HOAs Beware: Inadequate Reserves + Deferred Maintenance = Big Problems

Homeowners and property owners’ associations throughout the United States have been put on notice by the events that occurred earlier this year at the Champlain Towers in Florida of the real-life tragic consequences of not maintaining proper reserves, coupled with not performing necessary maintenance (deferred maintenance) that is needed to preserve common area components. Like thousands of other associations throughout the country, the board of directors of the Champlain Towers, in an obvious effort to keep monthly assessments low and/or avoid imposing special assessments, did not properly fund reserves that were needed to maintain, repair, and replace common area components. As a result, the necessary repairs, maintenance, and replacements did not take place, and the common area components ultimately failed, thereby causing the collapse of the high-rise structure. The resulting loss of life and economic damage was unprecedented, and the tragedy should serve as a wake-up call to the members, directors, officers, and property managers of all homeowners and property owners associations.

While state laws concerning reserve studies and the maintenance of reserves may vary, the consequences of not having reserves and not properly maintaining common area components are consistent: Inadequate Reserves + Deferred Maintenance = Big Problems!

Studies have shown that a large percentage of homeowners and property owners associations maintain inadequate reserves. This is no doubt a result of not having state laws that mandate reserve funding and/or not complying with laws that do exist and/or provisions in governing documents relative to reserve funding. The obvious reason for not maintaining proper reserves is: