I am a consulting engineer and work with HOA's. How are "reserve" and "maintenance" funds defined in the cc&r's....find out and feel free to contact via email.
It is true, however large expenditures can be aloted from the reserve fund. There is nothing wrong with what they are doing. There may be something in your bylaws though.
The definition of a repair vs. a capital improvement can be a little fuzzy. Here's a paragraph I found on the Internet that seems to describe the difference pretty well:
"The thought behind what makes an improvement to a property different than a repair is that an improvement theoretically increases the value of a property whereas a repair simply keeps it in working condition. A repair could also be said to return a property to a prior condition as it was before the item needing repair broke. Improvements, on the other hand, include things like a new roof, new carpets, new appliances, new additions, a remodeled kitchen, etc. Repair items generally are things like a repaired roof (vs. a new one), small sections of damaged carpet replaced, paint, repairs to existing plumbing or electric, repairs to appliances and so forth. Generally we can think of "adding" or "replacing" (improvement) vs. "fixing" (repairs). Repairs are usually of a smaller dollar amount as well, but not always."
I would think in most cases a reapplication of asphalt would be a capital repair, and would therefore be funded from the reserves account. I think this because asphalt should have a long life if it is properly maintained. On the other hand, annual (or bi-annual) sealcoating of your asphalt would be a maintenance item.
Finally, I think the primary concern I would have in your situation is that the Board wants to replace all the asphalt when only some of it needs to be replaced.
National Reserve Study Standards list a four-part test to determine if a project is appropriate for Reserve Funding. If all four conditions are met, it is appropriate to set aside, and spend, Reserve Funds.
The four-part test is as follows:
1) Is the asset a common area maintenance responsibility?
2) Does the asset have a limited Useful Life?
3) Does the asset have a predictable Remaining Useful Life?
4) Is the project above a threshold of significance (large enough that it would be too disruptive to be absorbed into ongoing maintenance)?
FYI - asphalt care typically meets this four-part test, and therefore is a common Reserve component.
You have been given some answers, but I am not sure how helpful they are.
First, let's address your concern about what is needed to be done. You have an opinion on what needs to be done or not done. The board has a duty and responsibility on deciding what needs to be done. Hopefully, they have gotten information from civil engineers. I deal with people all the time who have varying opinions on when and why things should be done. When you have a qualified engineer that can provide a report and recommendations, it answers most of the questions of the reasonable people. Some people will still hold onto their opinions no matter what facts are presented to them.
The board needs to communicate what they have done and offer anyone the opportunity to view the report. While you may think items don't need to be done, there may be very valid and necessary reasons for doing it now.
Your primary issue is where the item is funded from. That is really an accounting question and from my experience, the long and short of it is that it really doesn't matter which account it is from - the real basis is how is it paid?
Reserves are monies saved for large scale projects or items to be done in the future. The current owners are saving the money to pay their portion of the items they are using when it is at the end or past the useful life of the item. If an association properly reserves, they will have the funds to pay for that item when it is time to do major repairs or replacement. In a traditional condominium setting, this is typically roads/driveways, roofs, siding and often can be large scale landscaping improvements, such as for entry areas.
I usually urge that the type of prject you are talking about (repaving) come from reserves because it is a large ticket item that is typically only done every 10-20 years, depending on many factors, including regular maintenance. (Maintenance would include repairs, seal coating and crack filling.)
Without further information, it appears from your post and question that the board is looking at a project that they cannot fund without some type of assessment. If that is the case, then either a reserve study has not been done, has been done and is out of date, was done but not followed or was done, but unseen underlying conditions have resulted in replacement having to be done sooner than anticipated.
Talk to the management company and the board. Kindly express that you have reservations about the job (areas that you think don't need to be done) and have concerns about how it will be funded. Reasonable people will provide reasonable answers to reasonable questions proposed in a reasonable and rational manner.
Robert's answer is excellent!
From a management standpoint, I have had communities book it in operating and some book it through a reserve accounting. The ones that did it from operating took funds from a reserve account, monies they specifically set aside for future use for those items that meet that 4 part test!
As a first step it might be useful to establish if the reserve fund includes a line item for renewing the asphale.g it would be normal to reserve for repainting, replacing roofs etc.If not there probably should have been as it will clearly need to be resurfaced at some time.
If a line item is included the cost of replacing it should have been established together with the expected life span.
In my view if the asphalt is fairly new then fixing the odd area, five spaces, comes under maintenance, if it is close to the end of its life span then the whole area should be renewed from reserves - if there is no specific reserve then an assessment might have to be levied.
If the by -laws says an expenditure more than a $1,000.00 for a one time expense requires homeowners majority approval, can a Board of Directors transfer that fund without any approval?
I sincerely Thank each and every one of you. Though, not a board member, a board member came to me stating,'you a very smart, and research things very thoroughly.'
So, it's actually KUDOS to ALL of you! He wants me to attend upcoming
board meeting and present my facts.
Funding options presented to me from board member re: re-asphalting ALL areas. All three options over a 5 year period.
1.) Financing through the property mgmt company
2.) Condo fee increase each of the 5 years with no promise of increase in the future. (currently paying $295/mo, increase this January, would increase 5% of each year.)Ex: $295 + 15, then, $310 + 15.50, etc.
3.) Special Assessment of $250 each year for 5 years.
Legally, as condo owners, do we vote on this project or can the board and/or prpty mgt company do so independently? If so, wouldn't that be something to address at Annual Board meeting in September?
Many Thanks, again! Any thoughts, info, advice, questions are more than welcome!
Once again: If the By-Laws state that any expenditure of $1,000.00 or more requires the majority homeowners approval, therefore can the Board of Directors transfer funds from the reserve fund to pay a bill without the majority of homeowners approval???
If the By-laws state that expenditure of $1000.00 or more requires the approval of homeowners then that is what is require irrespective of the funding. I would doubt that the By-laws would be so restrictive. Do they say, for example capital projects/non budgetted expenditure requires such approval? How are emergencies handled?
We are just 55 units. This by-law has served us for 30 yrs without a problem until this board decided to pay a bill of over $19,000.00 without any membership approval.
Same situation, 25+ plus years. This is what we're facing..close to $100,000,+ yet board/mgmt co have not pursued any 'bids' yet. Prop mgmt wants to do it all NOW, with gas prices going up. (I feel that's a bit unreasonable) I question that they are soon to send letters to unit owners re: aforementioned 3 funding options, without knowing the actual cost/s, breakdowns and 'bids'. In terms of aforementioned 3 funding options, which do you feel, is the best re:
financing thru prop mgt., 5 year condo fee increase with no indication it will stop there or special assessment for 5 years?
I was told the previous board did not perform well re: reserve funds.
Is this something I can question re: prior board's budget, reserve fund, expenses, etc, per their budget break out? ..or is this just some blow-off excuse? Unit owners were not made aware of this until recent board member told me. So, will re-check my bylaws thoroughly and see what I can find,
re: both issues.
Thank you all, once again..the more info, the better! Pls. advise.
Through looking at bylaws, we do not have a 'reserve fund'. We have a 'replacement fund.' As aforementioned, I was told by Board of Directors, that previous board was 'questionable' with some issues,whatever that means. I have looked at 2009 Budget, indicating $419,328, 2009 Actual, $419,328, then continuing 2010 Budget Approved, $423,936, then 2010 Projected Budget, $423,936, then 2011 Approved, $445,440. My questions are 2: 1.) Why is 2010 Budget, not indicating Actual and
2.) How can they approve 2011 Budget, without actual 2010 budget?
As well, how can they indicate Approved Budget for 2011?
I am truly sorry that I am not savvy w/ budgets, actuals,approved,projected.
Any help would be appreciated to clarify my understanding.
New info re: above asphalt project above: May 11, 2011 on online email from prpty mgt website. A special session occurred May 11, 2011 withOUT Prpty Management person being present, just the Board. The Board decided to get 5 paving bids on a 3 yr plan with no loan. "A motion was made "to get a bid that is acceptable to go ahead to have Jason, (proprty mgmt rep)to go to four banks for the financing of a one year plan for the fifteen year term" "An amendment was made to have specific specs to be done before the five paving bids. The motion was approved." "In addition to the motions passed, the board has decided to have a CPA or an attorney go over loan proposals and documents to ensure that "...",
(I omitted name of condo complex)and the Board of Directors are protected."
I guess my biggest concern is the property mgmt company.Does this mean 'we' and the board are stuck' with this Prpty Mgmt company for a long time? If so, how long...per the above, am confused. (This prpty mgmt company is not stellar to say the least..They manage many a condo complex in New England, individual comments,ratings under their name on website are complete horror stories..they also have under State, "Not in good standing". From my own experience with them, per attendance at board meetings, the prprty mgmt rep is arrogant,dictates, (he is the only one speaking..very little input from the board)tries to intimidate unit owners and when a unit owner asks prprty mgmt rep a question, he seems to 'squirrel'...'worm' his way out of it, avoiding a true response..Several times with his 'pattern', I have circumvented him and asked Board President directly during a board meeting. Board President not offended at all.(It probably isn't considered good practice under Robert's Rules by doing this..BUT, there seems to be
no other option)
I realize lots of 'stuff' here in post..but lots of stuff to question.
Any, All Help and Suggestions would be so much appreciated.
I am the Treasurer of a 54 Unit Condo Association in Illinois. The Developer was in charge since inception of the building of the condos (12 years). The homeowners took over in 2007. The Developer had no reserves set aside. We shall have built the reserve to $90,000 by year end (2011). Our interest was in building any reserve, so we now have a reserve fund with no line items.
Last year we budgeted the re-paving of a driveway for $4,000. As this was a budgeted item it was paid out of normal expenses. Some of our members feel it should be paid out of reserve. At the end of the year our new reserve amount will still be the same whether paid form reserve or budgeted expenses. What is proper procedure?
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