributions after the board just special assessed the owners to fund the remodel? How can a board of a brand new condo building justify raising Reserves when the majority of the owners closed on their units six months ago?

The answer of course is that as soon as the new construction has been finalized, the assets will begin to decay and deteriorate at a predictable rate until all of the assets have failed completely. However, the assets will not all fail at the same time. For example, the roof may last twenty-five years, but the carpet may only last eight years. If the failure and replacement of the assets do not occur at the same time, how will the costs of these assets be evenly distributed throughout the life of the building? 

It is only fair that each owner pay for the predictable deterioration of the assets that are gradually deteriorating each month/quarter/year. That is fundamentally what a Reserve Study attempts to help owners accomplish, take all those irregular Reserve expenses and distill them down to a steady deterioration rate that the association can then offset be collecting contributions from all the current owners in order to keep pace with the ongoing deterioration of the common area.

That is why the Reserve contribution rate recommended in a Reserve Study is not for a future expense that is some other unlucky person’s problem. The recommended Reserve contribution is designed so each homeowner pays a fair share of ongoing Reserve component deterioration during the months and years that they own in the association. It’s only fair. In fact, it is unfair for any current owner to pay less than ongoing deterioration, forcing some unlucky future owners to over pay due to past under-reserving.

Moving forward, how much should current owners contribute to Reserves? In our experience, “adequate” Reserve contributions typically make up anywhere from 15% to 40% of an association’s total budget. The cost of Reserve component deterioration can be expensive, so there are ways to minimize your Reserve contributions:

• Make sure your Reserve contributions are calculated using the “cash flow” computation method (resulting in fairer, smoother, and lower contributions)
• Maximize the interest the association is receiving on the Reserve account (if possible)
• Perform timely maintenance in order to extend the life of your reserve components

Reserve components are expensive and are deteriorating every day. A Reserve Study will provide guidance on how much money will be needed each year to pay for the ongoing asset failure. Each year, owners should hire a professional to review and update their Reserve Study. 

By commissioning a Reserve Study, a board takes the first step toward a calmer and proactive future. Prudent planning for inevitable repair and replacement costs will benefit future owners, but present owners benefit also. With a Reserve Study boards and managers can help the present generation of owners understand that they, too, can enjoy their share of the benefits of prudent reserve planning.

By Robert A. Woellner, QUEST Environmental

We often think of residential mold as a homeowner issue, but sometimes the water damage that leads to mold growth impacts a shared location in a multi-unit residential building. Water damage may be caused by a roof leak, building envelope damage that has allowed water to intrude from the exterior, or migration of released water from one unit to another (particularly flowing downward into an underlying unit). In these instances, mold growth may become the community association’s concern. Should this be the case, it will be useful to know the basics of mold assessment in order to provide the best service to your homeowners and reduce the community association’s risk.

Ambient Microflora Assessments

An ambient microflora assessment is the best choice when it is not known whether indoor mold growth is present. Perhaps an occupant begins feeling sick in their home and suspects mold exposure, or perhaps there is a musty odor that can’t be traced to an obvious source. An ambient mold assessment could also simply be precautionary, such as following a water release that was promptly dried. 

During an ambient mold assessment, an industrial hygienist or mold inspector will conduct a visual inspection to search for signs of water staining, damage, and visible mold growth. If any of these are observed, the inspector will attempt to identify the potential source(s) of moisture. The inspector should also utilize a moisture meter to check for moist building materials in the area of concern. (Building materials containing more than 12% moisture content are typically considered to be moist.) If available, an infrared thermometer/camera can be used to check for moisture-related temperature anomalies in locations that are difficult for the inspector to reach with the moisture meter. 

The relative humidity should also be monitored throughout the area of concern to make sure that an environment conducive to mold growth is not being created by elevated indoor relative humidity. (We recommend that indoor relative humidity be kept at or lower than half of the indoor temperature, so we typically recommend around 35% relative humidity as an indoor maximum.) Finally, you may wish to have the inspector conduct a sampling survey for airborne fungi to assess whether the indoor air quality is being adversely affected by mold. There are two main categories of mold sampling:

• Non-viable/total fungi sampling visually identifies all mold spores in the sample, without discriminating between living and dead spores. This type of sampling can identify mold spores down to the genus level but cannot distinguish individual species.

• Viable fungi sampling identifies only living, culturable “colony forming units” of fungi. For this reason, laboratory results usually take 7-10 days to be issued, since the living fungi need this time to be cultured on agar plates. Viable analysis can identify fungi down to the species level, and is the method of choice if litigation or adverse health effects are anticipated.

Which sampling type you require is strongly dependent on the needs of the investigation—is the dead fungi content of old dust relevant, or are only living fungi relevant? Dead spores may be very old and not indicative of active growth, but they could still be contributory to adverse health effects for occupants. Do you need more precision in the fungal identification? Do you need faster—even same-day—results, or can you wait a week? Your industrial hygienist can help you navigate these options to optimize the bang for your sampling buck.

Pre-Mitigation Microflora Assessments

A pre-mitigation assessment assumes that mitigation is going to take place. It is likely that visible water damage and/or mold growth have already been observed. In this case, the inspector will carry out the assessment in much the same way as the ambient assessment, with all of the same elements of investigation described above, but with even further emphasis on identifying and quantifying the areas of concern to be mitigated and the potential contributory sources to be resolved. The industrial hygienist should also provide a detailed, site-specific scope of work for the mitigation contractor to follow in order to fully mitigate all of the areas of concern.

Post-Mitigation Microflora Assessments

After the mitigation work has been done, it is tempting to breathe a sigh of relief and assume the mitigation and cleaning work have been performed successfully. We recommend that the project not be considered a wrap, however, until a post-mitigation inspection and final clearance sampling survey have been conducted. Beyond providing peace of mind for the occupants, the post-mitigation assessment also reduces the risk assumed by the community association. 

The same investigative elements as in the ambient and pre-mitigation inspections are employed, but with emphasis on assessing the completeness of the mitigation and cleaning activities, making sure there is no remaining visible mold growth, and confirming the absence of mitigation-related dust and debris in the work areas. An airborne fungi sampling survey should then be conducted to confirm that the indoor air quality is normal, with the total fungi concentrations in the indoor samples similar to or lower than that of an outdoor sample and expected background concentrations, and with the types of fungi identified indoors representative of normal outdoor air. Once these criteria have been met, we can be confident that the mitigation work was adequately performed.

In order to avoid a real or perceived conflict of interest, we recommend that the industrial hygienist or other inspector you hire to conduct any of the above assessments be a third party, entirely independent from the mitigation contractor. With these steps in mind, handling a mold concern need not be a confusing hassle. Instead, it can be an opportunity for a community association to shine.

By Michael J. Lowder, Esq., Benson, Kerrane, Storz & Nelson, P.C.

No one wants to find out that there may be construction defects in their home or community. Unfortunately, construction defects happen, even though local building departments inspect construction projects and most developers take steps to avoid them. Fortunately, as long as you act quickly to resolve construction issues with the developer of the community, homeowners and community associations can typically get construction defect issues resolved, even if the developer has gone bankrupt or out of business.

Tick-tock: Don’t Let the Statute of Limitations Bug Bite!
Generally, a property owner must make a claim for construction defects within two years after they first notice a symptom of a problem. That two-year clock can start even if you do not know that the symptom is a construction defect, and even if you do not know the cause of the symptom.  

For a community association, a report of a problem in an email to a board member or the community manager, or discussion of an issue in meeting minutes can start that two-year clock, so it is important to pay attention to reports of any problems that could be related to construction.  

An example of such a problem might be a homeowner reporting in an email to the community manager: “There’s a lot of ice in the concrete gutter of the alleyway. Can you have someone salt there?” This could be the symptom of a construction defect (inadequate slope of asphalt or concrete) and could start the two-year clock.

So, any time that you have complaints about issues in the community that might be related to construction, it is crucial to keep track of those issues so that you do not let too much time pass and lose your claims.

Working With the Developer.
When construction problems come up, property owners and community managers usually turn to the builder to resolve the issues. While this can be a good first step, there are three things to keep in mind while you work with the developer.  

First, developers sometimes will ask you to sign a “release” of claims in order for the developer or builder to fix the construction issues. Developers may ask for a “full and final release” of all claims. If you sign this type of release, you are releasing the developer for all potential claims you may have against it, even issues that you do not even know exist.  

For example, you may have an issue with concrete spalling, and the developer agrees to fix it if you sign a full and final release of all claims. You sign the release, the concrete gets fixed, and then a year later, you discover that the developer installed the pool heater incorrectly, or that the roofer did not properly flash the roof vents. Since you signed the full and final release in order to get the concrete replaced, you waived your claims related to the pool heater and the roof vents. Therefore, it is important to be very careful about any release the developer asks you to sign. You may want to have it reviewed by an attorney.

The second thing to keep in mind is that property owners and community managers often have the misunderstanding that working with the developer to resolve issues stops the two-year clock, and your claims will not expire. Unfortunately, under Colorado law, “working with the developer” does not stop claims from expiring. Therefore, it is essential to pay attention to any time that passes after the symptom of the defect is first noticed.  

“Working with the developer” can take time, and you do not want the two-year clock to run out while you are in this process. If the two-year period expires and you do not resolve the issue, then you may not be able to pursue formal legal action against the developer anymore. If you want to work with the developer for an extended period and do not want to worry about your claims expiring while you do so, ask the developer to enter into a written tolling agreement to toll (pause) the statute of limitations or repose.

Finally, you want to make sure that whatever repairs the developer is willing to perform will actually fix the underlying problem, and not just cover up the problem or delay symptoms temporarily. It is wise to consult with a contractor or engineer before accepting any repair the developer offers.

“But It Passed Inspection?!”
There isa common misconception that if a home or a community passes the inspections by the local building department, it was built correctly. Unfortunately, this is not always the case.  Building inspectors simply cannot look at every condition in every location on every building, and building inspectors sometimes fail to spot construction defects and building code violations. Building inspectors perform a function similar to the police: they catch some violations, but they do not catch every violation.  Just as citizens are expected to obey the law, whether or not they are caught by the police, developers and builders are expected to follow the minimum standards of the building code, regardless of whether a building official finds a building code violation.  

No Money in the Bank?
Another common misconception is that if a developer goes bankrupt, or is out of business, homeowners have no recourse. Fortunately, that is not always the case. Even if a developer is out of business or has declared bankruptcy, owners and community associations with construction defects may be able to recover funds to make repairs from the developer’s insurance company, based on insurance policies the developer bought during construction.  

Construction defects do not need to be a headache. If you stay on top of the issues in your community and remember to be vigilant with the passage of time, you can put your community in a great position for long-term stability, even in the face of construction defects.

Michael J. Lowder is a senior associate attorney at Benson, Kerrane, Storz & Nelson, P.C.  Michael represents property owners and community associations suffering from construction defects throughout Colorado and Minnesota, and also serves on CAI-RMC’s Programs & Education Committee.

By Adam T. Brown, Esq., HindmanSanchez P.C.

As the saying goes, an ounce of prevention is worth a pound of cure. 

Whenever a client asks for our assistance in handling a contract dispute with one of the association’s vendor’s, one of the first discoveries we make is that the client did not request a legal review prior to entering the agreement in the first place. In many of these cases, the agreement is either poorly drafted altogether, or contains one or more provisions which would have prevented us from recommending that the Association enter the agreement without further changes. 

Unfortunately, if proper legal review of a contract is not completed ahead of time, it often locks the Association into unfavorable provisions which hinder their options once a dispute arises. Whether an Association makes this decision due to the legal fees they may incur in the due diligence, or for any other reason, it can often result in major financial and legal consequences to the Association once a dispute arises with the vendor, which may have been avoided altogether if a proper legal review had been conducted. 

Two of the most common problematic areas we see when reviewing contractor agreements involve provisions related to the term and termination of the agreement, as well as the attorney fees provisions. 

Poorly-written or inflexible termination provisions are one of the most frequent culprits of frustration in any contract dispute. For instance, many contracts have automatic renewal provisions that automatically lock the Association into another term of years if not terminated properly. Other termination provisions may provide only a limited window of time prior to the end of the contact within which the Association must send notice of termination, or lose their chance entirely. 

As an example, one of our clients had a waste services agreement in place, which provided for an initial term of five years under the agreement. For the Association to terminate the agreement, it was required to provide notice anywhere from 90-180 days prior to the end of the contract termination date, and if notice was not sent during that timeframe, the agreement was to be automatically renewed for an additional five-year term. Because our client did not give notice during the proper timeframe, the agreement was automatically renewed and prevented them from terminating the agreement for another five years

As a general rule, for most contracts we recommend that termination is permitted at any time during the term of the contract, with or without cause, upon either thirty or sixty days’ written notice. However, in some certain instances more stringent requirements will be needed. In any case, we always recommend that our clients negotiate with the vendor to modify inflexible termination provisions, and often we will not recommend signing the agreement altogether unless the termination provision is replaced completely. 

In addition to poor termination provisions, another problematic area tends to be provisions regarding attorney fees. Attorney fee provisions can make or break the Association’s ability to effectively manage a contract dispute and/or litigation. In most cases, a proper attorney fees provision should include language in which the prevailing party is awarded all costs and attorney fees at judgment. However, many contracts do not provide any provisions at all related to attorney fees, which means that even if the Association does end up successfully pursuing damages against a contractor, they will also have to pay the attorney fees expended in recovering those damages. While there are certain attorney fees that may be awarded by operation of statute in some cases, we always recommend that the contract itself provide this. 

The termination and attorney fees provisions are just two examples of provisions which could drastically alter an Association’s ability to have recourse against a vendor, even when the Association has otherwise upheld its end of the contract and done everything correctly. 

We encourage our communities to budget the cost of legal review for any contract they may enter into in a given year. It is much more beneficial to all parties involved if disastrous results can be avoided later on by undertaking this minor due diligence at the outset of negotiations with a vendor.  

Adam Brown is a transactional attorney at HindmanSanchez P.C. and specializes in representation of Homeowners Associations and Community Association law.  Please visit www.hindmansanchez.com for more information.

By Peak Pro Painting

The purpose of exterior painting is to protect your building or home. While changing the colors may be exciting for residents and homeowners, the aesthetics of a paint project are the least important aspect when starting the process. Each project may be different but the steps to a finished product are all the same. 

Prior to painting, we start with the most important part of a painting project: the preparation process. There are a few steps in the prep process that are significant to assuring the protection of the building or home.  

First there will be a power wash to make sure there is a clean surface to apply paint properly. Caulking is used in a few different ways to help protect the project. Over time, caulking around window trim and doorframes begins to weather and crack because of the constant exposure to the elements. It is crucial to seal these areas so moisture does not get into the wood and cause dry rot.  

Next, counter sunk nails will need to be sealed with caulk as well. Sealing counter sunk nails prevents moisture from getting into the area to avoid nails from oxidizing and causing rust stains. It also stops water from sitting in those countersunk areas. After caulking these areas, painters will be begin to focus on peeling and chipping paint. These spots must be scraped of all loose paint before feather sanding. The feather sanding is used to create a surface for the primer to anchor itself. It is necessary to prime any areas of bare wood because the wood needs to be protected from the elements and the paint needs a strong surface to latch on to. It is essential to make sure your contractor is taking these steps because whole-siding and trim replacement is a lot more expensive than taking the detailed steps of preventative maintenance on a painting project.

Along with the prep process, there are other ways to protect your property from the harsh Colorado winters and summers. The effects of the four seasons in Colorado often cause properties to be damaged a little quicker, unlike other areas of the country. It is usual for Southwest facing sides of properties to get eight to twelve hours of sunlight per day. While it is impossible to prevent fading to occur over time, there are ways to help protect the sides of the property that get the most sun. Prior to painting, a full coat of primer on the siding and trim will add an extra layer of protection from the elements.  

The finished product of a painting project should have the property’s infrastructure protected from moisture and other elements.  

And one final note…painting can and will beautify the homes as well! 

By Bryan Farley, RS, Association Reserves - Colorado

Will it be the carrot… or the stick? This is an age old question that establishes the best way to motivate people to do something that they may not want to do. Is it best option to string along a carrot in front of someone’s nose to move in the right direction, or is it best to utilize some form of punishment to steer them to correct their course?  After 30 years in this industry educating other professionals, clients, and prospects how to make wise decisions with respect to Reserves, we at Association Reserves believe that in it may be best to change behavior by providing a financial reward.

While it’s hard to dispute the adage, “In real estate, only three things matter: location, location, and location” there are actions a community association board can and should take to enhance the value of its owners’ homes. For most homeowners, housing is their largest single asset. Most board and owners focus on increasing their home values. A board that acts to maximize home values makes a large and lasting difference in the financial best interests of its members.

So what can a board do?

Budget accurately & honestly (Operating and Reserves)

Assess the funds necessary to maximize curb appeal, minimize or eliminate (costly) deferred maintenance, and thrive. A dated lobby or a regularly broken entry gate leaks more money than a broken pipe. Fortunately, the result of slightly higher assessments (hundreds of dollars per year) is rewarded with thousands of dollars of improved home value. Imagine driving into neighborhood with two neighboring associations on either side. The property on the right has a degraded parking lot, letters missing from the entry monument, and paint peeling off the balcony rails. On the left side you see a property with a well paved parking area, well painted exteriors, and an inviting landscaped  appearance. Obviously, one of the two properties has adequate funds to cover the basic ongoing repair and replacement responsibilities and most likely higher home sale values. 

Avoid special assessments

 Special assessments are disruptive and divisive and in most cases are predictable years in advance. Real Estate agents familiar with your neighborhood know what goes on in your association and they discourage strong sales offers for homes in associations with a history of special assessments. How do you know if your association is at risk for a special assessment? On average, an association that is a 30% funded or less has a risk of special assessment anywhere from 18% to 50%, whereas an association 70% funded and above has a less than 1% chance of special assessment. 

Manage well (professionally and transparently)

The association belongs to the owners, not to the board or management. Create a smooth, well-oiled machine. Publish meeting agendas, minutes, budgets, newsletters, etc. Schedule social events and create a culture of community, with active volunteers being trained up to be board members, all contributing to maximized home values and the improved future of the association. Employ a credentialed manager who helps move the association forward, not just a professional “babysitter”. Treat Real Estate agents as your sales representatives, not adversaries. All of these things take time or money, but a healthy, well-run community is inviting. Buyers will pay more to join such a welcoming community.

Hire knowledgeable business partners

Remember that your goal is not to save a few bucks here or there, your goal is to raise home values by thousands of dollars. Use business partners and vendors who are experts in their field, familiar with community associations, and who are appropriately licensed or credentialed. Think of your association as a team. Only hire “varsity” players, all-stars who can contribute to your success.

Much of the above is just general good advice, but we at Association Reserves have been able to conclusively measure the influence of one specific aspect of association behavior on home values. In a controlled study recently completed, Association Reserves found that home values in associations with well-funded Reserves (above 70% Funded) averaged 12.6%higher than similar homes in associations with poorly funded Reserves (0-30% Funded). Well-funded Reserves mean maximized curb appeal instead of ugly and budget-draining deferred maintenance and a history of special assessments. “Strong Reserves” typically exist in associations that are managed well. The evidence shows that buyers are willing to pay more for homes in a well-run and financially stable association. It may cost an extra $20 to $60/month in homeowner assessments ($240 to $720 per year), but it leads to increasedhomevalues. A 12.6% increase in a $325,000 condo is a sweet $40,950 increase in value. What a tremendous return on investment from an owner’s additional $240 to $720 per year. Now that’s a nice financial incentive to string in front of one’s nose. 

Bryan Farley (RS #260) is the president of Association Reserves – Colorado. Bryan has completed over 1,000 Capital Reserve Studies, and is a frequent speaker and author on the topic of Reserve planning for community associations. 

By Maris S. Davies, Esq., HindmanSanchez

Special assessments are an inevitable fact of life for associations.  Every association has a moment in time when the board comes to the conclusion that: (1) the association has failing infrastructure and cannot afford to pay for a greatly needed overhaul; (2) the association has a sudden expense it cannot cover (such as large insurance deductibles); or (3) the association would like to undertake new capital improvements for the community to update the community, but does not have the funds to do so.  One potential way to resolve monetary shortfalls is to levy a special assessment against the homeowners in the community.  A special assessment is typically assessed against all or a portion of the homeowners in a community to finance major projects or unanticipated and unbudgeted expenses, including but not limited to the scenarios above. 

When first deciding whether or not levy a special assessment a thorough review of the association’s declaration and all amendments to the declaration is necessary.  The first question that must be answered is does the declaration even allow for a special assessment at all?  Assuming it does, an association must consider the following: (1) does the special assessment provision in the declaration provide the board with the power to levy an assessment for the specific issue at hand; (2) does the special assessment provision require a vote of the homeowners, or can the board levy the assessment with approval; (3) how much will the special assessment be per unit; (4) can the board afford to allow interval payments over time or must the assessment be paid in one lump sum; and (5) if the payment must be made in a lump sum, can the homeowners in the community afford to make it?

While a special assessment may be beneficial, and potentially necessary, for an association, the initial response from the homeowners will likely be negative and potentially coupled with pushback based on the amount and/or the proposed use.  Unfortunately, this is a typical response.  Assuming the association must secure the vote of the homeowner to move forward with the special assessment (which is typical), the best way to address this initial reaction from the homeowner is to be upfront and transparent about the need for the funds, to have open lines of communication with the homeowners, and to get the homeowners involved in the decision making process.  In addition, an association should strive to provide the homeowner with a payment schedule, or tentative payment schedule, as early on as possible in the process so as to allow a homeowner to budget and/or make arrangements to secure the funds.  The association should also be open to reducing the scope of the assessment if necessary, i.e. outlining the ideal situation, the bare minimum, and then finding some middle ground that accomplishes the association’s goals but will still be approved by the homeowners.  

 

Special assessments are an extremely helpful mechanism to secure funds in a precarious situation; however, special assessments are reactionary and associations should take steps to properly budget and fund their reserves so as to avoid special assessments related to unexpected events.  Proper planning both now and for future expenses is paramount.  If the association’s declaration does not contain special assessment language, and the association is a pre-Colorado Common Interest Ownership Act (“CCIOA”) community (i.e. created prior to July 1, 1992) a declaration amendment would be necessary to create the power to levy special assessments.  If the association is a post-CCIOA community (created after July 1, 1992) and the declaration is silent with respect to special assessments, the CCIOA budget process applies.  If the board follows the budget process and the special assessment budget is ratified by the owners, the board may move forward with the special assessment.  

  

Maris Davies is an attorney at HindmanSanchez P.C. and specializes in representation of Homeowners Associations and Community Association law.  Please visit www.hindmansanchez.com for more information.

By Bryan Farley, RS, Association Reserves - Colorado

As the population in Colorado continues to grow a steady rate, one may notice the many new housing developments, high rises, and condo complexes popping up around the state. These properties look great, with fresh paint on the walls, roofs that do not leak, and elevators that work when called. However, within a few years these buildings will start to experience the same issues that plague every other building in the area, asset failure. 

This dilemma is not only limited to new projects, but also to older buildings that have just undergone a renovation or remodel. In fact, all new construction will experience a state of deterioration once the project has been completed. 

How can owners be motivated to raise Reserve Contributions after the board just special assessed the owners to fund the remodel? How can a board of a brand new condo building justify raising Reserves when the majority of the owners closed on their units six months ago?

The answer of course is that as soon as the new construction has been finalized, the assets will begin to decay and deteriorate at a predictable rate until all of the assets have failed completely. However, the assets will not all fail at the same time. For example, the roof may last twenty-five years, but the carpet may only last eight years. If the failure and replacement of the assets do not occur at the same time, how will the costs of these assets be evenly distributed throughout the life of the building? 

It is only fair that each owner pay for the predictable deterioration of the assets that are gradually deteriorating each month/quarter/year. That is fundamentally what a Reserve Study attempts to help owners accomplish, take all those irregular Reserve expenses and distill them down to a steady deterioration rate that the association can then offset be collecting contributions from all the current owners in order to keep pace with the ongoing deterioration of the common area.

That is why the Reserve contribution rate recommended in a Reserve Study is not for a future expense that is some other unlucky person’s problem. The recommended Reserve contribution is designed so each homeowner pays a fair share of ongoing Reserve component deterioration during the months and years that they own in the association. It’s only fair. In fact, it is unfair for any current owner to pay less than ongoing deterioration, forcing some unlucky future owners to over pay due to past under-reserving.

Moving forward, how much should current owners contribute to Reserves? In our experience, “adequate” Reserve contributions typically make up anywhere from 15% to 40% of an association’s total budget. The cost of Reserve component deterioration can be expensive, so there are ways to minimize your Reserve contributions:

• Make sure your Reserve contributions are calculated using the “cash flow” computation method (resulting in fairer, smoother, and lower contributions)
• Maximize the interest the association is receiving on the Reserve account (if possible)
• Perform timely maintenance in order to extend the life of your reserve components

Reserve components are expensive and are deteriorating every day. A Reserve Study will provide guidance on how much money will be needed each year to pay for the ongoing asset failure. Each year, owners should hire a professional to review and update their Reserve Study. 

By commissioning a Reserve Study, a board takes the first step toward a calmer and proactive future. Prudent planning for inevitable repair and replacement costs will benefit future owners, but present owners benefit also. With a Reserve Study boards and managers can help the present generation of owners understand that they, too, can enjoy their share of the benefits of prudent reserve planning.

Bryan Farley (RS #260) is the president of Association Reserves – Colorado. Bryan has completed over 1,000 Capital Reserve Studies, and is a frequent speaker and author on the topic of Reserve planning for community associations.