Reserve Studies 101

Regardless of where you are in terms of your reserve study, here is a set of notes you can use as talking points among committee members advising the board, or among board members as you address this critical task.


On a regular basis, the board is required to conduct, update and report based on the association's reserve study. 


What's absolutely true about condominiums and other common interest associations is this: The buildings will outlast us all. Imagine the value of being able to own useful space in buildings that are well-maintained and in good repair, because the board consistently pays attention to reserve study guidelines.


Please print these notes as a way to begin your conversation.

• What is the age of your building(s)?
• How many separate buildings do you own?
• Do you have active repairs or PM planned for the coming construction season?
• Who performed your last reserve study?
• How many reserve studies have been completed for your community/ how long has your association been commissioning reserve studies?
• What is the impression of your current reserve studies? 
• Are they sufficient?
• Are they reasonable -- consider our weather/ geography?
• Any feedback?
• Where are you in the construction defect repair process? (You may be well past it, or haven't started it yet.)
• What do you currently use as an annual preventative maintenance PM repair plan?
• Where did you get your budget number to pay for your reserve study this year? 
• How much flexibility do you have in your budget to spend more?
• What association assets are listed in your current study?
• Do you want to add assets?
• Do you want to remove assets?
• Are you aware of the January 1, 2012 effect of the Reserve Study Law and its reporting requirements? (These dictate your actions this year in preparation for your 2013 budget, assuming your association was formed after 1991.)
• http://www.condolawgroup.com/2011/10/31/reserve-study-law-changes/
• How do you currently address the funding levels for your reserves?
• Are you adequately funded/ underfunded? What descriptor would you use?

People involved in the reserve study conversation may want to take the time to read the following sections of the Washington State Law, below, regarding reserve studies and funding, as a way of basic education if you don't already have it: 

These are all online under Chapter 64.34, RCW -- Revised Code of Washington -- Condominium Act. These links make the law available online.

64.34.380	Reserve account -- Reserve study -- Annual update.
64.34.382	Reserve study -- Contents.
64.34.384	Reserve account -- Withdrawals.
64.34.386	Reserve study -- Demand by owners -- Study not timely prepared.
64.34.388	Reserve study -- Decision making.
64.34.390	Reserve study -- Reserve account -- Immunity from liability.
64.34.392	Reserve account and study -- Exemption -- Disclosure.

NB: Your governing documents may have a tighter control over reserve studies than the state law, or if they are silent, the state law is your guide.

Empowered Owners: The Barking Dog Story

This is a short story about an owner whose neighbor rents out the unit next door, barking dogs, pro-active and appropriate action to minimize noise and a happy ending for all.

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The owners M&M, work from their unit, and enjoy the convenience of this work/ live arrangement.

Their neighbor, RM, owns the condominium only as an investment. It is the most expensive unit in the building, and the rent tops US$5,000 per month. The unit is never empty long.

Two tenants ago, M&M were distressed to discover a consistently barking dog, who called for its owners about every 30 seconds or so when the dog was alone, and who had taken up occupancy of the elegant unit next door. M&M spoke to the tenant-neighbor, who promised to 'get a bark' collar for the dog. The peace lasted about a week, then started up again.

In a chance encounter, the tenant-neighbor explained to M that 'the dog became so depressed, we had to take the collar off.'

M&M worked with their board to devise an appropriate and civil process to eliminate the unwanted and disruptive noise. They developed a personal note for M&M to use, that advised the tenant-neighbor about the barking dog and how the noise disrupted both their work and their lives. (Personal attempts to remedy the differences.)

After the first day of slipping the note under the neighbor's door with no response, they slipped another note under the door, labeling it '#2'. Again, no response and continued barking. Thereafter and daily, M&M slipped notes #3 and #4 under the door, again with no response.

The next step was for M&M to document their personal efforts to mitigate the noise with their neighbor, with no resolution, and to request that the board notify the owner in writing, and include the fine schedule in place for noise violations. (Official board action taken after personal attempts fail.)

The letter to the owner produced zero results in barking reduction, but it did serve to begin building the fine amounts for the noise violation. After a period, the owner contacted the tenants and attempted to extract payment from them for the fines, which had accumulated. The tenants refused and moved out.

Before long, another small-barking-dog-loving tenant moved in, and on the first day as the barking began, M&M greeted the new tenants and spoke up about their concerns regarding the barking noise. The tenant agreed that it was unacceptable, and that their dog would calm down soon.

The next day, after the new tenant-neighbors left the dog alone, it began to bark. M&M went to work immediately, and notified the neighbor using note #1. Daily for the next three days -- with no reduction in the noise or response from them -- notes #2, ... and so forth were slipped under the neighbor's door.

A board letter went out again to the owner, who contacted the tenants immediately and asked them to pay the fine and silence the dog.

Wind-up: The second dog has been adopted by the owner and taken out of the unit; the new tenant-neighbors have visitation rights with the dog; M&M enjoy the peace and quiet of their unit.

Empowered owners who understand their governing documents and work pro-actively and cooperatively with the board to guard their private enjoyment, provide us a great example for how to maintain civility and quiet harmony in a condominium community.

How to Read Your Governing Documents

Governing documents? What in the world are they?

Oh, ya. Part of that stack of documents -- about six inches high -- that I signed at closing.

And?

And so, too many buyers sign for their governing documents at closing and then never revisit them. This leads to questions like:

• Why are my assessments so high?
• Who picks up the garbage out on the lawn?
• What happens if I don't pay my assessments?
• Can I add a window where there isn't one?
• My roof leaks -- where do I go for help?
• Who pays to clean up my flooded unit?

Your condominium is your home. It's also part of a business: the business of running the association. As an owner, you are a member of the [business] association. You vote. You pay assessments to cover common expenses. When you buy your first condominium, your experience will be filled with these kinds of questions. When you buy subsequent condominiums, you know exactly what to look for in governing documents, based on your first condominium living experience.

If you're new at condominium ownership, be aware that your governing documents are filled with answers to these and other kinds of questions, too.

It will be easier to read your governing documents if you have a background in business, or acknowledge that the association is a business.

Changing/ Starting Out With Condominium Association Managers

Once Upon a Time...

"All your condominium documents are in a box -- somewhere. Someone passes the box to another person. The box ends up somewhere else.

"Everything gets taken care of. Everybody lives happily ever after."

The End.

__________________________________________________

Funny you should ask. Too many condominium owners and board members believe that story of what happens to the business of condominiums; that the association managers fix/ repair/ adjust/ moderate/ mediate/ pay/ collect and so forth, and pay themselves out of your assessments. All based on the contents of a box of documents.

Start With The Board

Finding or changing a condominium association manager takes several steps and the board takes the first step.

A board must decide exactly what requires managing. This means that in line with its legal duties to maintain, preserve and protect the real estate assets owned in common, the board must lead, plan, and execute its tasks according to the work that needs to be done.

Board members are most valuable to the association when they are knowledgeable, involved and know how to take action. Business expertise is especially valuable, since that experience offers patterns that boards can follow when establishing process, procedures and policies. Condominium board experience is also valuable, because service on a board helps members understand how to balance the business issues with the community issues. This balance, often, is our greatest challenge.

The age of the association is also a consideration. A twenty-five year old association where the same six or seven people serve as board members faces a different set of requirements for an association manager from an association still within or fresh out of the declarant control period. Most associations exist with ages in between.

No two condominium associations are exactly the same. Every association is unique in its locale, construction, amenities, community make-up, and governing documents.

It can be a challenge to 'get the right people on the bus' and 'get the right people off the bus'. Volunteer boards are made up of owners, some with agendas, some with no experience, agenda or investment in the work.

Before choosing a condominium association manager, it is imperative that a board understand its unique set of skills, tasks and budget. Once these resources are identified, the board can begin a search for a condominium association manager.

Seek Candidates with Condominium Expertise, Experience and Competency

In Whatcom County, a board can find many property managers with experience managing real estate. This means they know how to order services -- municipal and aesthetic -- and pay bills. They might understand that the source of condominium funds is owners who pay 'dues', 'fees', and occasionally, they use the proper term: 'assessments'. They can send you a monthly balance sheet showing how they spent your assessments against your budget. They can add a line item that includes reserves and reserves contributions. In my experience, none understand condominium finances. Or preventative maintenance. Or construction defects. Or community affairs. Or condominium law. Or governing documents. Or especially the business of managing an association which is a corporation.

Real estate property managers make money managing apartments, homes, and commercial properties. Unless these managers have educated themselves about condominiums and condominium association management, they cannot effectively partner with you as a condominium board.

My thirteen-year condominium experience lessons -- nine in Washington State -- include the mandate that a condominium association manager must be affiliated, certified and educated by the nation's industry-standard organization, Community Association Institute (CAI), with headquarters in Virginia and a chapter in Washington State.

CAI establishes best practices which effectively set the bar in several function-specific areas. For example, you can find (free) best practice reports on community harmony and spirit, community security, energy efficiency, financial operations, governance, green communities, reserve studies/management, strategic planning and transition on their Web site.

http://www.cairf.org/research/best_practices.aspx

When a board reads best practice reports in order to educate themselves, then finds condominium association managers who can support these practices, the board has a high chance of success in their volunteer efforts, because you're both working on the same page.

Check References

From Better Business Bureau listings to other condominium boards with experience dealing with candidates, complete this step and share the results with the whole board. Be exhaustive.

Request a Proposal

Craft your informal RFP in such a way so that you cover your board's weaknesses and support your strengths. Give candidates a thumbnail sketch of the association, including such details as age and phase and number of units -- retail and residential, and type of corporation. At least categorize your requirements and cover business, governance, community and online services that you require.

Interview Candidates

When you choose a candidate, review the proposed contract. In fact, read it carefully, and compare your list of tasks to the terms of the agreement. This exercise affords you two benefits. You can:

Set expectations, so you can avoid surprises during the contract term.

Use the comparison as a basis for the interview you conduct with the candidate.

Tip: If you want to cherry-pick services, find a candidate that offers cherry-picking options. There is a wide chasm between full service and limited service.

Starting Out With a (New) Condominium Association Manager

A board's initial step here is to sit down with the departing management agent who knows the most about its association, and conduct an exit interview. During this session the board must understand:

• Any incomplete or pending projects and their status
• All footnote-level explanations of extraordinary entries in the financial statements
• Any outstanding community issues or pending resolutions
• All issues involving reserve studies, maintenance situations, insurance issues and so forth

Armed with this level of detail, then the board is ready to open a dialog with a new condominium association manager.

Sit Down with a (New) Condominium Association Manager

The first order of business is to agree on whatever process is necessary for both the board and the condominium association manager to set expectations for each other's participation and performance in this new partnership.

Caveat to the board: Throughout this process, listen to the ideas and suggestions of a new condominium association manager, because there could be tips, tricks and processes that can support, eliminate or reduce board work.

Based on the services you agree will be performed by the new association manager, you'll want to discuss at least these issues with them. Make a list and pass the list along to them, so there is no question about what you require.

Business

Verify, if it has not been verified before, that the copies of governing documents the board uses to manage the business of the association are valid, filed, current, and complete. Pass along a copy of this set to the new condominium association manager.

Understand what parts of the (non-profit) corporation law are currently employed by your board, and what aspects are available that might be useful.

Review financial details, including the finance chart of accounts, to insure that categories for your budget fit within the bookkeeping paradigm of the new manager. If you separate water use from sewer rates, and require special accounting attention otherwise, review these details with the new bookkeeping staff.

Establish expectations for the frequency and timing of all financial reporting, the by-when date each month when the previous month's financials will be delivered. Discuss the treasurer's review process and clarify any correction process, so errors can be correctly in a timely manner.

Establish banking venues, so that they mesh with expectations of the association.

Remove ex-managers' signatures from bank accounts and organize obtaining appropriate signature cards for the new association manager's authorized signatures on your operating accounts. (You may even be forced to close accounts and open new ones.)

Establish dates for the association's license renewal with the Secretary of State, the due date for your tax returns, business license renewals, if any, audit, reserve study update, budget planning cycle, and so forth.

Understand what the condominium management's administrative expenses will be that cover document storage, banking fees, copier and scanner fees, envelopes, postage, and so forth. Require detailed invoices for every penny charged to the association under the category of administrative expenses.

Craft letters to the membership announcing the management change, indicating processes required to alter auto-assessment deductions, new mailing addresses for assessment payments, adjustments in handy-man maintenance coverage/ processes/ forms, and other operational adjustments necessary based on the new management arrangement.

Inform the new manager of the strategic plan for the coming year, so as to enroll the manager in supporting the planned efforts of the board.

Share contracts that bind the association including landscape, preventative maintenance and so forth.

Discuss the informal 'RFP' process for gathering bids for services in the next year, and how the process is completed before the draft budget during the fourth quarter.

Review the insurance coverage for the association's assets and the current status of HO-6 policies carried by owners. Establish guidelines for proof of insurance, sharing master policy details and so forth.

Review preventative maintenance schedules, tasks, staff and so forth.

Governance

Engage the services of an independent attorney to serve the operational needs of the association, such as drafting or modifying collection resolutions, fine schedules and enforcement procedures. Always use an attorney to file liens, handle owner's bankruptcy issues, craft amendments and so forth.

Gain agreement that the agent assigned to your condominium has read or will read all your governing documents. These include CC&Rs, By-Laws, Resolutions, Amendments, Minutes and for new developments, the developer's Public Offering Statement.

Verify that the agent assigned to your condominium knows how to remain current on changes to Washington State law governing condominiums -- and understands its basics, and if appropriate, state construction defect law, and state non-profit law.

Review any special resolutions and amendments, so the new manager understands and can aid and guide the board in enforcing governing documents.

Review the look, feel and usefulness of the assessment coupon book that will be sent to owners.

Craft the auto-deduction letter to owners, so they can follow instructions and pay assessments automatically, if desired.

Review the due date for assessments, and establish the date upon which late fees are chargeable.

Draft a collection letter to collect unpaid assessments, and follow the governing documents where this process is outlined. Draft subsequent letters that the collection process might require.

Craft a violations letter for notifying owners of violations, and follow the governing documents where this process is outlined.

Establish a hearing process, so owners can petition the board for a hearing based on a violation.

Establish a hearing board, made up of owners and at least one board member.

Document the recusal process where a board member can avoid a conflict of interest in a hearing by appointing a substitute board member when necessary.

Verify that the management company can produce resale certificates, which are required when units change ownership. These certificates must be accurate, complete and include whatever new requirements are imposed by state law in a timely fashion.

Verify that the management company can authenticate current ownership records, so the board and the management company understands the authenticity of every unit owner.

Gain agreement about how to establish and keep current, a list of tenants and residents in the community.

Share the schedule for the annual meeting, the budget process, the budget approval process, note-taking at board meetings, board minutes' publishing schedule, owner notification standards and so forth.

Community

Educate the managing agent about contact parameters for owners, tenants and the developer, if appropriate. A community telephone book or online contact sheet is ideal.

Discuss any community newsletters, online broadcast communications and so forth, in order to maintain the branded tone of board communications.

Review operational procedures including recycle guidelines, sprinkler schedules, landscape standards, window washing, snow removal requirements and so forth.

Share the contents of welcome packets, including additional or separate materials to be made available to either tenants or new owners.

Discuss town hall meetings where occupants -- strong suggestion that you include tenants -- can express their concerns, ideas, thoughts, considerations and so forth. Include the frequency, action methods, agendas, etc.

Review updates and upgrades to community communication that the new association manager may offer.

Online

Understand the online options offered by the new association manager, including items in all three areas above.

At a minimum, look for opportunities to save member assessment dollars, management fees, and everybody's time.

Preventative Maintenance

Behind fiscal responsibility, this is the task wise condominium boards want most from management companies.

RCW 64.34.328 Upkeep of Condominium states:

"...the association is responsible for maintenance, repair, and replacement of the common elements, including the limited common elements,..."

Regardless of the size of your community, there are basic documents you'll want in order to determine the tasks involved in a comprehensive preventative maintenance (PM) program.

This is a partial list -- yours might be longer:

• Site plans
• Site specifications
• Architectural drawings and specifications
• Building plans and specifications
• Envelope studies (or other checklists) required and filed with local government permits
• Certificate of Occupancy and attendant documents
• Public Offering Statement (from the developer), which should include a preliminary list

This is the time to develop a comprehensive glossary, so that anyone who uses the lists or the logs knows exactly what's being referenced. In addition, a glossary can aid a poster in constructing accurate logs.

Completing the task of understanding these documents is not for the faint of heart or the impatient. However, when complete, a significant institutional knowledge base can be passed along to the association which will become a truly valuable asset.

(Most property management companies inherit existing lists when they take over managing existing condominiums. An excellent management company will complete homework, as above, and bring experience to a new property and thereby be able to fine tune, update and otherwise adjust the preventative maintenance list.)

Newly constructed communities must develop these lists. Ideally, as part of the developer's responsibility, the developer will assist in crafting the PM list, making all construction details available to the new board. (Note: We don't live in an ideal world, so ask and keep asking for the data you need.)

Once you've constructed a list, it's a good idea to request that owners take note of items in need of repair that are observable by occupants of a unit. For example, the top-floor owners may experience roof leaks first. First floor owners may detect water intrusion from inefficient rain gutters first.

When you hire a PM vendor, walk the property with the regular maintenance person. That person may have additional experience that can help a community repair and maintain its assets, by paying attention to elements that are not listed, but of which this person is knowledgeable.

Once the PM tasks are complete, log them in a calendar. Using a calendar to document work helps future vendors and boards schedule and perform regular work. These records are useful during budget periods.

You may also want to keep a detailed list of PM tasks completed by unit. For example, if/when you check/ replace hoses and plumbing connections, clean dryer vents, check hot water heaters, fire/ smoke and carbon monoxide alarms, you can list these tasks -- whether completed or not completed, by unit number.

You can keep the detailed list in a spreadsheet-type log, listing the tasks as row labels and the dates as the column labels. (We keep a master list for all common elements and page lists for each building address, where we list unit numbers as row labels and events or months as column labels.)

Key to keeping logs will be how people might want to access the log data in future. A board member must be involved in PM at the detail level, as a matter of responsibility.

Preventative maintenance is a moving target, so expect to tune and update your tasks and logs over time.

Success in the Long Run

A good friend and I spent hours talking about condominium communities and what it takes for them to be successful.

Of course, successful is a variable -- with every person involved having their own definition.

Here's my definition of a successful condominium community:

A financially viable community of like-minded owners and tenants who live together in proximity, that exists and operates under a set of governing documents, where every occupant behaves in ways that respects the community. The community is served by a board of volunteer resident owners who run the affairs of the association in a fair, accessible and consistent way.

Sure, this is ideal. And you'll never find such a community. Why? Because of life. Unit owners/ tenants/ board members/ property managers/ local governments: all are variable, all change, all adjust, all work to tug the condominium community and the association in one direction or another.

Apathy is our worst enemy: owners, tenants and board members who are not really involved in the business workings of the association. People who expect that 'everything will be taken care of' without really understand how 'anything' works in this regard; people who buy or occupy condominium units who don't either understand or appreciate the condominium situation in which they find themselves.

Our only option -- as committed condominium owners/ dwellers -- is to keep volunteering, keep working and keep doing our best.

Okay, I'm over it.

Dish Antennas - an Update

Satellite dish antennas are a little like starlings -- or cockroaches. Where you see one, you're likely to see more.

That's exactly what happened to us.

A tenant moved into an owner's unit and ordered a high-definition (HD) satellite dish antenna. Toward the end of the day, the installer arrived, and casually asked the tenant if he had permission to install the dish.

"Yes," replied the tenant, having obtained verbal approval from the owner (who had not read the CC&Rs).

Soon, a second installer arrived, and in order to help them both finish up their day, assisted. Situating the antenna isn't something that the tenant or owner had considered, so the installers solved the problem by installing the dish on the limited common area that belongs to the neighbor upstairs.

"When you turn everybody in the building on to HD, we won't have to install another dish," promoted the installer.

When informed about the illegal installation, the tenant pointed to a (standard TV -- non HD -- satellite) dish attached to another building. (The standard TV device mounts in a linear fashion that could be accommodated on the wood trim of the building.)

"We saw that antenna and thought it was okay to install one," came the tenant's explanation.

The board sent a formal Notice of Violation to the owner, who acknowledged not having read that permission from the board was required in order to install such a device.

Upon receipt of the owner's petition, the board decided that we would allow the installation, but in a spot that was away from the center of the "beauty shot," center-of-attention, aesthetically, for the complex, and on the common area of the building. We agreed on an elevated installation at the back corner of the building, away from the street and more or less out of sight. We also asked for a damage deposit sufficient to cover the cost of repairing our building when the device was removed.

When the new installer came to move the device, we discussed the installation options for reception and for aesthetics. Bottom line: the triangular-shaped installation footprint required could only be accommodated by drilling through the side of the building, thus compromising its waterproof membrane.

As well, there was no area within the limited common area deck available to the tenant where this extraordinary footprint could be accommodated.

The FCC rule allowing dish antenna devices states that the device must fit within the one-meter-in-diameter limit, but makes no mention of the installation footprint. (This device required an 'L'-shaped footprint about 35" along the base of the 'L' and about 20" up the leg.)

We burned up nearly three week's time for the board; the tenant and owner produced an untold amount of consternation.

Our resolution was to deny the petition based on there being no place in the common area where the HD dish antenna's installation footprint could be accommodated.

Given the FCC ruling that a board cannot deny anyone's ability to consume satellite TV signals, we asked the owner to petition the board for installation within the confines of their limited common area, a deck. We required an installation plan that covered the installation process: either drilling into the floor of the deck or installation using a tripod.

In the final analysis, the owner and the tenant decided not to offer another petition, based on the increased damage deposit required should they choose to drill into the floor of the deck, and the liability involved in mounting the device on a tripod, which subjected it potentially to the vagaries of wind and weather, and the damage it could cause should it become loose.

(The owner paid the cancellation fee.)

Governing Tips:

• Review your governing documents in light of the FCC rule, and verify that you can manage device installation within your physical community. HD dishes are larger than standard TV dishes, although still within the one-meter-in-diameter size limit, but their installation footprint is significantly different.
• Require a complete description of the device in your petitions for installation, including its installation footprint. Ask for photos and dimensions of the installation hardware and the weight of the device.
• Require a damage deposit sufficient to cover any repairs when the dish is removed.

Here's an FCC link you may find helpful.

Practical Tip: If you know that dish antenna installation requires board approval and you notice that an installation about to happen, run, don't walk, out to the installer and ask to see the written permission from the board to install the device. If none can be produced, ask the installer for written confirmation that s/he is about to install a device without permission. Your board will thank you!

Punch Line: The satellite vendor doesn't want the dish. When cancelling the contract, the customer is required to return the 'boxes' from inside the home. Removing and disposing of the dish is the customer's responsibility.