“4 Ways Inflation Can Impact Your Community Association” – KSN Attorney David Savitt reviews four ways inflation can have an impact on your community association. He discusses assessments, budgets, reserve funds, short-term rentals, and more. (8 mins.)

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Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We have multiple office locations, serving hundreds of clients and thousands of communities throughout Illinois, Indiana, and Wisconsin.

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Episode Transcription:

Nikki: You’re listening to the KSN podcast and today we’re talking about four ways inflation can impact your community association. Welcome to the KSN podcast where you’ll hear from KSN attorneys as they share their experience and insight on legal issues surrounding community associations, collections, property tax appeals, and landlord tenant law. I’m Nikki and today we’re joined by KSN attorney David Savitt. David practices condominium, townhome, homeowner, and master law. Hi, David. Welcome back to the podcast.

David: Hi Nikki. It’s great to be here.

Nikki: Our topic today is the impact inflation can have on your community association. Condominium, homeowner also known as HOA and townhome community association board members, as well as property managers prepare budgets to cover operational costs each year. These expenses include services such as landscaping and snow removal, along with routine maintenance, repairs and replacement over time to ensure the property remains in good condition. However, even the best financial preparation can be affected by various unforeseen factors, including supply chain issues, vendor availability, increased contractor rates and rising material costs. We know that market fluctuations, inflation and recession can be significant challenges for any associations. So lack of preparation can be disastrous

David: You’re right, Nikki and with the way the market is trending, it does pose a few questions. For instance, do the current assessments as adopted keep pace with the rising cost of services and materials? Does the association have enough reserve funding to pay for upcoming capital improvement projects such as roof repairs, parking lot upkeep or fill financial gaps created by assessment delinquencies? And what are the associations options in the event a contractor cost increases during the course of a project and it causes him or her to leave the project unfinished.

Nikki: Those are some great questions, David. So let’s start off with that first one then, how is inflation impacting assessments and budgets right now?

David: Well, as a board member, your primary obligation is to act in the best interest of the association. There’s 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, wave assessments, overlook delinquencies, or implement inconsistent collection policies. Remember assessments are the lifeblood of an Association’s operating budget, proactively reviewing the Association’s assessments and budgets can ensure the community does not experience a shortage of funds or the need to levee special assessments as costs increase in this world we’re living in now.

Nikki: So David, if your association is collecting the proper amount in assessments, what can you tell us about reserve funds and reserve studies?

David: Well, with increasing vendor rates, labor costs and materials due to inflation, it’s always 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 expanded functionality. The study can provide a recommended annual dollar amount the board should be setting aside in reserve to ensure it has sufficient funds available at all times. 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 these challenging times

Nikki: On the owner’s side, we have seen people looking for extra income during these uncertain financial times. Consequently, there has been a rise in short term rentals within community associations. What can you tell us about short-term rentals and anything to how that involves with community associations?

David: Well, we’re all familiar with the website’s Airbnb, HomeAway and vrbo.com. These provide a platform for owners to list their condo or home for rental, sometimes as short as one or two nights at a time. However, short term rentals can present several challenges, including safety and security and many board members and owners alike have strong opinions about these platforms. What can and should be done about short-term rentals is unique to each association and largely depends upon their respective declaration, bylaws and 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. I can’t tell you how many times in my practice I’ve gotten calls from board members where they’ve noticed strange people in their lobby ready to move in, and they’ve never thought about implementing any kind of restriction on short term rentals.

Nikki: That’s a great example, David, there. And so, with the use of assessments, the board may need to schedule projects to be completed around the association. What is your input on vendors and contract review?

David: Well, if your board already has an estimate for an 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, contractor availability, and the 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 that the Association’s interests are protected. This includes reviewing payment terms, insurance, lien waivers, indemnification, termination, and governing laws.

Nikki: So David, this inflation doesn’t seem to be going away anytime soon. Do you have any associations right now, or any examples of impacts an association that you’ve been working with anything that they’ve had to do differently?

David: I do. I had an association contact me the other day, letting me know that their natural gas prices have increased to such an extent that they actually had to rethink their entire budget for the year. This seems to be very common as the cost of materials and services continue to rise in such a way that it was not anticipated at the time the Association adopted their budget at the beginning of the year.

Nikki: Yeah. I mean, that’s definitely something that I can see being very impactful to the budget and as long as your board members are being proactive and trying to find a solution for this, I think that’s a great way to go about making sure you’re contacting your attorney. So David, do you have any final recommendations for our listeners today on the impact inflation can have on community associations?

David: Well, we all know that inflation is impossible to control from an association standpoint. However, if you take the time and invest the effort to plan, prepare, communicate, and follow through with the ever evolving financial needs of the association, you’ll always be in the best position to address changes as they come about.

Nikki: That was KSN attorney, David Savitt. He practices in the area of condominium, townhome, homeowner and master law. KSN is an experienced legal resource, ready to provide you with quality advice and exceptional service. We look forward to demonstrating how we’ve earned the trust of thousands of clients over the past 35 years. If you’d like to reach David or anyone of KSN’s experienced attorneys, please call 855-537-0500. You can also visit ksnlaw.com and complete the contact form to send us a message. Thanks for listening.

 

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