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Safety – A New Reserve Fund Focus

Reserve Study Guidelines

Are you aware of the significant changes in the Community Association Institute (CAI)’s recommendations for best practices in future reserve fund studies? If you are not, you are not alone. In July 2023, the Foundation for Community Association Research published its Best Practices – Community Association Maintenance manual. Let me explain why this 68- page ‘Maintenance’ manual should be a must read for every condominium or HOA board member. It is available in printed form and the no cost digital version can be downloaded from CAI’s website.

Most reserve fund studies in the recent past have used CAI’s Best Practices – Reserve Studies / Management manual published in 2007 as a guideline on how to perform a quality reserve fund study. Though this guideline is still relevant, things have changed with the new 2023 ‘Maintenance’ manual. No longer is a reserve fund study’s primary focus budgetary but rather future reserve fund studies should expand to incorporate both safety and preventive maintenance needs. As CAI states, CAI “…recognized need for greater clarity in the role of maintenance planning and programming in communities”.

Following the June 2021 tragedy in Surfside, Florida with the collapse of Champlain Towers South and the loss of 98 occupants, CAI commissioned a special committee of reserve fund experts contributing to the Condominium Safety Public Policy Report (October 2021). Among other points of emphasis was condo boards’ life-safety responsibilities and duties of loyalty and care. The special committee’s ‘Maintenance’ manual further recommends expanding typical reserve components to include preventative maintenance in future reserve fund planning as well as infrastructure inspections when warranted.

This is a departure from prior reserve fund guidelines where preventive maintenance and infrastructure inspections were not included or funded as reserve component line items. It is now recommended the judgement of the reserve study provider determines the inclusion of these types of component items when based on a degree of engineering certainty. It is further suggested the community’s historical pattern of maintenance expenses should be considered in determining if any of these expenses should be included in the reserve budget. Other historical reviews should include any work performed on the reserve components since the prior study was performed. In fact, all available service provider reports and information regarding the physical components should be reviewed.

What’s Included

While reserve studies will now reflect the board’s life-safety responsibilities, reserve studies will continue to evaluate information regarding the physical status and repair/ replacement cost of the association’s major common area components using component inventory, a condition assessment, and valuation estimates. Some of the new ‘Maintenance’ manual’s recommendations are subtle while others are not, such as decreasing the recommended period of site inspections from five to every three years.

Another significant recommendation is components are not restricted to physical items. This could include professional inspections, evaluations, or related building services when additional expert advice is needed, and an asset’s deterioration is in question. Therefore, common area preventive or corrective maintenance projects qualify as reserve components if they otherwise meet the definition of ‘component’. Thus, a reserve component is not required to be a cyclical replacement. Now a periodic structural inspection could be reserve component.

In the past component replacement was estimated as a ‘like kind’ of component. It is now recommended consideration should be given to logical upgrades to an existing asset or system now viewed as obsolete or inefficient in meeting the needs of the association. Judgement on these upgrades can be based on ongoing preventive maintenance costs and an evaluation of energy costs using higher efficiency equipment. Selection of components and their estimated useful life and remaining useful life may consider energy usage and ongoing maintenance costs with the resulting impact on total budgetary expenses and total life cycle costs.

Long-life components (i.e., > 30 years) have long been a subject of debate on their presentation in reserve studies. Often boards ignored long-life infrastructure components, hidden electrical and mechanical systems and their associated replacement costs. In effect, if the component’s replacement did not occur within the reserve study’s 30-year window, the study ignored future funding needs and kicked the can down the road for a future board to address. The new ‘Maintenance’ manual recommends long-life components should not be ignored but made visible in the study. Methodologies for reporting long-term projects include:

  • Inclusion of long-life components with funding in the study.
  • Addition of long-life components with funding at the time when they fall within the 30-year period from the date of study preparation.
  • Identification of long-life components in the component inventory, even when they are not yet being funded in the 30-year funding plan.

Despite this new emphasis on preventive maintenance, it should always be remembered a reserve fund study is not a preventive maintenance plan, and a preventive maintenance plan is recommended for all associations. A quality reserve fund study is a path to avoid deferred maintenance; special assessments; lower property values; and liability exposure for all. This is a plan to meet the board’s primary mandate to ‘Maintain, Protect and Enhance.’

Written by Jack Carr, P.E., R.S., LEED-AP, Senior Consultant Criterium Engineers
Published in Condo Media

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Top 10 Condo Do Overs to Avoid

Over the last twenty years I have had the privilege of meeting with many condominium and HOA boards and leaders. Some were seasoned and experienced while others were new and exposed to the culture of community living for the first time. All wanted to do their best, yet failings and mistakes were acknowledged. With the hope of being forewarned is being forearmed, I thought I would share with you some of my observations of the ten most common condo board mistakes to avoid future do overs.

Not Understanding the Governing Documents: It is so basic. New board members are asked to read all the governing documents, but long-time members should also periodically review the association’s rules and regulations, especially when an important matter is to be considered. And of course, the corollary to this recommendation is these governing documents must be consistently followed and fairly administered. Erratic enforcement of the rules will never foster harmony in the community.

No Confidence in Your Management Company: This problem can be avoided from the start by hiring the right firm for your community. Interview the best candidates; ensure their proposed scope of services meets the specific needs of your community; and periodically review the selected firm’s performance and share your concerns. Once the board sets the goals and policies it should step aside and let the management firm enforce them without micromanaging the daily operations.

Not Maintaining Accurate and Timely Financial Statements: Loss of control over your financial statements is a guaranteed path to chaos in the community’s future. Good financial statements promote confidence amongst the unit owners; good relationships with your bankers and insurance representatives; and accurate information for reserve and operational planning and budgets. Up to date financial information is the engine driving revenue collections; trouble-free payables; and payroll processing.

Unreliable Reserve Fund Studies: If your reserve fund study is over seven years old, it is almost useless. Having the study sitting in someone’s bottom drawer and not referring to in that time is almost worse. Reserve studies are living documents whose basis is always changing. Construction and repair costs have skyrocketed. Inflation over the last two years has made most budgetary schedules obsolete and underfunded. A board does not want to be in the position of releasing the start of a major project only to discover more money needs to be raised.

Contribution Shortfalls to the Reserve Fund: The source of this problem is a failure within the management team. Either your accountant has not billed the proper assessments; your engineer has not estimated the necessary capital repair budget; or your property management firm has allowed deferred maintenance to get out of hand. Underfunded reserve budgets can damage the community’s image; impact unit owners’ future sale plans; and require future special assessments. The board is ultimately responsible for maintaining adequate operational and reserve fund balances. Not facing the need to raise assessments or delaying the decisions for necessary capital expenditures are classic board mistakes.

Communication Failures: Condo communities not only must be transparent in their communications with the unit owners but must be perceived to be transparent. Confidence in the board is built over time and will be called upon when difficult decisions need to be made. When everyone has the same set of facts, common decisions are much more likely. Today the media to get the word out is vast including bulletin board postings; community websites; email bursts; postal flyers; texting; etc. A well-run community has its members fully engaged as much as possible. Good and bad news should be dealt with on a timely basis. The community motto should be: “When it hits the fan, run at the fan.”

Uninformed Team Members: We Yankees like to fix things ourselves. However, in community living this can get a board in trouble. When a problem arises, there may be a tendency to save some money by not calling the condo’s lawyer, engineer, or insurance agent. The other Yankee saying is ‘penny wise and pound foolish’. If a liability issue arises or a conflict over the interpretation of a bylaw phrase, a quick phone call to your condo attorney might avoid unpleasant future consequences. The same is true for building safety issues or the discovery of water infiltration in the condo complex. Building problems rarely improve on their own.

Board Disunity: Disagreement among board members is bound to happen. Everyone’ opinion matters but everyone can’t be right all the time. The board members must follow established decision-making protocols and once a decision has been made each board member must stand behind the consensus. Anger and lack of respect have no place in community governance.

Not Following the Chain of Command: In general board members and committee chairs want to do the right thing. Sometimes in their enthusiasm to get things done in a timely manner they may take matters into their own hands and act without authority. Condo leaders must be reminded from time to time that they are dealing with community money, and they should not direct on-site contractors and vendors to supply services or make repairs without specific direction from the board. This type of lack of discipline can create unnecessary liability or costs easily avoided.

Improper Vendor Selection: Perceived vender service dissatisfaction is often the reason for a new member joining the board. All should be reminded before terminating a vendor service an exit interview should be held to determine all the facts. With a bit of due diligence, the true problem can be revealed resulting in better service with less trouble.

Community living require forbearance and respect for volunteer efforts. All things are possible with village unity.

Written by Jack Carr, P.E., R.S., LEED-AP, Senior Consultant Criterium Engineers

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Liabilities and Risks of Ignoring Issues: An Engineer’s Perspective

Liabilities and Risks of Ignoring Issues: An Engineer’s Perspective

Repairs reserves

Question:

A recent reserve study identified a number of repairs/replacements that should be addressed in the community. However, while the reserve is being funded on a monthly basis, there isn’t enough in the current reserve fund for the repairs/replacements. With inflation and knowing that owners won’t be happy, the board decided not to increase condo fees or approve a special assessment and instead will wait to make the repairs/replacements when the money is available in the reserve fund.

Since the reserve study has indicated that these repairs/replacements should be addressed, how might the board’s decision impact our liability should one of these items fail and/or cause damage to the community or someone is injured by our failure to address the repair/replacement?

Answer:

Unfortunately, underfunded condo or Home Owners Association (HOA) reserves are a common occurrence in New England, especially in communities with buildings greater than 25 years old. Most New England states do not have specific requirements for the level of needed reserves nor even a requirement for a full reserve study. States’ HOA and condo statues do place an obligation of fiduciary duty on boards and their members. They must act in good faith and be prudent and faithful in furthering the association’s best interests. A current reserve study and a properly funded reserve fund are often key to protecting a community’s long term financial health and provide good risk management.

Commissioning a reserve study by the board is a good first step in planning for the future. Problems can arise when the reserve study reports underfunding the correction of current common asset deficiencies. In an ideal world, the board recognizes the importance of these reported deficiencies, initiates a plan to raise the needed funds, and orders repairs. But in reality, circumstances may occur when the board feels the community cannot afford an increase in assessments or will oppose a special assessment to fund the needed improvements. It is at this point the board should be aware it may be incurring significant known and unknown risks and liabilities.

Reputation and Building Risks

Some of these risks and liabilities fall in the “legal” category while others in the “quality of life” or “financial” category. That is, if a member of the community or visitor were to be harmed by tripping on an unrepaired sidewalk hazard or a broken deck component, litigation could ensue. Leaving aside the potential success of this type of litigation or the protection of board of directors by liability insurance, the long-term effect could be damage to the community’s reputation. One of the most important duties of the board is the protection of the owners’ net worth. If the community is seen by the real estate market as a dangerous or risky place to live, its future average unit sale value will be reduced. This situation will signal two red flags to potential buyers: First, it will raise doubts about the latent condition of other community assets; and second, it will underscore the significance of the underfunding and future need of special assessments or other emergency measures for future owners. These circumstances could impact the timing of future unit sales.

Most professional property managers will agree ignoring important repairs or putting off needed improvements typically will only increase the damage and costs over time. Not only will the community’s curb appeal be diminished but so will the desirability of banks providing unit loans or refinancing. Responsible communities recognize it is in their own best interests and will not kick the can down the road but face their current and future fiscal needs. Banks and real estate agents often review reserve studies to understand their investment risks. Having the need for future repairs and improvement projects is not the problem. The problem is not having a plan to carry out or fund the repairs and improvements.

Written by Jack Carr, P.E., R.S., LEED-AP, Senior Consultant Criterium Engineers
Published in Condo Media

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How to Hire a Condo Engineer: 4 Steps

How to Hire a Condo Engineer: 4 Steps

Hire condo engineerMake sure you actually need one, too

They don’t teach you how to hire an engineer in school. Indeed most folks have never had the occasion to hire an engineer or an architect in their whole life. This is also true for most condominium or HOA board members. So how does a condo board go about successfully hiring the right engineering firm for their upcoming project?

1. Evaluate the Need

Perhaps the first question to be asked is ‘do we even need an engineer?’ Not all projects do. Some repair projects are so straight forward and obvious the board can hire a contractor with the proper skills and run the project by a committee chair or a property manager who has expressed confidence she’s managed many similar repair projects. Some projects requiring some engineering expertise, such as replacing the common HVAC equipment or upgrading the common electrical systems, do not need an engineer to manage it but rather the right choice by the board would be to seek an HVAC or electrical contractor capable of providing ‘design/ build’ services for both a timely and economically satisfactory project.

The complexity of the project and criteria needed to be complied will determine whether an engineer is needed. Typical projects in this category will include designing a new storm water drainage system for the entire HOA; performing a reserve fund study; or evaluating and design of a new foundation for one or more buildings in the condo complex. It should be noted, the term ‘engineer’ in this article refers to a professional engineer (P.E.) licensed in the state of Maine. Though other unlicensed engineers can work on the project, only a licensed engineer can stamp (preliminary and final) construction documents for town planning board review; building permits; and other municipal requirements.

2. Selecting the Engineer

Once the need is determined, selecting an engineer is the next major step. The process starts with defining the project with a clear and complete description of the scope of work. Many property managers have the resources to provide considerable assistance to the board in developing this scope of work. While the scope of work is being prepared, a list of two or three engineering firm should be created. Clearly this list should be made up of engineering firms providing the services needed for the subject project. Here again the condo’s property manager can be a good source of finding the right firms. Similarly, engineers listed in the Condo Media’s directory can make this task relatively easy because the engineers listed will be firms with experience in not only the technical issues involved but also are familiar with the world of condominiums and their special needs.

3. Preparing the RFP

Once the potential list of firms is developed, a Request for Proposal (RFP) can be prepared. This document will utilized the defined scope of work to ensure all interested parties are preparing their responses with a similar understanding of the board’s objectives. Typical RFP’s have four major elements:

1) General Information for the Engineer
2) Technical Requirements
3) Criteria for Selection
4) Scope of Work Statement

On some projects it may necessary to invite the potential firms to visit the site for a tour to outline the issues or special conditions impossible to clearly delineate in the RFP. Following the distribution of the RFP to the listed firms, the board will screen the proposal responses; select firms it wishes to interview; and schedule the interviews (45 minutes to 1 hour) to allow both the engineering firm and the board to clarify any questions or concerns arising during the proposal preparation process.

4. The Interview and Contract Process

This interviewing process is most important. Typically, the principal or senior member of the engineering firm attends the interview giving the board a first-hand impression of the firm’s approach to this project; a clear commitment to the technical resources available for this project; and past relevant experience predicting a likely successful outcome. The interview also allows the engineering firm a better understanding of how the board will be making decisions and committing adequate representation to ensure proper administration of the project.

Following this interview the board should select it first choice for the project’s engineer. At that time the contract is negotiated. Often the contract is a direct reflection of the requirements of the RFP and the conditions and fee found in the engineering firm’s proposal. These negotiations on occasion will result in changes to the scope of work and the fee. If agreement cannot be reached on issues acceptable to the board, the board can begin discussions with their second engineering firm choice in order to feel comfortable with their selection. It is critical the board feels they have selected a firm they can work with and have confidence future communications and project outcome will meet their community’s needs.

Awarding the contract to the successful engineering firm is only the beginning. A kick-off meeting to introduce all of the project team members on both sides; a review of everyone’s obligations; and establish a clear line of authority and communications. In starting any major project, the board should always remember that just like dealing with a lawyer or a doctor, the engineer’s job is to provide competent technical information and solutions but it is the board’s responsibility to make the business’ decisions. History has shown a well- defined scope of work coupled with a board making timely decisions is a recipe for a successful project.

Article written by Jack Carr, P.E., R.S., LEED-AP, Criterium Engineers
Published in Condo Media January 2020 edition
Download a PDF Version of this Condo Media Article

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Solar Panels – Right for your HOA?

Solar Panels — Right For Your HOA?

Solar panels may be an option for your community. Legislative incentives are available in states around the country. 

There is a growing consensus that climate change is real and its consequences will have significant impact on our quality of life and regional economic future. While the cause of climate change may be debated, its potential impact on future generations should not be. So the real question should be, what are we going to do about it?

If part of the solution to climate change is living more sustainably with a goal of zero-carbon power production, condominiums can take a key role in this effort. By the very nature of community living, condominiums reduce our carbon footprint through more efficient use of the land and reduction of construction materials with multi-family building designs. Many urban condos are developed by recycling old buildings that are re-purposed thus avoiding the wrecking ball and waste generation.

Condominiums can take a leadership position to promote more environmental friendly municipal projects ranging from efficient public transportation; avoidance of the consumption of fossil fuels in favor of sustainable electric generation for heat pumps or electric powered vehicles; and waste recycling.

Not only has the price for these PV solar panels been dropping rapidly over the past few years, the methods of maximizing their usefulness in a community environment is becoming more viable with the newest technology allowing both direct and scattered sunlight to create electricity and by use of power inverters so electric power can be directed into batteries or the utility grid to sell back excess electricity. These PV panels can be grouped into arrays called micro-grids that can collect electricity and distribute to not just one user but a community of users.

These micro-grids can be located in a wide range of locations. They do not have to be on top of roofs which are objectionable to many. Instead, they can be located in empty areas around the condo complex. As an example, one of these ‘solar farms’ can feed two buildings with four units in each. Buildings such as these are fueled today by shared propane tanks in the backyard, why not solar arrays?

These types of PV solar arrays can provide electricity to fuel common elements such as the club house; street lights; and hallways light fixtures. Unit owners could opted into becoming a member of a solar farm and own a portion of the panel array (called a share) or they could opt out. Those owners who become members of the array can then improve their current old heating system by converting to an electric, ductless mini-split system producing both heating and cooling which they never had before and adding value to their unit. With inexpensive electrical power available condominiums can consider adding fueling stations for battery driven automobiles further reducing fossil based fuel consumption and fostering cleaner air.

Those condo communities with an interest in using solar power in the future should be following locallegislative events.  It is not too early to form an exploratory committee to review all of the special issues condos will face to implement solar power, as compared to an individual home owner. This research should reach out to other states who are ahead of Missouri’s solar curve.  One good source is A Solar Guide for Condominiums Owners and Associations in Massachusetts easily found on Google.

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Vinyl Siding – or Not

Vinyl Siding ProblemsPerhaps you are on the Building Committee which has been charged by the Board to recommend a replacement siding material for your 35 year old condo. Perhaps you are a property manager whose in-basket is filled with unit owner complaints about vinyl clapboard siding problems in the new condo complex. Whatever the vinyl façade issue is, the future solutions may surprise you.

Vinyl siding materials are everywhere. It is probably the most common façade material in all its forms used on condominiums across the nation, and for good reason. It is quick to install; it is relatively inexpensive; and has an estimated useful life of over 40 years. Most of its negatives are well understood: it can crack or break in the winter time from hail or your grandkids hockey pucks; it can make noise when it’s windy or too hot; colors fade or become chalky over time; and frequent cleaning is required. However, these may not be the issues you may need to face with the current vinyl siding problems.

Solar Attack

This problem can fall in the unintended consequences category. With the issuance of the new building energy codes and the drive to reduce our heating costs and carbon footprint, we are melting our vinyl siding. This is happening due to the installation of the new low-E, highly insulated glass windows being installed in both new buildings and replacement windows.

The thermal layers and reflective properties of these high-tech windows cause sun rays to bounce off and reflect onto vinyl siding causing the siding to buckle; warp; or melt. These new window surfaces act like magnifying glasses concentrating the solar energy on a vinyl surface that cannot tolerate heat over 150 degrees Fahrenheit. This condition can occur when a window on the south elevation of the building is near a right angle corner wall covered in vinyl siding. It can even occur when a new commercial building is built across the street and its new glass wall façade faces the sun and reflects across the street to your vinyl sided property.

So what are you to do? This problem was rare in the past but now solar damage is occurring with increasing frequency due to the drive to install low-E windows. The Vinyl Siding Institute suggests placing awning or shades over the windows and even changing the landscaping to create shade trees to block the light. Some vinyl siding manufacturers are addressing this type of solar damage by adding a ‘thermal diffusion agent’ to the vinyl mix at the factory to help reflect and resist the heat build-up.

Manufacturers are also responding to the problem with vinyl siding by excluding solar refection or melt damage from their warranties. Their warranties always excluded damage from heat sources such as gas grills placed too close to the exterior wall, but now damage from reflective windows is recognized so it would be wise to read the fine print before selecting a siding brand.

Color Fading

This increasing problem is a sub-set of the solar melting problem. Whether it be due to window reflective energy; climate change; or changes in manufacturing, this color fading complaint is becoming more prevalent. In the past, color fade was protected with a lifetime warranty by the manufacturer. Color fade was measured by a maximum of a Delta E of 4 Hunter units in accordance with ASTM standard D2244.

In the past, this warranty issue would be handled by a siding replacement policy. Now, some manufacturers are offering a ‘restore’ process instead of replacement. The ‘restore’ process would allow the manufacturer to paint the siding with an acrylic paint often applied by specialist painting contractors. This restore process comes with a 10-year warranty, down from the prior ‘limited-lifetime’ color warranty. Here again, read the fine print before signing the contract.

Installation

Vinyl siding may be quick to install, but it is not easy, if it is done right. Vinyl siding has an integral vinyl tab at the top in which an oval hole is punched at set intervals along its length to allow a nail to be driven through this hole and into the sheathing. Sounds simple, but it is not. The manufacturer specification requires the installer to drive the nail head within 1/32th of the vapor barrier/ sheathing surface so as not to bind the thermal movement of the siding.

Keep in mind the fasteners are being driven by an adjustable nail gun requiring a level of skill to properly set the nails in each slot hole without touching the vinyl. This accuracy requirement, coupled with today’s reduced numbers of skilled construction personnel, makes this a quality control challenge. If fastener binding does occur, the siding will not properly move with thermal expansion and buckling will soon appear on the surface.

So the answer to today’s vinyl siding problem is: do your research. Read the manufacturer’s specifications and warranties; ensure your contractor is committed to good supervision of the installation of this important building envelope element; and finally, follow up with your own quality verification program, either through your building committee or project engineer. The siding is only as good as it is installed.

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Foundation Forensics

Crack in a foundationCracks in foundations are by far the most common structural complaint raised in either reserve fund studies or transition studies.   They can occur in the youngest or newest condo building. As condo documents usually assign the maintenance responsibility of their repair to the association, board members and property managers take them very seriously.  Missouri condo buildings have many types of foundations including concrete block; brick; and mortared stone with the most common being poured concrete.

Most basements and garages have 4 to 6 inch concrete slabs and unless this is a slab-on-grade foundation, the slabs were poured independently of the foundation walls.  They are said to be ‘floating’.  Often the construction joint between the slab and wall can easily be seen.  The common slab crack complaint is hairline cracks appearing in spider web-like patterns.  These cracks can show up shortly after construction and are normally caused by shrinkage during the curing process.  The key point here is this type of slab cracking is rarely a structural problem, for after all, the slab could be completely removed leaving a dirt floor while the foundation walls and columns with footings will easily maintain a stable building.

Therefore, slab cracking is often more of a cosmetic problem.  Cracks are often repaired with a variety of grout, caulk, or epoxy products primarily to prevent groundwater penetration, insect entry, or radon gas infiltration.  Cracks showing differential movement on opposing surfaces can be a tripping hazard but more importantly an indication of serious sub-surface conditions needing further investigation.

Regarding foundation walls, the most typical problem with concrete walls are vertical hairline cracks, often starting at the top of the wall and traveling down to the floor slab.  A sub-set of these types of cracks are those that propagate often in a diagonal direction from stress concentration points such as the bottom corners of basement window openings.  The key point to remember is these types of cracks, even when they penetrate the entire thickness of the wall, normally do not constitute a structural problem as the loads from above pass unobstructed on both sides of the crack to the footings below.

However, when the wall surfaces on both sides of the crack are moving out of plane or the structure above shows stress in the form of movement or cracking sheetrock walls and ceilings above, further structural evaluation is warranted.  Foundation cracks should be sealed if periodic water infiltration occurs.  Repairing cracks from the outside if often the best method, but due to the excavation costs involved, repairing the crack from the interior by injecting a crack filling material has become a routine solution.

When horizontal wall cracks; multiple closely spaced vertical cracks; or large diagonal cracks in basement corners are observed, these conditions may indicate more serious problems related to settlement or other structural problems.  Similarly, a single vertical crack that is much wider at the top of the wall may indicated foundation settlement problems stemming from poor soil conditions; hydrostatic groundwater pressures; or frost heaving.  These problems should be directed to a knowledgeable consultant.

Regarding concrete block foundation walls, most of the guidance above can be used with some exceptions.  By their nature concrete block walls are often not well reinforced and are subject to inward movement from various soil pressures causing these types of walls can bulge inward.  Ice lens forming about 3 feet below the ground surface can expand and push concrete block walls inward.  This can even occur from a vehicle’s weight being too close to the foundation, such as oil delivery truck.  When horizontal cracking is observed in block walls, steps should be taken quickly to prevent further movement.  These types of walls are also very susceptible to water penetration even when foundation drains are present often requiring serious water proofing repairs.

The key to maintaining a sound brick or concrete block foundation is periodic vigilance to ensure loose or dislocated masonry elements are not ignored.  If you observe a ‘stair step’ patten crack in the mortar joints of a masonry foundation wall, it typically means settlement has occurred under the ‘step’ section of the wall. .  Any observed bulges or horizontal movement, as well as new cracks, should be quickly addressed.

Many Missouri condominiums have been converted from old multi-family apartment buildings with mortared or un-mortared stone foundations, some with brick foundation walls above the ground surface.  These foundations have stood the test of time and are more than 100 years old and if well maintained can last another 100 years.  They are more likely to allow the entrance of ground water due to their porous nature and the necessary steps should be taken to protect the structural elements and indoor air quality of the building if high moisture is a problem.  Old foundations are like people.  As they age, they need some extra care but they have already met the test of time.

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HOA Fees Going Up?

How to Sell the Results of a Reserve Study Without a Revolt

While the importance of associations building a strong reserve fund is no mystery to you, raising fees or assessments is often a sensitive subject with homeowners. Every association needs a long-term planning goal, and a reserve study creates an accurate timetable for all major improvements. Learn how to address those sensitivities and sell the results of a reserve study with a revolt.

FIDUCIARY DUTY

One of the primary business duties of community associations is maintaining and preserving property values of the associations’ common property. To do this properly, associations must develop funding plans for future repair or replacement of major common-area components.

A reserve study is a budget-planning tool that identifies the current status of the reserve fund and establishes a stable and equitable funding plan to offset the anticipated future major common-area expenditures. Being prepared for non-annual expenses allows your association to change the unexpected to the expected. Reserve studies are one of the best strategies for financial and physical health at the association’s disposal. In order to keep the replacement costs current, the reserve study should be updated (with a site visit) every three to four years.

COMMUNICATION AND RELATIONSHIPS

It is our belief that fundamental to the accomplishment of any of these objectives is two basic premises: communication and relationships. Communication is multi-faceted – between the board and the owners, between the board (and/or subcommittee) and the consultant, and between the consultant and the owners. To ignore these opportunities for effective communication will result in diluting the effectiveness and ultimate success of the implementation of any reserve study on the books for your association.

Relationship nurtures trust and confidence. Through effective communication, greater trust and confidence can be developed between the various parties involved. As a result, it is more likely (although certainly not guaranteed) that the recommendations of a reserve fund study can be effectively implemented.

AN OUTLINE FOR SUCCESS

It is imperative that the scope of a reserve study be clearly defined before even seeking proposals from consultants. The following are a variety of options to be included in the scope of any Request for Proposals:

  • Define the project – From the table above, define exactly what is expected of the consultant. This should be as a result of discussion by the board and/or building subcommittee to determine what is needed. It is particularly important to decide whether the reserve study is to be based on simply replacing existing components or if upgrades and improvements should be considered.
  • Interview the consultant – The RFP should include a paragraph such as follows below. Getting to know the consultant, the people involved on your project and their approach to the project is imperative to a successful relationship.
    The board will select two to three consultants it believes to be qualified for the work and then conduct interviews. The objective of the interview is to meet the people who will be specifically working on our project, discuss a variety of questions, and generally understand the procedures the consultant intends to use for the project. A final choice will be made within one week following the interviews.
    A reserve provider’s objectives are threefold: to provide a broader perspective on reserve studies; to assist property managers with a successful presentation of reserve fund studies; and to create opportunities for more meaningful reserve studies and effective implementation of recommendations.
  • Pre-project meeting – The board (or building subcommittee) should meet with the consultant before actual work starts. The objective is to refine and finalize the scope of the project. This is also an opportunity to determine what will be expected of the association (or management company) and what will be expected of the consultant throughout the project. Suggested language for the RFP is as follows:
    The first step after selection is a meeting with the board (building subcommittee) to review, refine, and finalize the scope of this project. At that time, the items to be covered, the procedures involved, the on-site protocol to be used by the consultant, and any special concerns of the board (building subcommittee) will be discussed.
  • Conduct an owner survey – The intent is to give all of the owners the opportunity to express any particular concerns they might have about the project. While this may seem risky, it has been our experience that it is actually quite effective. Such a survey would be accompanied by a letter from the association providing all of the owners with the scope and limitations of the reserve study to be conducted and encouraging them to respond to the survey. It has been our experience that there is a very high percentage of response. Often the response to these surveys will reveal patterns that relate to association responsibilities as well as giving owners the opportunity to note areas of concern. The following is text for the RFP relative to this point:
    The consultant is expected to participate in at least one meeting with the board (building subcommittee) prior to commencement of the project.
    The consultant is expected to distribute a survey for use by all unit owners and compile the results of that survey as a part of the reserve fund study.
    The content of the survey should be reviewed and modified for each specific project. Also, a letter should be distributed to the unit owners, along with the survey, explaining the purpose and logistics of the reserve study and the survey. That letter should be on the association stationery. The survey would be on the consultant’s stationery.
    The final report would include a summary of the survey findings as well as any specific recommendations or observations related to the survey.
  • Follow-up meetings – It is important that the consultant be willing to discuss the findings of the study with the directors, building subcommittee, and unit owners. This is especially important if the study includes an evaluation of upgrades and improvements. Ideally, there will have been ongoing communication with the directors (building subcommittee) throughout the study process. A meeting with the unit owners will be a logical extension of that process. The following is language to be used in an RFP for that purpose:
    The consultant is expected to attend at least one meeting to which all of the unit owners are invited. This will occur after submittal and acceptance of the final report. The consultant will be expected to provide an overview of their findings and to respond to questions from the unit owners.
  • Report format – Effective communication means effective distribution of information. In larger associations (more than thirty to fifty unit owners), distributing the complete report is impractical, cumbersome, and usually unnecessary. However, a condensed “owners’ report” is a valuable tool to distribute information. Typically, the owners’ report would include an executive summary and the financial projections that are part of the master report. To achieve this purpose, the following language is suggested for the RFP:
    The consultant will provide (enough for the board or building subcommittee) copies of the complete final report. This will include photographs highlighting areas of concern and/or special interest. In addition, the consultant will provide a single reproducible copy of an owners’ report which will include a brief (two to three pages) overview of the findings of the study and the reserve fund projections.
  • Review draft report – For the association, directors, and building subcommittee to be comfortable with the work of the consultant, it is important that there be interaction throughout the process. Generally, we recommend that the consultants meet with the directors/building subcommittee regularly throughout the process of developing the study and submit a draft report for review and comment by the directors/building subcommittee. Recommended RFP language is as follows:
    The consultant will provide a draft report for review by the board (building subcommittee). The board (building subcommittee) will provide comments within two weeks of receipt of the draft report. Following that, the consultant will provide its final report.

Now That You Have the Results, Where Do You Go From Here?

In the first half of this article, we discussed reserve studies and selling the results of the report to your association (without a revolt!). Now that you have the association on board with the report, how do you go about implementing the actual findings?

Click here to download the full article and a complete look at next steps…

 

Note: these resources are provided for consumer guidance only. To have a licensed, Professional Engineer inspect your deck, contact Criterium-Hardy Engineers.

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Seven Things You Need To Know Before Conducting Your Next HOA Reserve Study

One of the primary business duties of Home Owners Associations is maintaining and preserving property values of the Association’s common property. To do this properly, Home Owners Associations must develop funding plans for future repair or replacement of major common area components. An HOA reserve study is a budget planning tool that identifies the current status of the reserve fund and establishes a stable and equitable funding plan to offset the anticipated future major common-area expenditures.

Criterium-Hardy Engineers - HOA Home Owners Associations Reserve Study and Transition Study Experts!

1. All HOA Reserve Study preparers are not equal.

There are a number of ways to evaluate the qualifications of the person or firm whom you are going to retain to perform your study. Key factors when making your decision should include the following: knowledge and experience of the provider, ability to understand the clients’ needs, local expertise and availability, quality control and accountability, and professional education. A key to evaluating this qualification is to have this portion of the work performed under the direction of a licensed Professional Engineer (PE), as the license confirms that the person has been trained and educated in performing this type of evaluation.

2. All Reserve Studies are not equal.

Until just a few years ago, most reserve studies included a list of all of the components, their replace­ment cost, and remaining useful life in order to determine what the next years funding should be. After many years of discussion and development by the Reserves Committee of the Community Associations Institute, it was agreed by the leading Providers from across the United States that all Reserve Studies should include not only this “Physical Analysis” but also a comprehensive “Financial Analysis”. This is now the stan­dard. The physical analysis is important because it deter­mines the existing condition and actual expected life of the common elements. The financial analysis focuses on the planning and budgeting of replacing these common ele­ments, and includes a cash flow projection of the reserve fund over a 20-year period.

3. Full Funding of a HOA Reserve Study may mean that you are over funded.

There are a number of different “Funding Goals” which are recommended for use as the basis for your Association’s future reserve fund planning. “Baseline Funding” is when the cash flow projection reaches $0 at some time over the projection period. “Component Full Funding” is based on keeping every indi­vidual component within the Study 100% funded. In most instances, this will result in a significant amount of funds, which are never used during the cash flow projection pe­riod. “Threshold Funding” is when the amount in the fund during the cash flow projection period is based upon keep­ing a minimum balance within the fund. “Statutory Funding” is based upon the establishment of the amount to be funded as dictated by the local state requirements.

HOA Reserve Study Funding

4. The Replacement Costs included within a HOA Reserve Study should consider replacement alternatives, not just replacement with the exact same component or system.

In many instances the original component, which is being replaced, either is no longer available or has be­come outdated since it was first installed. By making rec­ommendations for alternatives to the initial installation, the Association may be able to install a replacement compo­nent or system with a significantly longer life, such as a new type of roofing system, or a component or system which is much more energy efficient such as a new HVAC system. In both cases, this will result in either a reduction in the recommended contributions to the Reserve Fund or a reduction in your energy costs.

5. The Reserve Study can be used for much more than just estimating the Association’s contributions to the Reserve Fund.

The Reserve Study cash flow analysis can also determine how the Association’s Reserve Funds can be invested. They give the Association the ability to plan for the actual replacements, therefore making it easier to negotiate more effectively with contractors. An investment plan can be established to maximize the return on these funds based upon when they will be needed.

6. The HOA Reserve Study will not be the only funding the Association will need for the upkeep of the common elements.

The Reserve Study is only for the major repair or replacement of the common and limited common elements that are the Association’s responsibility. A reserve fund is intended to cover non-annual maintenance, repair and capital improvement costs. If the proper maintenance is not performed, it can result in a significant loss of useful life for the reserve components.

7. The actual cost of performing the replacement work, when it occurs, may vary from the costs included within the study.

In preparing the reserve study, the replacement costs that are used are based upon both industry estimating standards as well as the actual cost of similar projects that have been performed. Actual costs at the time work is done are influenced by many variables, and in order to keep the  replacement costs as well as the anticipated useful lives current, the Reserve Study should be updated (including a site visit) on a regular basis.

Learn more about the Reserve Study.

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What Are Reserve Studies & How To Select A Provider?

“Assessment increases and stronger reserve funds will be needed to repair aging properties” was the number one prediction of experts surveyed by Common Ground, the magazine of the Community Associations Institute.

The most important element of credible reserve studies is valid component data.

Recent legislation in several states also emphasizes properly funded reserves and cites reserve studies as a necessary procedure in estimating funding requirements.

Capital Reserves are for projected repairs and replacements. Items such as regular periodic (non-annual) repairs (e.g., painting), irregular periodic repairs (e.g., deck surfacing), foreseeable failure, catastrophic failure, and outdated design/aesthetics may be included in a Capital Reserve budget.

Scope of Services

The standard, or full reserve study consists of five elements. The Component Inventory is the task of selecting and quantifying Reserve Components. Condition Assessment is the task of evaluating the current condition of the components. Life and Valuation Estimating establishes the Useful Life, Remaining Useful Life, and Repair or Replacement Cost estimates for the Reserve Components. Fund Status is determined by projecting the current and future funding of the Capital Reserve Account against current and future repair and maintenance requirements. The Funding Plan is intended to create options for achieving the desired funding levels to offset anticipated expenditures.

It is critical at the outset of any project to clearly define the scope of services. Annual maintenance items are typically excluded from a reserve study. The minimum scope of service may also be defined by statutory regulation.

Standards of Reserve Studies

In 1998, the Community Associations Institute adopted National Reserve Study Standards. The standards define three levels of service (a full reserve study as defined above, an update, and an update without an on-site visit), definitions of various terms, and the contents of the report. The standards also create the professional designation Reserve Specialist. The designation is awarded by CAI to individuals with the appropriate background, experience, and references, following a review of their work by the Reserve Specialist Designation Board.

State Legislation

Prompted by foreclosures and mismanaged properties, a number of states have already passed legislation governing the management of Common Interest Realty Associations (CIRAs). Among those that have passed legislation are Alaska, California, Florida, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Minnesota, Oregon, Texas, and the District of Columbia. Some states address reserve studies broadly. Others are more specific.

For example, the California Davis-Stirling Common Interest Development Act states in part: At least once every three years the board of directors shall cause a study of the reserve account requirements of the common interest development to be conducted if the current replacement value of the major components which the association is obliged to repair, restore, replace or maintain is equal to or greater than one-half of the gross budget of the association for any fiscal year.

Florida statutes are even more specific. These accounts shall include, but are not limited to, roof replacement, building painting, and pavement resurfacing, regardless of the amount of deferred maintenance expense or replacement cost, and for any other item for which the deferred maintenance expense or replacement cost exceeds $10,000. The amount to be reserved shall be computed by means of a formula which is based upon estimated life and estimated replacement cost or deferred maintenance expense of each reserve item.

How to Select a Reserve Study Consultant

The most important element of a credible reserve study is valid component data. Inaccurate cost information, improper assessment of the condition of each component, and failure to examine ways of maintaining components to prolong their useful life can lead to underfunding or, almost as problematic, overfunding of the reserve account.

Reserve studies are a professional opinion. The value of that opinion is directly related to the knowledge and expertise of the person rendering it. Always ask the consultant for references and a statement of experience and qualifications. Even this may not tell the whole story, however. Here are some other factors to consider.

  • Is the consultant locally based? Materials and their performance will vary according to regional preference and climate.
  • Does the consultant thoroughly understand building systems? Databases work only for typical systems and components, not actual ones.
  • Does the consultant have the ability to diagnose problems, design repairs, and oversee construction? A reserve study also includes an evaluation of defective components and systems in need of immediate repair.
  • Will the consultant be available for questions and follow up? Often, there is a need to explain the findings to the board or individual members.
  • Does the financial model have credibility? The model and format should be prepared by someone with an accounting background and comply with the guidelines of the American Institute of Certified Public Accountants.

The Engineering Advisor is intended to enhance your knowledge of technical issues relating to buildings. For additional information on any subject, please feel free to call us. Our commitment is to provide you with timely, accurate information.

Contact us to discuss learn more about our HOA Reserve Study services.

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