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Berding | Weil Community Association ALERT Newsletter
Legal News and Comments for Community Association Boards and Managers Issue #9 • January 2009
Pay As You Go?
Can a Program of Periodic Maintenance Reduce the Number
of Major Repair Projects in a Community Association?
By Tyler P. Berding, Esq. with Alfred D. McKelvy
There are some repairs by homeowner associations that require a large specialty or general contractor, a project-wide bid and major funding. Examples are: wholesale re-roofing; a complete repainting project; or reconstruction of a major portion of a building - especially where engineering or architectural expertise is required. But a lot of the work required keeping an association looking and working well can often be done by a small contractor and, in at least one case, by an employee of the association.
An association in Pebble Beach has found that the right employee can do many necessary repairs and save the association money in the process. We have written about the need for an association to maintain proper reserves for long-term repairs.1 Most of the templates for a reserve program operate on the assumption that the work will generally be project-wide and bid as a single large project. This is certainly true with most major re-roofing projects, for example, or periodic painting projects. Large-scale dry-rot repair also falls into this category, especially where structures such as staircases or carports will have to be removed and replaced. The sheer size and complexity of such jobs require a large specialized crew, with architectural or engineering support and supervision.
Ocean Pines
Several years ago, the Ocean Pines Owners Association in Pebble Beach, California, hired just such an individual. His background was in general construction and he came to the association with solid credentials. He soon began to demonstrate how having a construction generalist on the payroll can keep the association ahead of most maintenance. Here are some of the projects he has undertaken on behalf of Ocean Pines that have helped to obviate the need for a single, larger project in the future:
1. Sand, prime and paint weathered (rusted) surfaces.
2. Spot paint hallways, entryways, some exterior.
3. Small flooring replacement (carpeting, linoleum).
4. Paint/varnish exterior unit doors.
5. Repair/replace irrigation pipes and fittings as needed
or in response to a failure.
6. Replace water valves as needed.
7. Repair and replace walkway railings.
8. Identify and repair or replace small dry rot areas.
9. Paint, waterproof and maintain cinderblock garage walls.
10. Small roofing repairs (temporary or permanent).
11. Small driveway and walkway patching.
12. Fence installation and maintenance.
13. Identify exposed or worn electrical wiring.
14. Maintain common area doors, hinges and sweeps.
The association has also been able to rely on very quick reaction times to emergency situations like leaks, pipe breaks, electrical malfunctions, and similar issues which has helped keep small problems from becoming much larger ones.
A Concierge?
But this employee also serves a second purpose - that of an owner's representative or concierge who can assist not only the association itself, but also the individual owners who are remodeling or who have repairs being done. Here are some examples of the tasks he performs in that capacity which assist in recognizing and resolving problems at an early stage:
1. Consult with elevator professionals, roofing and painting contractors to identify ways to increase service life and focus interim repairs on what is needed.
2. Consult with satellite television providers to install a master satellite dish.
3. Meet with owners to resolve unit damage due to common area plumbing failure.
4. Consult with reserve study professionals to identify additional reserve components and help determine service life.
5. Educate owners and management on the requirements for maintaining the project.
6. Translate the interests of the board of directors into instructions for contractors.
7. Provide written reports to the board of directors on repairs and maintenance undertaken and recommended.
8. Coordinate and schedule contractors on behalf of the association and individual owners.
Having the skills and the experience to tackle jobs as diverse as those above requires a multi-faceted individual; but that, coupled with the public relations advantage such an individual brings to management and the board of directors, argues favorably for such a position if the right person can be located.
When contractors come to bid a project, the owner's representative can identify exactly what the board wants done and can also provide secure access to units when necessary. He directs the contractors to the areas to be repaired, as well as to water valves and electrical panels. He assists in identifying the best way to repair a problem and generally has the latitude to make immediate decisions. He also makes suggestions to the board for various improvements that he believes are necessary. Having access to individual units has proven helpful. If there is a pipe leak, for example, he can immediately get to the source and stop the leak. Also, when the response to a leak is fast, the consequential damage is reduced significantly. This also results in fewer and more modest insurance claims. If there are common area repairs that require unit access, it can be provided to the contractor. He can also direct fire services and law enforcement when necessary.
What to Watch Out For
At this point, we must raise the caution flag. How much work can be accomplished by any one individual obviously depends on the competence of that person and the complexity of the project. Also, the association must have management that is willing to supervise the employee's work, not always a role that management companies will accept. They are rightfully concerned about the appropriate insurance, credentials and licenses, not to mention the necessary construction expertise.
Further, the employee must be very clear with the association about the limits of his expertise. There can be nothing worse than having an unqualified worker attempt something that makes what would otherwise be a small problem worse, or a big problem a disaster! As an employee, no contractor's license is required, but that would not be true for someone not on the association's payroll. Anyone who would be hired for a single job under an oral or written contract should hold the necessary contractor's license for those jobs which fall under the rules of the California State Contractor's License Board. A properly licensed contractor should always be the association's choice when using non-employees for construction tasks.
Also, it is important that the board not substitute using the services of an employee for maintaining a proper reserve budget. Eventually there will be projects that are well beyond the scope of any individual and must be adequately funded for that inevitable big job.
But within the areas of his proven expertise, an employee or small licensed contractor can do many jobs on a periodic basis as an alternative to full-scale, one-time renovations. For example, if an association has wood siding and trim that has now reached a point in its service life where it will need to be replaced within 30 years, it must be included in the reserve budget.2 Normally, the cost of that job would be estimated and the remaining useful life calculated, so that at the end of the siding's service life the reserve fund should have enough cash to re-side the entire project. However, as an alternative, an annual operating expense of "miscellaneous carpentry" could be calculated and budgeted so that a percentage of the trim and siding could be replaced each year in lieu of wholesale replacement in the future. Certain elevations can be upgraded and painted each year so that some siding and trim replacement is done in conjunction with repainting, as an example.
Operating Expenses vs. Long-Term Reserves
If this could be accomplished using an employee or a small contractor, it could obviate the need for a portion of the long-term reserve fund for those specific components that can be replaced or repaired gradually. Placing the cost of this work in the operating budget could also result in more predictable expense projection because it could be easily adjusted as conditions and quantities were revealed. However, and here's that caution flag again, the association's expectations have to be realistic. If the decision is made to tackle a project on the "pay as you go" basis described here, and it turns out later that the project is too big for an employee to handle in that manner, the association would have delayed collection of sufficient reserve funds during the period of that failed experiment. For this reason it is recommended that any major components3 that are being maintained in this way should also be inspected as part of the association's three-year reserve study.
While larger or technically more complex jobs will always need the services of general or specialty contractors, gradual repairs or replacements could be accomplished with an in-house employee or small contractor, most likely at a savings to the association. Again, supervision and proper insurance are very important, as is an architect or engineer to provide specifications and standards and occasional inspection. These design professionals can also determine whether the rate of deterioration of the component justifies continuing the "repair as you go" approach or whether it would be more efficient to move the job to a larger contractor sooner and do it all at once.
More extensive investigations and the ability to address some component repairs on a gradual, as-needed basis can assure greater accuracy in funding predictions and more control over the condition of the project.

Worshipping at the Temple of Greed: Fraud, not Stupidity, caused our Economic Mess
In March of this year, we wrote a short piece entitled, "Who are the Brains behind the Housing Crisis?" (March 2, 2008)
We questioned how so many of our best and brightest young people on Wall Street, from the very finest universities, working for well-respected companies like Lehman Brothers, Goldman Sachs, and Merrill Lynch could err so badly.
Later we found evidence that at least one computer program was in part responsible for what we believed were miscalculations.
In the article, "Who's Responsible for the Crash?" (October, 2008) we quoted Alan Greenspan who stated that "bad computer models" led to the current economic crisis.
This early analysis gratuitously assumed one trait of those who had a hand in our economic debacle--that they were acting in good faith.
Our assumption was that everyone involved believed that they were doing something positive and were somehow victimized by bad luck or maybe a touch of stupidity.
We were deluding ourselves…»
Your Homeowners Association is Broke
Who do you Pay When the Cash Runs Out?
We're living in troubled times.
The American economy hasn't seen anything like this since 1929 and we won't likely be out of it for several years.
Homeowners associations, like the rest of the country, have entered a period of uncertainty, but more to the point, they have entered a period when the cash pool is drying up.
Foreclosures, layoffs, bankrupt developers, and owners conserving cash by not paying assessments - it doesn't matter which, the end result is fewer assessments being paid and way less cash in the association's coffers…»
No Right To Refuse Payment
The Court Turns a Right Into a Duty as it Orders a Board to Assess its Members to Pay a Creditor.
A 2005 decision of the California Second Appellate District Court of Appeal in James F. O'Toole Company vs. Los Angeles Kingsbury Court answers the question: can association members be forced to pay, by special assessment, debts incurred by their association?…»
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