This is one of the most frequently asked questions involving community associations. It can come up at 2 a.m. after a dishwasher flood has damaged four units; when a townhome development is re-roofing and owners want to know who will pay for the work; when an owner’s uninsured contractor makes a hole in a pipe and causes a flood in another unit; or when mold is found because of leaks in common areas.

The question has no easy answer and usually generates heated emotions between neighbors and even board members. Here are some general principles that may help you sort out the answer.

What Do the Governing Documents Provide?

The first place to look is in the HOA’s Declaration of Covenants, Conditions and Restrictions (CC&Rs). The most helpful provisions will usually be the following:

  • Definitions –Is the area in question a common area, exclusive use common area or a separate interest? (In a condominium, the separate interest is a unit. In a planned unit development, it’s the lot and the residence.)
  • Division of Property –This section often explains who owns and maintains various areas of the development.
  • Owner Maintenance Responsibilities – See what it says about the owner’s maintenance responsibilities.
  • Association Maintenance Responsibilities – See what the CC&Rs say about the HOA’s maintenance responsibilities.

Reviewing these provisions will answer a high percentage of questions about who must pay for various items. If your CC&Rs are unclear about specific areas, this should be addressed when you revise your governing documents. The attorneys who prepare the revisions may not be as familiar with your building as you are; so be sure to bring any ambiguities about this subject to the attention of the attorneys who are preparing the revisions.

Defining What’s Common to Your Condo or HOA

Most people buying a condominium, or a single-family home understand the basics – you’re buying a unit or a house, and you have to pay monthly dues to cover the general maintenance expenses. But what is considered common?

  • Common Area – In its broadest definition, is the area which is available for use by more than one person. HOAs generally are responsible for the care and maintenance of common areas and recreational facilities on the plat.
  • Common Element – A common element is normally defined as all parts of the condominium other than the units themselves. A limited common element is a common element that is restricted for the exclusive use of one or more but less than all of the unit owners (such as a balcony). It is extremely important to understand not only what the limited common elements are, but also who pays for their maintenance and upkeep, and whether there are any restrictions on their use.

Insurance Considerations for Owners in Associations

The CC&Rs most often require a community association to purchase insurance for the common areas. The community association will purchase “property insurance,” which covers the common areas if they are damaged by an insured peril, such as a fire or windstorm. The HOA will also purchase liability insurance, which will cover damage caused by the homeowner association’s negligence. Many times, damage to the common area will be covered by one or both of these policies. Most policies define common area in the same way it is defined in the CC&Rs.

However, HOAs should have a written policy, or a CC&R provision, setting forth who pays the deductible in various circumstances. Usually, if the HOA was negligent, or if no one was negligent, the association pays the deductible. If the damage originated in an owner’s unit, then often, the owner is asked to pay the deductible, whether or not the owner was negligent.

Insurance does not cover all possible damage, however. What happens if an owner does not have liability insurance and he hires an uninsured contractor to do work in his unit? It’s not uncommon for a contractor to damage a common area, such as a water pipe or HVAC unit in a ceiling, and cause flood damage to other properties.

The homeowner association’s property policy won’t cover the separate interests. The HOA’s liability policy won’t cover it either – the association did nothing negligent. The owner who hired the contractor is liable, but if the damage is hundreds of thousands of dollars, which can happen, neither he nor the uninsured contractor can afford to pay. Sometimes the individuals whose separate interests are damaged are underinsured. This can result in owners, who are innocent victims being displaced for months, having all their property destroyed, with no good source of obtaining payment. For this reason, although it’s hard to enforce, some homeowner associations amend their CC&Rs to require all owners to purchase liability insurance. Others at least strongly “urge” owners to do so for their protection.

Sometimes, determining who pays for what in a community association is a challenge, and the answer is unpopular among those affected. The best ways to avoid these problems are the following:

  1. Amend your CC&Rs to make the solutions to these problems as clear as possible, if it is warranted, or your documents need to be updated.
  2. Require or encourage each owner to obtain his/her own liability insurance and adequate levels of property insurance.
  3. Adopt clear policies about who pays the insurance deductible.
  4. Know what you as an owner are responsible for before you buy your home or condominium.

At Beacon Management Services, we work with builders from the inception of a community to develop comprehensive governing documents. Learn more about our builder and developer services: www.beaconmanagementservices.com/builder-and-developer-services.