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DEFERRED MAINTENANCE
QUESTION: The board claims our reserves are badly underfunded and
raised our dues by 20%. They plan to raise them again next year because
our manager said we have too much deferred maintenance. I disagree.
When I was on the board we always minimized repairs because we have
older people who can't afford high dues. Don't you agree that boards
have to take into consideration people who can't afford their
assessments? Can't we wait until something breaks and let insurance pay
to replace it?
ANSWER:
Wow. Where do I start? The fundamental duty of boards is to properly maintain the common
areas. Collecting sufficient assessments to carry out that duty is required by
statute. Civil Code §1366(a)
Deferring maintenance for the wrong reasons can be a serious breach of the board's
fiduciary duties.
Improper Deferrals.
Deferring maintenance to avoid spending money or raising dues is harmful to the membership because it (i) exposes the association to litigation and potential liability for damage
caused by the deferrals, (ii) lowers property values, and (iii) increases the cost
of the eventual repairs (which can result in huge special assessments). In addition, it may
expose directors to claims of gross negligence, breach of CC&Rs, breach of
statute (Civil Code §1364(a)), and breach of
fiduciary duties. Under those conditions, the
business judgment rule will
not protect the directors from personal liability.
Proper Deferrals. Planned
short deferrals (i) to raise funds for making repairs or (ii) to stagger
repairs for scheduling purposes are considered acceptable business practices.
Even so, boards must take care to protect members from any damage that might be
caused by the delays.
Insurance. Boards who
ignore their duties hoping to shift repair costs to the association's insurance
company are in serious breach of their duties. Insurance
companies will not pay for deferred maintenance. The purpose of insurance is to
pay for unexpected catastrophic losses, such as fires, storms, floods, etc. By
floods, I do not mean plumbing failures due to negligent maintenance practices.
Boards who think they can get a free ride by dumping it on the insurance carrier
are incredibly misguided.
Very truly yours,
Adrian Adams, Esq.
Adams Kessler PLC
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