Eliminating or taking on additional HOA responsibilities may appear to be a straightforward undertaking, but there are a number of considerations. The primary considerations are the requirements of the HOA’s governing documents and the ramifications on the HOA’s budget. A third consideration is the unintended consequences of whatever decision is made.
Boards of directors often grapple with decisions related to the expense of the common elements and, more specifically, the expense of certain amenities. On the flip side of this, occasionally, boards will consider “improving” the HOA by adding amenities or by the HOA assuming additional expense responsibilities. These matters seem to arise most commonly during the annual budget preparation when all the HOA’s expenses are being reviewed.
A common focus, usually because of the operational expense, is the HOA’s swimming pool. For most HOAs, the swimming pool is usually either one of the largest budget items or possibly the largest budget item. Also, eliminating an amenity outright may not necessarily be what is considered, but reducing the amenity’s related expense. For example, keeping the HOA’s pool, but eliminating the heating of said pool or reducing the pool season to reduce costs.
Amenities are not always the HOA common expense that is considered for elimination or cost reduction, other common element responsibilities are often considered. Private streets, because of the maintenance and replacement costs, are one HOA responsibility that is often discussed by boards for elimination. If the private streets meet municipality or state standards, and the particular government entity is willing to assume the responsibility, this can be an expense reduction item that can save the HOA potentially hundreds of thousands of dollars.
The declaration of covenants, or master deed, is usually the HOA governing document that must be evaluated before any common element or amenity is eliminated or added. In certain instances, the HOA’s articles of incorporation maybe what must be evaluated. As stated, the declaration of covenants is the document that is most often reviewed for these types of matters. For example, most declaration of covenants will have language similar to the following:
…In addition, Declarant has deemed it desirable to create a nonprofit, incorporated owners’ HOA, which will be delegated and assigned powers of maintaining, repairing, and administering the common areas and facilities on the Property…
The key words in the example above being: “maintaining, repairing, and administering.” A cursory interpretation of these four words noting the HOA’s responsibilities fails to address deletions or additions of common elements. The language just addresses maintaining or just repairing common elements such as a street or front entrance sign.
How can the HOA add an amenity or take on additional responsibilities if there is no language in the governing documents authorizing these specific actions? If the governing documents do not provide for the addition of, say, a clubhouse, can the HOA spend HOA funds to construct or maintain this new clubhouse? In the declaration wording above, nothing implies the authority to construct or, more importantly, “improve” the common elements of the HOA. The issue of eliminating an amenity or reducing the expense of a common element brings up the same consideration. The wording in the above declaration language specifically states: “maintaining, repairing, and administering.” What if the HOA fails to maintain, let alone eliminate, a common element?
What happens if an HOA finds it can no longer economically support an amenity? This can easily be the case when HOA governing documents limit the increase of the membership annual assessment by a certain percentage or a specific dollar amount. For example, say the basic cable television expense is provided for by the HOA, and the yearly subscription increase has exceeded the amount in which the HOA is allowed to increase membership assessments. Over time, these higher cable television percentage increases will outpace the percentage rate of what the HOA is allowed to increase the membership dues.
The unintended consequences of altering any common amenity or adding to the common elements can vary from budget shortfalls to even membership litigation. Potential budget shortfalls occur if an amenity’s annual upkeep expense exceeds the budget constraints. For example, a security gate at the entrance of the HOA. The initial cost of the security gate is not as much of an issue as compared to the annual maintenance. In some HOAs maintenance on a security gate can exceed $20,000 a per year. Membership lawsuits regarding these matters are not all that common, however, there is still an amount of litigation risk.
Another unintended consequence of adding an amenity is the additional insurance that may have to be purchased. For example, adding a slide to a swimming pool may substantially increase the HOA’s insurance premiums.
A very common unintended consequence is that the new amenity will draw people from outside the membership to the HOA property. This is most prevalent with walking trails and in some instances sports amenities. While it may not seem that non-members using the HOA’s amenities would be an issue, it can be an issue in certain instances. Amenities that attract non-members to the HOA property have the potential of increasing criminal activity and, at the minimum, the HOA is taking on additional liability from these non-members.
Temporarily suspending an amenity is a more straightforward proposition than eliminating an amenity. This can occur due to an unrelated unexpected HOA expense that has taxed the HOA’s financial resources, or because of a needed repair to the amenity that is not economically feasible until the next budget cycle. If pure economics is the primary culprit of temporarily suspending an amenity or common element, it would generally be considered reasonable for the HOA board of directors to do so. Another suspension consideration is if the amenity or common element is not maintained, would there be any potential long term damage from not maintaining or any possible safety concerns.
Beyond a temporary suspension of an amenity or common element responsibility, the HOA’s attorney should be consulted for legal guidance on eliminations or additions. The HOA’s attorney can provide the proper steps involved in this process. This guidance sometimes provides that a board of directors only has to formally act at a regular board meeting to accomplish this process. Other times this legal guidance may call for an amendment to the governing documents which normally is a much more drawn out process. And other times the legal guidance maybe that whatever the board is wishing to do is not possible within the constraints of the governing documents or even within the state statutes.
Along with working with the HOA’s attorney on these types of matters, the board of directors should communicate with the membership and seek membership input. Obtaining membership input is always productive in these matters. Hopefully this input leads to membership buy-in and buy-in is crucial for the ultimate success of the undertaking. This buy-in can also reduce the likelihood of hard feelings or even litigation from the membership.