Reserve budget advice

6 Ways to Use Your Budget as a Catalyst for Change

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In today’s chaotic world, we are all searching for more meaning – whether it’s in our personal or professional lives, or both. Relevancy is important, and our impact is the measurement of that relevancy.

While I could give you plenty of advice on how to take a vision quest to find personal fulfillment, in this space, we’ll stick to property management. And in that case, the question to ask is: How can we create a greater impact for the communities we serve?

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Exclusive Common Areas – New legislation taking effect on Jan.1, 2017

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An “exclusive use common area” is defined as a common area that an owner has the exclusive right to use. Common examples of such a space include balconies, patios and parking spaces. Dating back to the Davis-Stirling Act of 1985, this has been a topic of disagreement for some associations, owners and attorneys. Specifically the responsibility of repair and replacement of such areas has been called into question. To understand why there has been such debate, lets take a look at the current legislation.

Civil Code Section 4775 currently states that “unless otherwise provided in the CC&Rs, a community association is responsible for repairing, replacing, or maintaining the common area, other than exclusive use common area. The homeowner of each separate interest is responsible for maintaining their separate interest (their unit or home) and any exclusive use appurtenant (attached or next to) their separate interest.”

So we can see right away that responsibility of maintenance, repair and replacement falls squarely on the associations shoulders. But, it goes on to exclude exclusive common areas, for which owners are responsible for maintenance. Here’s the problem… what about repairs and replacement? It stands to reason that, since not specifically mentioned, this responsibility defaults back to the common area definition. Most industry experts have subscribed to this line of thinking, which places responsibility of maintenance with the owner but repair and replacement with the association.

This new legislation states, once and for all, that the association is responsible for repairing and/or replacing the exclusive use common area.

Over the years, many managers, board members and even attorneys have come up with their own interpretations and have assigned responsibility to homeowners. It goes without saying that they were not happy to see this new legislation, which is sure to create more obligations for the associations. This is why the new legislation will not go into effect until January 1. This will allow such associations to get themselves and their owners ready for this change.

5 Tips for Better HOA Board Meetings

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HOA board members have a tremendous amount of power and with that power comes responsibility to exercise it correctly. A big part of this is how you and your fellow board members conduct yourselves when it comes to planning and conducting association meetings.

It’s not surprising that emotions run high when it comes to people’s homes and ultimately how they function within their community. An HOA board that conducts business in a fair and transparent manner can bring reason to a potentially volatile situation.

Here is a list of 5 ideas that can contribute to smoother meetings:

1) Transparency is paramount

This is first on the list because it’s arguably the most important factor. Homeowners who feel like they are being kept in the dark will be the first to cause friction in your community.

The first thing you need to do is commit yourself to open meetings. Everyone should be invited and(take this word out) to participate and everyone should be privy to the findings of each meeting. Go out of your way to make sure this message is heard loud and clear. Also make sure to never conduct business outside of official meetings. Remember: Owners in the loop are happy owners. Happy owners participate in effective meetings.

2) Participation is key

Feel free to get creative here. The idea is that the more people you have present at your meetings, the fewer people will feel unrepresented and thus take issues with the outcomes. Save yourself some headache and get owners to the meetings.

Offer food, activities, raffles, and guest speakers… you get the idea. HOA meetings are notoriously dry. Try your best to make them fun! You will be rewarded with an increase in participation and a decrease in drama.

3) Always have (and stick to) an agenda

Everyone has heard the advice “If you fail to plan, you plan to fail.” This is especially true when it comes to HOA Board meetings. Having an agenda will allow members and owners to come prepared to discuss the most important issues.

If you do not have an agenda, you can expect anything and everything to come up and you will inevitably have a hard time keeping the meeting on track. If by some miracle you are able to do so, you will most likely end up with hurt feelings. Cutting someone off or ending a conversation without an agenda is often taken as a personal attack. Conversely, with a clear agenda, any conversation that deviates can be easily curtailed without hurt feelings.

4) Meeting Minutes

Always document the attendance items discussed and the outcomes at each board meeting. This is commonly referred to as “meeting minutes.

Here are some tips for taking better meeting minutes.

5) Communicate with your property manager(s)/board members

Often times there is friction between HOA boards and the property manager. The most common cause is miscommunication and /or lack there of. This leads to issues falling through the cracks and results in the blame game. This is a sensitive relationship because the responsibilities of the two parties are often similar and may even overlap. Therefore, timely and effective communication is key.

7 Facts About Your HOA CC&Rs

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Covenants, Conditions and Restrictions (CC&Rs) are rules and limitations that govern on a group of homes (aka a community). Typically they are established by the developer, neighborhood association and / or homeowner association (aka HOA) to protect, preserve and/or enhance property values within the community.  They might, for example, prohibit owners from parking their cars on the street or watering the yard on certain days.

It’s an official document that governs every HOA and every homeowner agrees to these terms (whether they realize it or not) when buying in to the community. Even so, it remains a widely misunderstood topic. In light of this, we’ve put together a list of 7 facts to consider.

Read more: CC&Rs – What are they and why should I care?

Let’s jump right to it:

1) When CC&Rs are filed with the county recorder, they become public documents, meaning anyone can see a copy.

2) It does not matter whether you read or understand it, once it is recorded, a CC&R becomes a contract that binds all owners. The law only guarantees that it is available to you – it’s your responsibility to read and understand it.

3) CC&Rs are often distributed in unrecorded or “draft” format. The official CC&Rs will have a recording number from the county recorder on each page. Make sure you have read and understand the official, recorded document.

4) It does not matter how “unreasonable” you or a court finds the CC&Rs. They will be presumed enforceable by a court unless they are in direct contradiction with the law.

5) Typically, CC&Rs are amended by a vote of all board members and can be amended in three particular circumstances: To remove discriminatory language, amend developer access rights, and to update statute number references to the new Civil Code numbers. Such amendments are approved in an open meeting and must to be recorded.

6) Be aware – sometimes CC&Rs are labeled as as a “maintenance agreement”, “declaration of trust” or something else entirely. The title of the document is not important. Be sure that it is officially recorded on all of the properties in the association.

7) Modern CC&Rs either have no expiration date or automatically renew. In the past, developer attorneys would draft CC&Rs with expiration dates. Do not let your CC&Rs expire if they still have a set date – renew the document and then amend any expiration date out.

The Hidden Cost of Hardwood Floors for HOAs

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Hardwood floors can increase property values in condo units by improving the aesthetic value and helping to alleviate dust allergies. This may seem like a no brainer but many homeowners are shocked to find (often after it’s too late) that this is a restricted and sometimes prohibited upgrade to their unit.

But why? What’s not to love about hardwood as an alternative to carpeted flooring?

The biggest complaint comes from lower units about the increased noise coming through the ceiling – often referred to as “sound transfer”. Many homeowners have not considered their flooring upgrade as a nuisance to neighbors but the fact is, hard wood amplifies the sound of footsteps – especially when high heels and running children are involved. The last thing anyone wants is to tip toe in their own home.

For this reason, HOAs have the legal right to require written approval before the installation of hardwood floors. More specifically, the CC&Rs often restrict owners from altering units in a way that would increase sound transmission to any adjoining unit, including, but not limited to, the replacement or modification of any flooring or floor covering that increases sound transmission to any lower unit.

Failure to get such upgrades approved before installation can result in legal battles. In the past, requiring the top unit to place throw rugs over much of the floor, adding an insulation sound barrier or even the reinstallation of carpet flooring has settled such disputes.

At first glance hardwood flooring seems like a homer, but upon further inspection, it’s easy to see why it’s such a hot button issue and is important to keep in mind for homeowners and HOA boards alike.

Cat Ownership and HOAs

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At what point to cat lovers become cat hoarders? This has long been a debate in many communities around the country. Recently, the Los Angeles Times reported that the Los Angeles City Council is considering an increase in the number of cats residents can harbor in a private residence from three to five.

As an HOA, it’s easy to see why this is potentially problematic. At some point, owners are unable to adequately care for their furry friends. This leads to sanitation issues and often has neighbors up in arms – particularly about cats living all or part time outdoors.

But, according to the article, the proposed rule change is primarily about saving cats, not encouraging cat hoarding. “We want to give loving community members an opportunity to become part of the solution by adopting and/or fostering altered shelter cats in their homes,” said Brenda Barnette, General Manager, Los Angeles Animal Services.

The proposed change in the law would allow a person with five cats to have no more than three cats that live part or all the time outdoors. Two of the cats would have to live indoors at all times. Most agree the problem is that the rule is not easily enforceable, if at all.

HOAs, fret not!

Your CC&Rs supersede any ruling on this case. in fact, most communities have long since had more strict rules regarding pet ownership. Furthermore, just because the city law says that an owner can have outdoor cats, does not mean that residents in a community association can allow their cats to roam an association’s common area.

At first glance this proposed change from the allowable three to five cats may seem problematic for HOAs. But there is no reason to worry as long as your CC&Rs are in place. Now might be a good time to revisit the pet section!

4 Tips for Homeowner Participation in your HOA

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We often come across HOAs that are struggling to handle disagreements, complaints, or controversial topics that are voiced by homeowners.

This is normal.

Just like a big family, there are going to be disagreements – many of them, in fact. The trick is how you deal with it. Sometimes the problems can even seemingly be boiled down to one disgruntled homeowner who shows up to each meeting to do nothing more than complain and disrupt the agenda.

But let’s take a closer look… in the mirror. Sometimes the problem is staring you right in the face.

The truth is that the overall attitude and behavior of the Board / Manager can either quell or exacerbate such problems in a hurry.

The problem is this underlying assumption many Boards make (whether they will admit it or not):

When owners show up at the meeting, there must be trouble. But if owners avoid the meeting, then they are apparently content with the Board’s decisions and the meetings will move smoothly and efficiently.

Then when reasonable owners show up at a meeting with valid points, they are treated as uninvited guests or worse – troublemakers. This underlying assumption that owner participation is something to be feared and avoided is the actual problem.

With this in mind we’ve put together a short list of suggestions about how to embrace homeowner participation:

1) Set the tone early

Always set ground rules for discussion from the start. Let the group know when they may address the Board, how much time they will have to speak, and set clear rules for speaking in turn and how to end the discussion.

2) Keep an open mind

Comments and participation are often not complaining but are taken as such because it creates more work. Give everyone a fair shot. Listen to their concerns and, most importantly, look at the issue from their point of view. You might find a very valid perspective that has never been considered.

3) Slow Down

Never rush to provide an answer or vote on a particular issue. It may be best to take more time to consider alternatives or do additional research, and revisit the matter at a future meeting. At the very least, this shows owners that their voices were heard – even if they don’t get the outcome they were looking for.

4) Lead by example

Most importantly, positive interaction at meetings starts with setting the right tone for the HOA as a whole. Be open and transparent with members. Be respectful and communicate regularly. Encourage owners to attend meetings, rather than seeking to avoid them.

If the board members come to understand that meetings are positive experiences, there will be greater participation and far less chaos.

Personal Agriculture and Your HOA

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On January 1, 2015, AB 2561 added Section 1940.10 and 4750 to the Civil Code. What’s important to know is that Section 4750 grants homeowners in HOAs the right to utilize their backyards for “personal agriculture.” More importantly, this right supersedes any provisions in a HOA’s governing documents that restrict or prohibit such use.

But, don’t worry. As an HOA, you still have some authority to restrict and regulate personal food gardens.

Let’s take a look:

1) Personal Use/Donation Only – The yield must be for personal consumption or donation. Anything being grown for commercial purposes can be lawfully prohibited.

2) The same goes for Marijuana or other unlawful substances – These do not fall within the definition of “plant crop” and as such can be prohibited entirely.

3) The crops can only be grown on the owners property and may be prohibited in common areas.

4) You may impose “reasonable restrictions” on the use/maintenance of homeowner’s yard for personal agriculture. as long as they “do not significantly increase the cost of engaging in personal agriculture or significantly decrease its efficiency.”

5) Section 4750 does allow you to require that “dead plant material and weeds, with the exception of straw, mulch, compost and other organic materials that encourage vegetation and soil moisture retention, be regularly cleared from the backyard”.

Homeowners now have more rights when it comes to personal agriculture but, as an HOA, you still have the ability to ensure that it’s done responsibly, without degrading property values.

Effective January 1, 2015, There is a New Law Impacting the Installation of Solar Energy Systems

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Under Civil Code Section 714, a Homeowners Associations in California can legally restrict an owner’s installation and use of solar energy systems – so long as the restrictions do not significantly increase the cost of the system or significantly decrease its specified performance or efficiency. Until December 31st of 2014, “Significantly” was defined as increasing the costs of the system by 20% or decreasing the efficiency of the system by 20%.

AB 2188, which became effective January 1, 2015, redefines what reasonable restrictions an Association is allowed to require and, in doing so, amends Civil Code Section 714.

Most importantly, the new law reduced an HOA’s ability to restrict solar energy systems installed by members in half.

A significant increase in the costs of a system is now anything north of 10%, and a significant decrease will now mean a reduction in the efficiency of the system by 10%.

The result – HOAs must now be even more careful with the conditions and/or limitations it places on owners who wants to install solar energy systems.

The new law also calls for a reduction in the time frame an association has to approve or deny an application for the installation of solar systems. Before, the law stated that if an application is not denied in writing within 60 days of the submission by the member, the application will be deemed automatically approved. Now, the time period has been reduced to 45 days. As a result, HOAs must be even more diligent in their review and consideration of applications for new solar energy systems.

Be sure to keep these changes in mind the next time an owner in your association is considering the installation of a solar energy system!

Making Sense of HOA Budget Components

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Many HOA board of directors use the end of year to set forth their budgets for the following year. But, with a busy holiday season, it’s easy to procrastinate (you know who you are!). Whether your board still needs to take a hard look at this year’s budget or has already done so, we’ve outlined a few commonly misunderstood components to help make financial planning less painful in the future.

Reserves

As a HOA you’re required to maintain and determine the cost to rebuild, repair, and replace building components when the time comes. This is especially important for heavy hitters like roofing, siding, HVAC, paving, swimming pools, clubhouses, etc.

A good Reserve Study will help your community protect property values and plan for the future. It provides a road map for how much money your HOA should be setting aside into reserve accounts to meet these needs when the time comes. Performing a Reserve Study and following its findings will help you avoid hitting owners with surprise special assessments in the future.

Drop us a line to learn more about Reserve Studies or request a free, no obligation quote.

Contingencies

Always set aside funds for unexpected expenses – aka “contingencies.” The most common of which are repair costs for common areas that are not covered by insurance. “Bad debt” is another offender. Collecting 100% of assessments is rare. Use past data from prior years to determine this year’s allowance.

Capital Projects

Many boards focus their efforts only on the operating budget. But, you should also make sure your budget discloses expected capital expenditures for the coming year.

Things like replacing the roof, installing a new swimming pool, or refurbishing a clubhouse are all expenditures that should be reflected in your budget.

Read More:  Fund Reserves by Cutting Your HOA Budget