Downfalls of Deferred Maintenance

https://www.hoalendingxchange.comA euphemism that is far too overused in the community association industry is deferred maintenance. Deferred maintenance is nothing more than an admission by the governing body and home owners of a common interest community that a failure to accept the known expense of proper maintenance has been caused, tolerated, or otherwise not addressed by the governing body responsible for seeing to it that those funds are collected and spent for proper maintenance of the community’s common elements. This includes the home owners’ acceptance of the budgets put before them that allow for properly timed maintenance.

In best case scenarios, deferred maintenance leads to special assessments and/or increased common fees for current and future owners as they pay back loans and begin properly funding future maintenance projects. In worst case scenarios, deferred maintenance leads to disaster, not unlike the deck collapse witnessed just outside of New Albany, Indiana just a few years ago. Such events should be a wake-up call to all governing bodies of common interest communities.

The argument in favor of deferred maintenance is a simple one. Communities that wish to keep their common fees artificially low really only have one option to do so; that is to not properly set aside money each month for future maintenance. Other expenses happen no matter what and have immediate consequences if they are not. Insurance premiums must be paid or the property goes uninsured. Common utilities must be paid or the lights go out and the water dries up. Management fees must be paid or the community is left unmanaged. The only item that is easily removed from the budget is future maintenance. There is no monthly bill for it and there is no immediate penalty for not collecting it. Only when the signs of deferred maintenance appear does the governing body have to defend its actions. Typically the repair is dismissed with a simple statement of “there isn’t enough money in the budget to repair that item this year”. This is the falsehood that compounds itself and turns the sweetness of lower common fees into the bitterness of deferred maintenance.

The argument against deferred maintenance is far more convincing. One needs only to look at the facts to draw this conclusion. Planned maintenance comes with a planned budget. From the moment a common element is introduced into an association it begins the process of aging. Aging common elements will need to be repaired and replaced over time. It isn’t a question of “if” but rather “when”. Many items have known product useful life spans. Roadways, roofs, sidewalks, tennis courts, decks, and many other typical elements will be used and consumed by unit owners from the moment they are installed. This use needs to be paid for by the unit owners who are of record as these common elements are being consumed. That means the dollar amount to replace these items needs to be collected monthly and held in escrow by the association’s governing body so that the money is available when it comes time to replace the aging common element. Every day, a home owner uses a measurable amount of the common elements: roof, siding, driveways, etc.. Every member needs to pay their way as they live in the community.

There can also be significant consequences to taking the path of deferred maintenance. In the Indiana deck collapse case, it is now being argued that the deck should have been replaced by the association as it had exceeded its 10 year usable life span as certified by the installer. While there were no deaths associated with this deck collapse, the association is now on the receiving end of a major lawsuit. How will it justify not having addressed the replacement of this common element after it had outlived its suggested life span? Will deferred maintenance be cited as a reason? Will the courts see this as a reasonable defense or will the association have to replace the deck anyway and also pay for the settlement of the lawsuit? As you can see, deferred maintenance is not a proper way to save money. It often ends up costing so much more.

I encourage all members of governing bodies of community associations across the country to take a good look in the mirror and ask if they are guiding their communities down the path of great financial stewardship. If not, take a look at the facts and make a resolve to address the nightmare of deferred maintenance and to create a fiscal plan that includes a proper funding of upcoming maintenance projects. It may cause community associations to charge their members more each month but the money they are ultimately saving is in the best interest of all involved. It may even be the best way to prevent future tragedies like the deck collapse we have just seen in Indiana.

There are three inescapable truths all associations need to accept. The project will not go away. The project only becomes more expensive as it is put off into the future. There is only one place from which to draw the funds needed and that is the home owners.

Share

5 thoughts on “Downfalls of Deferred Maintenance”

  1. Well said. The excuse “we don’t have enough money” is a hollow excuse when it comes from the board, who has the power and authority to set the budget! In fact, it could be argued that it is their job to set a budget that is adequate to sustain the association.

  2. Reserve studies are useful tools for helping associations identify aging common elements, anticipated life spans of those common elements, and the estimated cost of replacing those common elements. Reserve studies can aid associations in properly budgeting for these replacements.

  3. This article is right on point! I forwarded it to my community manager to forward to the board as they are working on the 2018 budget.

    My association is doing all the wrong things stated in this article, and it shows with the curb appeal decline of my community. It will cost more in the long term! They also borrowed monies from capital reserve for operating expenses several years ago; without a plan to pay it back!

    No one wants to pay more in association fees but we cannot let our communities fall apart; and/or create dangerous maintenance conditions resulting in law suits.

    Finally lets not forget about property values, so important and without curb appeal, maintenance programs and a realistic budget perspective buyers will go elsewhere.

  4. Great article!! I’m on the vendors side, specifically re-building communities that have suffered because of deferred maintenance. I wish more people would pay attention to this. It breaks my heart to see the state of some of these communities and the helpless position they find themselves in.

  5. This issue is a microcosm of the state of infrastructure in the US today from cities with decaying water distribution, antiquated transit syatems, to the US as a whole; 2d calss airports, poor wireless connectivity about to be made obsolete by The PRC’s relentless pursuit of 5G buildoiuts, appalling conditions of railroads, bridges, etc. People are way too short sighted.
    At hime, so to speak, the problem manifests itself further when you have associations who borrow for such maintenance and a potential buyer is not savvy enough to ask for a copy of the financial statements at least here in Florida. If an association borrows $25 per unit to perform maintenance that has been neglected for many years, buyers have no idea that the potential for a special assessment dangles above their purchase like the sword of Damocles, or more aptly Dionysius II. Unless a smart buyer sees that contingent obligation on a record inspection the buyer will pay full price for the newly renovated property and a $25k assessment weeks or months later with no recourse. Caveat emptor. How’s that for mixing Latin and Greek in one post?

Leave a Reply

Your email address will not be published. Required fields are marked *