Condominium, homeowner (HOA), and townhome community association board members and property managers prepare budgets to cover operational costs. These expenses include services (ex. landscaping, snow removal) along with routine maintenance, repairs, and replacement over time to ensure the property remains in good condition.
However, even the best fiscal preparation can be affected by various unforeseen factors including supply/chain issues, vendor availability, increased contractor rates, and rising material costs.
Market fluctuations, inflation, and recession can be significant challenges for any association. Lack of preparation can be disastrous.
- Does the current assessment keep pace with the rising cost of services and materials?
- Does the association have enough reserve funding to pay for upcoming capital improvement projects (ex. roof repairs, parking lot upkeep) or fill financial gaps created by assessment delinquencies?
- What are the association’s options in the event a contractor leaves a project unfinished?
Below are four areas where inflation can impact your community association.
1. Assessments and Budget
As a board member, your primary obligation is to act in the best interests of the association. There is also a delicate balance between fulfilling the legal obligations to the community and assisting fellow owners suffering from financial distress.
However, there can be negative and potential legal consequences if boards choose to reduce assessments, waive assessments, overlook delinquencies, or implement inconsistent collection policies.
Assessments are the lifeblood of an association’s operating budget. Proactively reviewing the association’s assessment and budget can ensure the community does not experience a shortage in funds or the need to levy a special assessment.
2. Reserve Funds and Reserve Study
With increasing vendor rates, labor costs, and materials due to inflation, it’s also wise to proactively review your association’s reserve study to ensure it’s not outdated.
A reserve study outlines the various property components within the community along with their current condition and expected functionality. The study can provide a recommended annual dollar amount the board should be setting aside in reserve to ensure it has sufficient funds.
While not an exact science, a reserve study is a useful tool to determine if the association’s reserve funding is on track or outside the recommended guidelines and in need of correction particularly during challenging economic times.
3. Short-Term Rentals
With owners looking for extra income during uncertain financial times, there has been a rise in short-term rentals within community associations.
Websites such as Airbnb.com, Homeaway.com, and VRBO.com provide a platform for owners to list their condo or home for rental (sometimes as short as one or two nights). However, short-term rentals can present several challenges including safety and security.
What can and should be done about short-term rentals is unique to each association and largely dependent upon their respective declaration, bylaws, rules and regulations.
If your association has not addressed short-term rentals in your governing documents, it’s advisable to consult with the association’s attorney to appropriately document short-term provisions, lease terms, and penalties while being aware of relevant state legislation and municipal regulations.
4. Vendors & Contract Review
If your board already has an estimate for a anticipated capital improvement project for your community, you should contact the vendor to ensure you have the correct pricing. It’s very possible that the project start date, scope, subcontractor availability, and original cost may have changed due to the impact of inflation.
Board members and property managers should also have an attorney review any vendor contracts to ensure the association’s best interests are protected including payment terms, insurance, lien waivers, indemnification, termination, and governing laws.
Legal Resource
While inflation is impossible for your association to control, take the time and invest the effort to plan, prepare, communicate, and follow through with the ever-evolving financial needs of the association.
Do not hesitate to contact our law firm if your association has questions regarding assessments, budgets, reserves, collection, short-term rentals, contract review, or other legal issues.
Please call 855-537-0500 or visit www.ksnlaw.com.
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