Directors’ Duty to Maintain Common Areas Requires Performing Deferred Maintenance

A fundamental duty of a homeowners association’s board of directors is the duty to maintain the association’s common areas. Notwithstanding said duty, a frequently encountered issue within homeowners associations pertains to the failure on the part of the association’s directors to perform necessary deferred maintenance. As properties age, the various components used in the common areas deteriorate and begin to fail and the association’s directors must make decisions about repairs and replacements. Unfortunately, the decisions that are made about the necessary deferred maintenance are often misguided as a result of shortsighted attempts by the association’s directors to keep dues artificially low and / or avoid making the dreaded “special assessment.” The reasons for such decisions generally relate to not having the funds available for the necessary expenses due to poor budgeting and prolonged underfunding of reserves. When there are not sufficient reserves, the association tends to avoid performing necessary maintenance until the problem reaches a level that can no longer be avoided. It then becomes necessary to borrow funds or make special assessments on the members in order to generate the funds that are required to perform the repairs.

Implicit in the duty to maintain the common area is a requirement for the prudent management of the association in a manner that provides for collecting sufficient assessments in order to have the funds available to perform deferred maintenance as needed. Decisions to defer necessary maintenance for the wrong reasons are a breach of the directors’ fiduciary duties. For example, deferring necessary maintenance in order to avoid spending money or raising dues is inappropriate because such decisions: (i) tend to increase the cost of the repairs that are eventually made when they can no longer be avoided; (ii) expose the association to litigation and liability for damage caused by the failure to perform the deferred maintenance; and (ii) make living in the community less desirable and negatively impact the value of the properties within the community.

Improper decisions made by a homeowners association’s board of directors regarding the performance of deferred maintenance are not typically protected by the “business judgment rule” and can expose the association’s directors to claims by homeowners and/or other parties that suffer damage for: