These are some of the most frequently asked questions regarding the operation of a Homeowners Association.
There are generally two areas of the annual budget:
- the Operating accounts for utilities, landscaping, legal fees, common area maintenance etc.;
- and the Reserve accounts for future (long term component) replacements such as exterior painting, re-roofing, re-paving, pool resurfacing, replacement of mechanical systems, etc. The individual assessment amount is usually determined by the number of units, homes or town homes built within a given Association. Thereafter, the Board of Directors of the Association determines the needs of the Association and the ensuing budgets (with the assistance of the property manager).
To summarize, your monthly assessment covers the operation, maintenance and repairs for which the association is obligated in accordance with the Covenants, Conditions & Restrictions (CC&Rs). Items such as insurance, taxes, water, electricity, refuse collection, landscaping, pest control, security services, janitorial, etc. are just a few items covered by the monthly assessments.
A portion of your monthly assessment should go towards funding the reserve account, which is for future repair or replacement of major components. Think of a reserve account as a savings account for a rainy day. Roof repair, pool/spa resurfacing, fencing, painting, floor covering, mechanical replacement (i.e. sump pumps), major mechanical systems repair, etc. are just a few of the long term components that are funded via the reserve account. The reserves vary for each community association.
Governing Documents give the Board of Directors authority and direction to govern the association. They consist of:
- Articles of Incorporation – Provide the legal basis for operating within State Corporation Codes.
- By-Laws – Outline how the association shall be governed and deal with the association as a corporation, i.e., elections, assessment collections, terms of office and duties of officers.
- CC&Rs – Conditions, Covenants & Restrictions that deal with the physical entities that comprise the association, i.e., use restrictions, easements, and annexation.
- Rules and Regulations** – Rules and Regulations adopted by the Board of Directors within the guidelines of the CC&Rs.
- Budget – Annual Budget prepared and distributed to homeowners. Your budget consists of anticipated operating expenses for the year as well as an outline of reserve allocations. Operating expenses include utilities, and maintenance of your association’s common areas. Your Reserve Fund is a type of savings account that covers (future) major expenditures and replacements (i.e., roofs, painting, pump/motor replacement, major mechanical systems, etc.).
- Deed to Common Area – You, as the homeowner, own an undivided portion of the common area either through your deed
The Organizational hierarchy of an association consists of:
- Board of Directors establishes policies and procedures.
- Management Company executes policies and procedures as established by the Board of Directors.
- Committees research and make recommendations to the Board of Directors who then makes the final decision, i.e. Newsletter Committee, Architectural Committee, Rules Committee and Grounds Committee.
- Sub-Contractors are professionals hired to perform services for the association. The Management Company oversees the sub-contractors.
- The Auditors work independent of the Board of Directors and the Management Company in order to provide a fair and impartial audit and review of your association’s finances.
In order to protect your interests in the association, the following types of insurance cover your association. Insurance requirements vary according to your property type and legal documents. Always call upon your Association’s insurance agent when considering purchasing a policy or when increasing or decreasing coverage or deductible. The following examples show various types of insurance available to homeowner associations:
- Property Damage (fire)
- General Liability (common area injuries)
- Directors & Officers/Errors & Omissions (questionable business judgments by your Board)
- Workers compensation** (protects against financial liability caused by injury to employees)
- Fidelity Bond (protects against theft of association dollars)
- Earthquake Insurance (optional)
- Flood Insurance (optional)
**Many associations may not require a workers compensation policy since the association may not have any paid employees (this holds true mostly for small and medium size homeowner associations). Occasional work performed by a plumber, an electrician or a garage repairman – these are services performed by independent contractors and not considered employees of the association (always ask for proof of insurance before allowing an independent contractor to provide services).
The majority of claim-related occurrences are covered under the Association’s liability insurance policy. Consult with your association’s insurance agent (and your association’s attorney) to see whether having a workers compensation policy is necessary for your association. As a general rule, we recommend all Associations carry a workers compensation policy. It is a small price to pay for peace of mind.
- Prepares agenda for meetings.
- Presides at all meetings of the Board and Association.
- Appoints and supervises all Committee Chairs.
- Liaison with Manager.
- Selects and trains Board Members for future leadership positions
- Responsible to control all meetings, keeping them moving, on time, and seeing that decisions are made in an orderly manner.
- Sets positive example for other volunteers.
Members of the Board of Directors should:
- Come to meetings prepared.
- Maintain a professional demeanor.
- Ask questions ahead of time.
- Accept and support the President as leader.
- Put personal issues aside.
- Encourage others to participate by example.
- Be open and fair.
- Avoid surprising other Board Members and/or the Manager at meetings.
- Keep a healthy perspective.
- Keep information provided to you through your Director’s Report confidential. It is for your use as a Board Member, not for distribution to others.
If you attend Open Forum, you will be expected to:
- Raise your hand to be recognized by the President of the Board.
- State your concern in clear and simple terms, preferably limiting your comments to three (3) minutes.
- If someone else has already stated the concern, but you have something new to be added to the concern already expressed, then please raise your hand to be recognized, however, the Chair may limit participation to once per owner.
- Please don’t interrupt others while they are speaking.
- Maintenance related items are to be directed to the Management Company by calling their Customer Service Dept. (Open Forum is not the proper venue to report maintenance items.)
- Please realize that while the Open Forum is a time for you to express an opinion or concern to the Board, you may not receive an immediate response or decision. The Board will take your concerns into consideration, but may not necessarily act upon them at the meeting, unless the concern is vital to an agenda item decision.
The following steps will allow you to contribute to the success of your community:
- Please read your Director’s Report prior to the meeting.
- Be prepared to ask questions when your Manager calls you on the day of the meeting.
- Please call management in advance (as early as possible) if you know you will be missing a meeting.
- Always maintain confidentiality as a Board Member regarding sensitive issues discussed or reviewed at meetings (i.e., names of delinquent owners, names of owners reporting violations, who voted on Board issues, etc.).
- If you are made aware of an issue that unhappy owners (or an owner) will be raising at a meeting, please notify management in advance (they should do the same for you). In this way, management can be prepared and possibly diffuse the situation.
- If the need arises to point out an error, oversight, or deficiency in performance, please give management the courtesy of conducting this in private (just as you would conduct an employee review or reprimand in private)
Some of the most common violations are:
- Failure to be current in Association dues and/or assessments.
- Disturbing the peace.
- Failure to maintain attractive landscape (weeding, fertilizing, trimming, pets soiling lawn).
- Making exterior improvement WITHOUT prior written approval of the Architectural Committee and/or in violation of governing documents (antennas, fencing, trees, etc.).
- Parking (not utilizing garage or designated space for parking, abuse of guest parking spaces, RV parking).
- Violations involving pets (i.e., clean-up, leashed, noise, waste)
- Driveway oil stains.
*Please note: Any information displayed is in no way to be construed as legal advice. Any legal concerns regarding homeowner associations should be addressed to an attorney who specializes in homeowner or condominium association law in your state. HOA laws may vary per state.