Tim Arel News

Tim Arel: Roles of the Condo Officers

Tim Arel — Sat, 11 Feb 2012 23:39:26 GMT

From the desk of Tim Arel

Condominiums: Roles of the Officers on the Board of Directors

Nearly every year, a new member is elected to the Board of Directors of the typical homeowner association. It may occur at the annual meeting or it may occur by appointment of the Board to fill a vacancy. We tell these newest volunteers "Congratulations and Welcome aboard!" But, what we also need to tell them is what their new role is all about and how that role interacts with the roles of the Association staff and the Managing Agent.

We need to acquaint the Board members with the standard of conduct that is expected of them. The law imposes certain standards of conduct and assigns a "fiduciary duty" to the members of the Board. The following guidelines regarding the role of the entire "team" will help in the effort of the association to run as smoothly as possible.

President's Role

The Managing Agent utilizes the President as the main point of contact. The President guides the Board throughout the decision making process. He/she sets and establishes the Board's monthly meeting agendas and must ensure that the conduct of business follows the agenda as well as basic principles of Robert's Rules of Order.

Vice President's Role

The role of the Vice President is to assume the duties and responsibilities of the President in the latter's absence.

Secretary's Role

The Secretary is responsible for the minutes of the meetings, and to authenticate Association documents and correspondence when required.

Treasurer's Role

The Treasurer's responsibility is to ensure that the financial records of the Association are properly kept. He/she will review the monthly statements for accuracy, but is not liable for validation of the accounting. That is the job of the CPA when engaged to conduct the annual audit. The Treasurer's authority to approve expenditures should be granted and approved by the Board and entered into the association's Minutes.

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Tim Arel: Condo Loans

Tim Arel — Sat, 11 Feb 2012 23:37:03 GMT

From the desk of Tim Arel

CONDOMINIUM LOANS

How does a Condo Association or HOA loan affect the unit owners?

The Condo Association's monthly assessment income may need to be increased by some amount in order to support the loan payment. But because there are no prepayment penalties, the Condo Association can make a partial prepayment during the Condo Association Loan term, making it possible to reset the monthly payment on an annual basis, lowering the assessment level required.

The unit owner is not directly obligated for the Condo association's loan. Units can be bought and sold regardless of whether there is a Condo Association loan in place.

The Condo Association does not become reported on a personal credit report.

How is a Condo Association loan normally structured?

Condo association loan length is negotiable and depends on the type of capital improvement project (landscaping, roofs, etc.).

Banks offer a Condo Association a line of credit available to draw on to pay for repairs and improvements. When the project is completed, the obligation converts to an amortizing period causing principal and interest payments. HOA credit line periods are typically three months to two years, depending on the project build out period. The Condo Association will provide invoices to receive advances from the credit line. Only the funds used by the Condo Association will be converted to an amortizing period causing principal and interest payments. The Condo Association does not pay for funds which they have not used.

Amortizing periods are typically not longer than ten years. Longer amortization periods may be possible under certain circumstances.

If the Condo Association knows they will use 100% of the Condo Association loan proceeds, a standard amortizing loan may be suggested to save the borrower interest expense during a line period. In this case, the HOA funds are put into a temporary deposit account, which may earn interest, and funds are released as invoices are presented.

Tim Arel: When Contracting Vendors

Tim Arel — Sat, 28 Jan 2012 20:22:19 GMT

From the desk of Tim Arel

CONDOMINIUMS: WHAT TO CONSIDER WHEN CONTRACTING WITH VENDORS

A comprehensive written contract between a community association and each of its service providers should include many components. Each of these key provisions are necessary to clarify the agreed upon terms and conditions of the contract, and for the protection of both the Association and the service provider.

Prior to entering into a service contract the Association should always follow certain steps in the solicitation of proposals from qualified service providers. This solicitation will include the preparation of the bid request to be sent to select contractors that have been identified as potentially capable of completing the assignment as outlined in the request for proposal, and who have passed any reference verifications administered by the Association and/or management.

The Request for Proposal should contain all relevant information about the projected task to be performed, and should include most of the following items:

• Identification of the parties to the contract.

• Relevant time constraints for submitting the bid, starting the work, and completion of the work.

• Penalties for failure to adhere to the contract.

• Schedule for payment or draws.

• Dollar amount of the contracted work.

• Identification of type of materials and who supplies these materials.

• Location for storage of materials during the project.

• Responsibility for damages.

• Vendor performance bonds if necessary.

• Responsibility for permits and/or licenses.

• Warranty on both labor and materials.

• Provision for debris removal and cleanup.

• Identification of crew on-site supervisor.

• Clarification of both Association and Contractor liability.

• Responsibility for selecting materials.

• Provision for periodic inspections.

• How to handle cost overruns and additional work during the project.

• Retainage of final funding.

• Contract cancellation provisions.

• Jurisdiction or laws prevailing.

• Provision for no verbal agreements affecting the contract.

• Identify the location of the required work.

• State the hours/days that work can be done.

• Who will provide necessary tools and equipment.

• Identify who will supervise the contract management of behalf of the Association.

Together the Board of Directors and management should review the proposals received to assure that they have properly addressed each of the above referenced items. By doing so, the Association will be more likely to compare similar bids with corresponding scopes of work.

Once the Board of Directors has selected a contractor based upon the proposals received, the Board and management will be tasked with making sure the contract contains all the necessary information and provisions, including the following:

• Complete identification of all the parties to the contract. This includes both the Association and the service provider.

• Complete specifications of the work to be completed and the time frame for which it is to be done, including a requirement to meet any applicable codes, manufacturers' specifications, or industry standards. This provision will also identify the working days/hours allowed, exact location of the work to be completed, cleanup requirements, and who will provide the necessary tools and equipment. The type of materials should be thoroughly identified, as well as responsibility for providing the materials and the storage of the materials during the job.

• Amount of compensation for the work provided. This should always include a periodic draw schedule if necessary, and the identification of when those draws will be authorized. If necessary, it will also disclose the amount of the retainage, and the terms upon which it may be released. Notification of necessary change orders, and identification of who may approve them should be clearly outlined. The requirement for the contractor to provide necessary lien waivers should also be clearly stated.

• The time period for which the work must begin and be accomplished. For an ongoing service contract, it will identify the service schedule and what work will be performed on each service date. This provision will also provide for penalties for non-compliance by the contractor.

• Some type of standard of performance should be identified. This allows both parties to fairly judge the quality of the contractor's work.

• All applicable warranties should be completely outlined. This will include manufacturer's warranties and any workmanship or labor warranty provided by the contractor. The warranty should properly identify the covered item, length of coverage, and the responsibilities for failure of the material or workmanship.

• Provision for the responsibility for restoration of any common area damaged by the contractor during the work.

• Indemnification stating that the Association will be reimbursed and/or defended against all claims as a result of the contractor's performance.

• Requirement for adequate insurance coverage for the contractor before commencement of any work. This should include both general liability and worker's compensation coverage. The contractor should be required to provide insurance certificates of coverage naming the Association as a certificate holder. The terms and amount of any necessary performance bond should also be clearly stated.

• Identify who will be responsible for providing any licenses and/or permits required for the work. These licenses and permits should be provided before the commencement of any work.

• Provision for the termination of the contract. This termination provision will identify the terms upon which either the Association or the Contractor may terminate the contract.

• Identification of what constitutes a default or breach by either party, and the relevant rights for each part upon such default by the other.

• The contract should state whether it can be assigned by either party, and if the Contractor may employ subcontractors for the work.

• Identification of the governing law affecting any contract disputes, and a provision stating that the contract contains the entire agreement between the parties.

Proper documentation of the bid request process helps both the Association and Contractor fully understand the required scope of work. A properly drafted and comprehensive contract will then ensure that the Association's interests are fully protected, and the Association will be more likely to receive the quality and scope of work for which it has contracted.

Tim Arel: Inspecting Common Areas

Tim Arel — Sat, 28 Jan 2012 20:19:21 GMT

From the desk of Tim Arel:

INPECTING THE COMMON AREAS BEFORE THE DEVELOPER TRANSITION

Transition, to community Associations, represents a time and series of processes when the Developer passes ownership, governance and responsibility to the Association. Transition is a time when the Association has the opportunity to uncover potential deficiencies before they become the complete responsibility of the Association. Transition is a time to have these potential problems detected and resolved. After an Association has transitioned it will become independent of the Developer's support. If the transition has been thoroughly and adequately executed and resolved, repairs for construction deficiencies will not burden the membership.

The transition period is perhaps the most crucial time for an Association to retain the services of a qualified professional engineering firm. Transition is a time when the Association has an opportunity to uncover potentially large, costly issues, often before they become obvious to the untrained individual. For reasons stated below, qualified inspectors are essential in determining these issues.

In a typical condominium or townhome style community, at minimum , the following items need to be inspected and analyzed as part of the transition process.

Site grading and drainage: The common areas should be inspected and/or surveyed to ensure proper grading and drainage has been established. The entire site should be analyzed, including soil characteristics. Site grading and drainage issues are among the most common initial construction issues found in new communities. They are often difficult to definitively locate and identify (due to their dependence on recent sod installation and weather) and can be expensive to correct after construction is substantially complete.

Stormwater system & components, including detention & retention facilities: These systems should be inspected to ensure proper construction, location, capacity, function, etc. One of the most common issues found in these systems is poor drainage and future difficulty maintaining the retention/detention facilities.

Concrete slabs on grade (i.e., sidewalks, patios, dumpster pads, etc.): Deficiencies such as spalling, scaling, cracking, heaving, surface drainage, thickness, riser/tread dimensions, etc., should be identified. During the transition process, concrete installations are normally new enough that these faults should not exist, and such faults are therefore normally regarded as evidence of improper construction, materials, or workmanship.

Pavement installations (i.e., roadways, driveways, parking areas, etc.): Deficiencies such as subgrade failure, settlement, raveling, cracking, thickness, surface drainage, etc. should be identified. As with concrete slabs on grade, these installations are generally of such a young age that failures should be regarded as very serious.

Roofs: These inspections should include all exterior roof elements. (i.e. chimney chases, exposed flues, vents, gutters, leaders, step walls, shingle installation, ice and water shield installation, etc.). Poor workmanship on the roofs may be a common condition that is very difficult if not impossible to identify without roof-level inspections.

Foundations: These inspections should include utility penetrations, wall condition, sill location condition, adjacent grading, roof leader discharges, and floor slab conditions. Water infiltration into basements is a serious problem, and a generally preventable deficiency.

Stoops, decks, and balconies: These inspections should include railings, structural support and connections, materials and attachments and stability. Decks and balconies are sometimes constructed poorly or inadequately protected against water/moisture damage, which can result in premature failure.

Common area landscaping: Plantings should be inspected for size, type, location, installation and health. The detail and precision of landscape inspections are often limited by the level of detail in the approved landscape plans.

Lighting: Lighting fixtures should be inspected for size, type, location and installation, and it may be useful to inspect the site after dark to determine illumination levels and coverage.

Building waterproofing and exterior finish materials (stucco, EIFS, and/or siding): Installation and detailing should be inspected, as well as penetrations, interface with dissimilar materials, flashings and grade clearance. Due to the quality and visibility of these types of installations in most communities, issues involving the exterior finish materials can be expensive to remediate.

Retaining walls: Walls should be inspected for movement, settlement or deflections, stability and drainage. Depending on proximity to other installations and accessibility, retaining wall failures can range from minor to catastrophic.

Fences, decorative entrance structures, gazebos, stone or concrete paved walks, and other miscellaneous site structures: These items should be inspected for type, sizes, condition and installation details.

Interior inspections: These inspections should include interior of the roof system, structural components of the unit, insulation, foundation walls and slabs in basements, and any signs of settlement. Interior inspections may also include spot testing of plumbing, wiring, or other systems, but these components are normally homeowner property and are, therefore, not necessary parts of a transition evaluation in most cases.

Recreation facilities: The buildings and site should be analyzed in similar fashion to the items described above. All amenities, furnishings, appliances, etc. should be inspected.

All of the above observations should be compared to the approved design plans (site and building), code requirements, industry standards and acceptable workmanship. There may be additional testing or destructive inspections that will need to be performed to better analyze a suspected condition. The developer should supply the Association with a complete set of design plans, as approved by the municipality.

The final report should describe the inspection and analysis findings in detail as well as the recommendations for a proper repair of any deficiencies found. The deficiencies should be corrected prior to the transfer of ownership to the association.

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Tim Arel: On Presenting the Annual Budget

Tim Arel — Sun, 15 Jan 2012 21:17:51 GMT

From the desk of TIM AREL

You've spent numerous hours working on the budget and now it's time to present it to the residents of your community. What is the best manner in which to handle the presentation of this new budget that will prompt the greatest degree of acceptance? How do you handle informing Owners of a much needed assessment increase?

In my experience, there are two major keys to budget acceptance by the residents; involvement and communication.

Involvement

Involving the residents is important both from practical and psychological standpoints. Allowing input from residents during budget preparation can provide the Board with valuable insights into maintenance results, patterns and needs. It can also put residents more at ease by virtue of the opportunity to be heard. This also has the advantage of raising the level of trust in the Board of Directors and creating a sense of community because residents feel their contributions matter. Involvement should start early in the budget preparation process. This can be accomplished in several ways but three of the most successful avenues are general meetings, committees, and surveys.

General Meetings. If the Association holds regular general meetings, residents can be invited to offer their input on budget items. Perhaps many residents feel the siding should be cleaned more often, or that the entrance to the community could be enhanced by flower plantings, etc. For communities that don't hold regular general meetings, one can be convened for the purpose of allowing pre-budget preparation input from residents. Either way, it is imperative that the announcement of the meeting state specifically that this topic will be on the meeting agenda, especially if more than one item is to be discussed.

A caution flag, however, needs to be raised at this point. Although input and suggestions from residents are important, the Board must carefully sift through these suggestions and implement only those that will be meaningful, productive and prove beneficial to the community as a whole, not just to a small number of residents. Often, Boards of Directors will try to implement all suggestions in an attempt to please everyone. This can be difficult at best, as well as unproductive and wasteful. Remember that in a community with 100 condominium units, a suggestion from one person may not have the support of the other 99 residents.

Committees. Appointing interested residents to an Ad Hoc Committee that can provide the Board of Directors with valuable input in the budget preparation process is a good way to involve residents. The committee could even be asked to generate a complete proposed budget that the Board can then consider. This allows a busy Board to delegate much of the budget research and preparation. Committees also have the added benefit of providing a source for future Board members.

Surveys. One of the goals in involving residents is to attempt to reach all of them. Mailing residents specifically targeted surveys is a great way to gather opinions. Many busy residents prefer this method because it allows them to consider one topic at a time and to respond at their convenience. The thoughts of the residents are put forth in writing and can be reviewed by the Board of Directors or Budget Committee in a less formal setting or work session. Be sure to include a response deadline in any survey so residents are aware of when they are expected to reply.

Communication

Communication with the residents throughout the budget process is paramount. This provides important information to those residents who are too busy to be involved or those who simply choose not to be involved. Although these residents may not offer their input or comments, the Board can feel confident that they have presented the information for everyone's review and be assured that it is appreciated nonetheless.

The communication that provides the residents with the budget data should be as precise as possible. This package should include a cover letter, the budget, a budget analysis, an explanation of line items, and possibly charts and/or graphs. It is important to provide enough information to adequately explain the budget without overwhelming your residents. It is recommended that the total package be kept to six pages or less.

Cover Letter. The cover letter would typically contain an explanation of what is included in the package, a brief statement of the budget process, and the major line items the residents are likely to have the most interest in or that have had a profound effect on the budget. It should also state what the new fiscal year's proposed assessments will be. Other supporting statements, as the number of years since the last assessment increase, could also be included.

Budget. This is the itemization of the proposed budget categories and amounts.

Budget Analysis. This analysis of the budget is the actual comparison of income versus expenses and can be limited to a few columns showing the previous year's budget, the estimated ending income and expenses for the current year, and the new budget amounts. Or it could be a detailed spreadsheet showing the line items and month by month anticipated expenditures. The Board should determine which information would best suit or be best received by its residents and tailor the documentation accordingly.

Explanation of Line Items. Explaining each line item can be critical to the success of the budget presentation. Each line item, including the new budget amount, should be listed with a brief explanation of what is included within that category. Supportive information could include details relative to special projects or newly adopted programs, actual bids that have been received, proposed utility rate increases, or historical trends, etc. This information is beneficial when explaining any considerable increase in a particular line item and assists in reducing resistance from residents who want to maintain their current assessment level because of their unhappiness with any one service category. This clearly demonstrates that there are many line item categories with fixed or varying expenses that affect a budgeted amount.

Graphs and Charts. Visual aids can assist in showing residents which categories are the greater or lesser part of the whole budget. Graphs showing the changes of certain line items over several years can also be quite effective. Again, the Board needs to consider and determine what is essential and will best present the information at hand.

The involvement of the residents and the communications aspect of presenting the budget are tied together to a general meeting at which the final budget is presented. Notice of the meeting is all important and should contain the budget communications mentioned above. In preparing for this meeting, the Board should try to anticipate the questions that will be posed and prepare answers for them. This will offer the residents the opportunity to air their concerns or comments. Last minute changes to the budget might even be considered at this time if they appear appropriate and warranted. However, this will likely not be needed if adequate input from the residents was acquired prior to and throughout the budget preparation period.

After all the preparation, all the meetings, and all the number crunching, the last item on the Board of Directors' agenda is voting to adopt the new budget. Once adopted, a final notice should be sent to the residents announcing that the budget has been approved and outlining the new fiscal year's assessments. Out of courtesy to the residents, the notice should be mailed at least thirty days prior to the new fiscal year in order to allow residents time to prepare for any increased amounts. A reminder of the assessment due date, grace period, and late fee are also a practical idea.

These are the keys to successful budget presentation as well as the tips to accomplish this with the greatest degree of acceptance. Observing these methods will provide residents with a greater sense of community and will promote trust, confidence and respect for the Board of Directors - - - all of which will ultimately have a very positive effect in the operation of the Association over the years ahead.

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Tim Arel: Getting Real about Budgets

Tim Arel — Tue, 10 Jan 2012 00:54:11 GMT

From the desk of TIm Arel:

Some condo associations adopt condo association budgets that have little relation to reality as to forecasting assessments needed to cover expected condo expenses.

Here is an example based on a real situation. One of North Point’s managers prepared an accurate condo association budget that reflects a 15 percent increase in condo assessments but the board rejected it, ordering the manager to drop it dramatically. He then came back with a 3 percent increase that he was sure will likely result in adverse financial consequences to the condo association later. But this is what the condo board wants and the directors ratified it quickly.

The condo expenses are not really reduced and the year ended with a deficit and that deficit first was paid with operating reserves and then borrowed from the capital reserves. That ultimately led to a special assessment to pay for capital work or for diminished or depleted condo reserves.

Some condo associations slash services to a minimal level. If they cut back on condo security or on basic services like cleaning, they are reducing the value of their condo units indirectly. When prospective buyers see the condition of the condo association property, they will discount how much they will pay for the condo units.

Board should look to solutions to address potential increases in the monthly condo fees or improving cash flow. Condo boards should not delay collecting from condo owners’ delinquent in their assessments. This can help avoid some unit owners having steep balances that they have no way to pay. No one wants condo owners to default.

Larger condo associations should set up inventory systems that monitor supply usage. If supplies are tracked, costs will go down.

Here are some other ideas that a Board can utilize:

▪ Pay condo association insurance premiums in advance if this results in lower rates or no interest charges.

▪ Deposit funds and condo fees in interest-bearing accounts.

▪ Seek to reduce charges for lock boxes.

▪ Keep condo reserves within the $250,000 limit for FDIC insurance.

▪ Check with several vendors to find the best deal on phone/Internet combinations.

▪ Determine if leasing rather than purchasing copiers is less expensive.

▪ Energy savings such as switching to energy-saving light bulbs; dialing down thermostats in winter, and up in summer; lowering shades to retain heat in winter and to deflect the sun's rays in summer.

However, a Board should use caution against one means by which associations might try to control costs: always selecting the low bidder for a service or a job. Lowest price won't always be the best. You sometimes have to end up paying again if the job wasn't done right. Make sure the company hired is the right company for the job.

Always check references and inspect work a contractor has previously completed before making a final choice. An option is always a HOA loan for your condo association

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Tim Arel: How To Be An Effective Board Member

Tim Arel — Tue, 10 Jan 2012 00:50:51 GMT

From the desk of Tim Arel:

Serving the board of your condo can offer many benefits, but also bring many challenges. As board members also live among residents they serve, community issues are always present. It can turn into a 24/7 job that interferes with personal time, and when neighbors don't respect boundaries, being on the board can become more of a hassle than it's worth.

Neutrality

As a member of the board, your first responsibility is to your condo as well as your fellow owners and neighbors. It's not a small task and as it is largely a fiduciary responsibility, it's essential to stay neutral and impartial on community matters. This, however, is often easier said than done.

A truly effective board member should have either a solid business/management background or be a skilled communicator. A board member should be someone who can represent everyone unilaterally, and who doesn't have a specific personal agenda. They have to lead people and be nonjudgmental, and have the ability to work knowing that there may be some neighbors who don't agree. Once you walk in the door as board member, take off your hat as an individual unit owner. Clearly it's a different mindset, and you must make decisions that are in the best interest of the entire community.

It is crucial to avoid the appearance of impropriety as well. The board should allow the management company to handle day-to-day functions and avoid direct involvement with vendors. Board members share a fiduciary responsibility to the association, which is a position of trust, and that's really what should guide them. From time to time, a board member might be involved in or at the center of a conflict. This is often the case when a board member's unit or personal property is involved in a dispute. But as a member of a homeowners association, you are still entitled to the same rights as your neighbors. You don't have fewer rights just because you serve on the board. But you shouldn't use your position as a board member to unduly influence whatever process is going to take place.

Dealing with your Neighbors

Let's face it: when neighbors have something to say, they often won't wait until a meeting to confront board members. In fact, it's probably more common than not to approach board members at inappropriate times. Whether it's via e-mail, in the hallway or while you're spending time with family, there are tactful ways of handling such a situation.

When faced with that situation, a board member should remind the resident that you are only one of several board members, and that they should really direct questions in writing to the board and managing agent or management company, so an entire board can decide on an issue.

Today, it's just as common to see building matters in your inbox as it is to have a neighbor knocking on your door. The advent of e-mail might have made communication faster and easier, but resist the urge to respond to shareholders or residents in a casual tone. While this may sometimes be appropriate, co-op or condo-related issues should be handled with the professionalism they deserve, even when discussing matters via e-mail.

I don't think an e-mail is any different than a resident coming up to a board member in the lobby or pool. It depends on the subject, but really the question should be directed to entire board or management company. Especially if it's a substantial question, such as what's happening with litigation, a vendor or so on.

Professionalism

As a board member, it might be difficult to separate personal feelings from board obligations. If a meeting becomes heated or an issue hits too close to home, it can be nearly impossible to remain calm, unbiased and neutral.

Never attack the person who brings the issue up and keep it professional. Most issues over time are addressed and people move on. What people remember is how they are dealt with, and if they were treated respectfully as opposed to being treated disrespectfully.

There's always someone who's not going to agree with you, that's threatening to sue you, or an unhappy homeowner who may spread gossip in the community. Board members should act as leaders, and they should make decisions with their fellow board members. That gives them some relief from direct attack by owners. The board president should basically do the things that any corporate president would do - working with the board, letting the property manager do their job - and things generally flow a lot smoother that way.

Using good judgment also means knowing what not to reveal to your neighbors. There are some areas of board business that board members should never discuss with shareholders.

In areas where confidentiality needs to be maintained, you can't breach that with discussions with other residents. These include personnel issues and litigation. Board members must keep an appropriate level of confidentiality in such matters. The rest is common sense. The community should expect a level of transparency in operations, but in certain situations there may be a need to maintain confidentiality, at least until issues are resolved.

Avoid discussing with residents or shareholders anything that impacts individual privacy, arrears, employment issues and any issues protected by attorney-client privilege. Those would be best discussed at an executive meeting, not an open meeting. If you have any doubt as to whether it's a conflict, discuss it with the board attorney.

They may be your friends and neighbors, but fellow residents have to remember that board members must remain impartial in disputes. Every community should have a method to resolve disputes. Guide residents to that method. You're not there to resolve disputes and, as such, every Board should have a mediation process or committee in place, to help residents resolve disputes.

Remember: First and foremost, your responsibility as a board member is to the fellow owners you serve. Your community as a whole depends on an ethical board to keep everyone's investment safe. In many cases, the board is responsible for representing a large number of their neighbors, making it difficult to always act accordingly. Separating your personal interests and feelings from your position on the board might be difficult, but it's necessary to work in the best interest of your condo.

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Tim Arel: On Reserve Studies

Tim Arel — Sat, 31 Dec 2011 20:44:18 GMT

From the desk of Tim Arel

What Is A Reserve Study?

By definition a Reserve Study is a budget planning tool which identifies the current status of the Reserve fund with a stable and equitable Funding Plan to offset the anticipated future major common area expenditures. The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis.

In general terms a Reserve Study is a long term plan that indicates how much money needs to be set aside to pay for future expenses. Let’s say you live in a condominium, you share common assets such as roofs, siding, pools, cabanas, asphalt, parks, etc. These assets have maintenance and/or replacement expenses that can be reasonably anticipated with predictable costs. A Reserve Study evaluates each common area asset and informs you when expenses are anticipated, the cost of the expenses and how much money you should save or reserve to cover those expenses.

Reserve Studies contain a significant amount of information contained in two parts. One is the physical analysis. This analysis identifies which components are appropriate for reserve funding and the current physical condition assessment of each asset; then indicates the life expectancy or Useful Life (UL) of the component as well as the life remaining or Remaining Useful Life (RUL) of each component. The physical analysis is concluded with the current cost to replace each component. The physical analysis information is used within the financial analysis. Therefore, it generally contains many recommendations and justifications regarding component repair, maintenance and replacement recommendations as well as cost and life cycles.

The financial analysis includes two results. First it reveals the health of the Reserve Fund. This is completed by determining the current status of the Reserve Fund known as Percent Funded. The second result are reserve contribution recommendations. Using the information contained within the physical analysis, the future expected expenses are analyzed and reviewed. Then multi-year funding plans are developed to meet various funding goals. The reserve contributions required to meet the funding goal desired is then presented and recommended to the Association, which concludes the last result of the financial analysis.

The purpose of the Reserve Study is to provide useful information to evaluate the current circumstances and future needs. This information is important when determining what the physical and financial priorities should be. When Reserve Studies are properly used they help minimize deferred maintenance, special assessments or loans, and maximize property value.

North Point Management performs reserve studies for a majority of Associations managed. This tool has been invaluable in improving the financial stability and outlook of Associations managed by North Point, as well as a way of improving the property values. Feel free to contact North Point Management to learn more about the services offered and how we can assist you in improving the business and customer service operations for your Association.

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Test Post for Tim Arel

Author — Thu, 08 Dec 2011 20:26:10 GMT

Just testing Blog for Tim Arel

Tim Arel: Can a Board Probit the Rental of Units?

Tim Arel — Sat, 26 Nov 2011 01:12:00 GMT

Can a Board Prohibit the Rental of UnitsFrom the desk of TIM AREL

The simple answer to the complex problem is no. Your Board does not have the legal authority to restrict leasing. But your Association can adopt such a restriction, although it is not easy.

In any condominium association, there is what we call the "hierarchy of the power source". In order to determine what a Board can -- and cannot do -- we must first look to the operating statute in the jurisdiction where your condominium is located. Checking to determine if there are any restrictions set by your State is the first step to consider in this process.

The next level power source in a condominium is the Master Deed/Declaration. The Master Deed/Declaration spells out certain basic concepts of the condominium, such as a definition of common and limited common elements, rights of mortgage lenders who have outstanding loans to unit owners, and the percentage interest which each unit has in the entire project.

The third level power source are the Bylaws of the Association. The Bylaws cover such matters as the composition of the Board of Directors, the obligations of the owners to pay assessments, voting rights and responsibilities, and insurance issues.

Finally, the last source to review is the rules and regulations of the Association. The Board of Directors has the authority to prepare and adopt Rules, which can include such areas as pet restrictions, assessment collection policies, swimming pool procedures, and garbage and trash collection requirements. According to all experts in condominium law, the Board can adopt any rule or regulation so long as it is not in conflict with a higher power source, such as the Bylaws. Since your Bylaws allow leasing of units, the Board could not enact a resolution contrary to that position.

Leasing of condominium units is a major problem facing many condominium associations today. The "secondary mortgage market" -- where organizations such as Fannie Mae and Freddie Mac buy loans originated locally -- is a primary source of mortgage money for condominium loans, both for purchases as well as refinances. These secondary mortgage lenders impose restrictions on the number of investor units in a condominium association. If an association exceeds these limitations, it becomes difficult for potential purchasers and/or unit owners wishing to refinance to obtain mortgage financing.

Condominium Associations throughout the country have wrestled with this issue, and have come up with a number of potential solutions, including:

• An absolute leasing prohibition.

• Prohibiting existing owners (whether they be investors or not) from selling their unit to investors.

• Establishing a percentage of units within the Association which can be rented at any particular time -- i.e., 40 percent.

• Permitting leasing for a fixed period of time (i.e., two years), after which the unit must be owner-occupied for at least another two years.

There are, of course, variations on these proposals; perhaps one of the most common is to include a "grandfather" clause in the Bylaw amendment, which would either (1) completely exempt current owners from these restrictions or (2) establish a grace period, after which time the restrictions would then be applicable to all owners.

But, in my opinion, this is a matter which cannot be accomplished by a Resolution adopted by the Board. It requires at least a Bylaw amendment, and to be on the safe side, it should really be an amendment to the Declaration.

In order to amend the Bylaws or the Declaration of a condominium association, it generally takes a two-third vote of all the owners. If your association already has more than 40 percent investor owners in your complex, you are urged to start the amendment process now -- and grandfather in those owners who are currently renting. Grandfathering is not a legal concept, but a political reality. If you want to muster sufficient votes to amend your legal documents, you have to make concessions to those owners who currently rent their apartments, and will be directly impacted by any such amendment.

However, since this is a highly emotional issue, you and your Board should begin to educate the owners as to the problems of having too many renters within your complex. Perhaps your committee should hold an informational meeting first, to discuss the various issues and to listen -- and learn -- what the owners want.

All owners, including investors, should realize that if there are too many renters, the condominium may take on the appearance of an apartment complex, which may cause all units to depreciate in value.

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There will be strong opposition to any restrictions, and factions will develop within your association. To the extent possible, you should try to avoid creating internal dissent, and an educational campaign will go a long way toward keeping the peace. The worst way to approach this subject is for the Board of Directors to suddenly announce that there will be a vote to amend the Bylaws (or the Declaration) without giving everyone ample opportunity to express their views.

After all, since your Association is supposed to be a democracy, your Board should heed the will of the majority

Tim Arel: Insurance talk

Tim Arel — Mon, 26 Sep 2011 03:04:12 GMT

From the desk of TIM AREL

INSURANCE FOR CONDOMINIUM ASSOCIATION AND CONDOMINIUM OWNERS

Condominium Master Insurance Policy

A condominium master insurance policy is part of the agreement when buying a condo. As an owner of a unit in a complex you will become part of the homeowners association which was put into place to protect the rights of the unit owners. The condominium master insurance policy is a type of coverage that protects condo owners as a whole. It generally includes liability protection in the event someone is killed or seriously injured on the grounds as well as some structural coverage. Every master policy will vary, especially in regards to what structural elements are covered.

In almost all instances, the complex main structures, such as the tennis court, swimming pool, lobby, parking lot and picnic areas will be covered under the condominium master insurance policy. In some instances so will the structure of each individual unit such as damage to the roof, the walls, the electrical and water systems and the foundation to name a few. In other instances your condominium master insurance policy may also include cleanup and debris protection to your own private garden and yard while in other instances this is not included. As with any insurance policy, it is important to read and review the fine print on each master policy to ensure proper coverage.

In addition to your condominium master insurance policy most condo owners will also look into their own protection which may include liability and contents protection as well as anything not included on the master policy. Liability protection will pay for medical related costs if someone is injured or killed in your individual condo rather than just on the complex in general. Contents protection will pay for replacement or actual value loss (depending on what policy you choose to insure under) of your belongings. This includes items damaged by natural disasters, fire, theft and other perils as listed on your plan. You can choose what you want included but most people will insure furniture, jewelry, tools, memorable items, collectables and electronics under their contents insurance.

Condo Insurance for Landlords and Renters

If you are using your condominium as an investment property, which is quite common these days, then you may have travelers or renters living in your space. If this is the case you might want to look for a condominium plan that offers landlord protection for damage caused by poor or negligent tenants as well as any loss of income if your renter doesn’t pay the bills on time. There are different coverage options for landlords depending on what you are using the property for, whether you are renting it out furnished or unfurnished, whether you have short term renters, long term tenants and several other options.

Condominium insurance is not just for condo owners. If you are a renter of a condo then you may want to choose renters insurance. Renter coverage consists of loss of use coverage, contents protection and liability protection, all valuable options if you are ever faced with serious damage to your rental property. Liability protection has been explained above as has contents coverage. Loss of use coverage will offer compensation if the condo is damaged and unlivable. While the condo owner will need to make a claim through his condominium master insurance policy to pay for the damage, as a renter, you may be out on the street until the condo is fixed. Loss of use coverage pays for costs incurred in this event such as hotel fees and moving expenses.

Tim Arel: Condo Storm Preparation

Tim Arel — Sat, 17 Sep 2011 20:02:03 GMT

From the desk of Tim Arel

Condominiums – Storm Preparation

I have been approached by several Association’s asking about what steps that can take to prepare for the event of major storms. My response is that there are a few fundamental steps Associations can take to avoid any problems in case of a loss (damage).

At a minimum, the board should know who is insuring them, when the policy expires (in case it happens during the storm) and how to submit a claim. I recommend a thought-out procedure to deal with the Storm. I have drawn up a list of suggestions in order to reduce an Association’s exposure to potential liability.

1. An Association should KNOW who is insuring them for Wind/Hail. A hard copy of the insurance policy providing Wind coverage should be on-hand. If not on-hand with the property management company, the Board should request a copy from their agent. Since there are different property insurance policy configurations that could be confusing, request a precise inquiry with the agent for these documents. At this point, it is the responsibility of the Association Agent to figure out and send over the correct policies.

2. KNOW when the policy expires: If the Master Policy or part of it is expiring in 3-4 days, the Association should stay in close contact with their agent and request a written confirmation that coverage is bound. The Association should also make sure their premium check (or down payment) has been received by their agent in order to guarantee coverage during the storm.

3. UNDERSTAND how to submit a claim. Every major agency has a Claims Department that will need to be contacted to start the claims process. The Association should contact the insurance agent or agency and inquire about how to file a claim prior to a predicted major storm. Some agencies require a faxed incident report and some will take a claim by email. Bear in mind that after a storm, the agency will probably be swamped with contacts from other customers who also suffered damage. If that occurs, the Association should know what steps to take to report the claim in a timely fashion.

4. ASSIGN responsibilities for after the storm. Different areas of responsibilities should be assigned to individuals who will implement their area of responsibility to inspect the property, document any losses, and work to ensure that any damage is mitigated.

5. IDENTIFY a member of the property management staff or volunteer to act as a Claim Liaison on behalf of the Association after the storm. The Association should appoint a volunteer (board member, unit owner or property manager) to be the point-of-contact for all claims-related information. This person will receive many inquiries after the storm from residents and will coordinate appointments with the insurance company adjuster and contractors for repairs. There may be confusion after a loss; multiple people dealing with a single issue may distract rather than help.

6. LIST who is currently living in the community. An Association-wide master resident list should be maintained and verified to determine if there are residents with special needs (especially medical) and which units are empty. A master pet list could also help animal owners in case animals get lost during the storm.

7. PAY ATTENTION to news reports and weather warnings. Keep informed by monitoring the news. A Hurricane Watch means the storm is 48 hours away - Be ready to act. A Hurricane Warning means it's less than 36 hours from hitting - Be ready to evacuate if ordered by authorities. Part of this process is ensuring that a system of communication has established so information can be disbursed to all residents.

8. POST STORM CHECK LIST: An action Plan should in place to secure the property and well -being of residents, including several options depending on damage caused by the storm (electricity & phones working or not). Identify a crisis management center where residents can come to find out any information or consult with the board. Include an Action List with a list of pre-approved contractors/vendors who can assist with repair estimates and damage remediation. In addition, a list and maps of local hospitals and shelters is a pro active move for the community in case of medical emergency or phone lines are down.

9. CONFIRM unit owners' personal property has been removed from outdoor areas. A team of volunteers should survey the community and ensure that all deck furniture and other items that could damage the buildings or vehicles have been secured by unit owners. If ordered to evacuate by authorities, a team of volunteers should help authorities determine that all residents have departed (including pets).

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Tim Arel on Security for Commercial Buildings

Tim Arel — Sun, 04 Sep 2011 21:01:52 GMT

From the desk of TIM AREL

SECURITY FOR COMMERCIAL BUILDINGS

Access control is perhaps the most critical aspect of a building’s physical security. But, traditional access-control systems – whether they’re as basic as a turnstile or as sophisticated as a biometric reader – have faults. That’s why the best access-control system combines the reader/access point with an advanced digital surveillance system. New technology that offers ultra-high-quality video – accessible anywhere (at any time) through a WiFi connection, secured by audit trails, and archived digitally – adds another dimension of protection, and ensures the most secure facility possible.

It’s a common misconception that access control comprises little more than some sort of entry mechanism, such as a keycard and card reader. Unfortunately, this misconception is perpetuated by the fact that few security firms have the ability to implement and maintain a complete system. You’ll often find, for example, that such companies offer only surveillance technology, or only uniformed personnel. But, a few high-end security firms have come around in the past few years to offer a full range of services, including everything necessary for a complete access-control system. Firms that present a combination of sophisticated technology with highly trained and experienced personnel are key. Such companies can develop a complete and customized access-control system that includes a convergence of several elements. In fact, the ideal system comes into play before the visitor even arrives at the building.

Ideally, access control begins approximately 24 hours prior to a visitor’s arrival at your building, when your security provider transmits a PIN to your visitor via e-mail. The visitor arrives at your building and enters through a revolving door. Once in the lobby, the visitor proceeds to an electronic kiosk, separate from the security desk and personnel.

At the kiosk, the visitor enters the predefined PIN, which has the ability to grant the visitor access to a designated floor of your building during a specific window of time. The visitor scans a photo ID; a high-res camera, integrated into the kiosk, takes a photo of the visitor. This information is entered into an electronic database, which keeps a secure record of who’s coming in and at what time. The two-ID system allows your security provider to verify the visitor’s identity at any time. At this point, the kiosk creates an access card with a barcode or smart-card technology, which contains appropriate access information and the visitor’s photo and identifying information.

Having received the access card, the visitor proceeds to a turnstile, where he or she presents the access card to a reader. This reader is able to grant access to the elevator area and determine which elevator the visitor should enter. An elevator destination dispatch system can also program the designated elevator to transport the visitor to the predetermined floor.

Finally, upon the elevator’s arrival at the designated floor, additional high-res cameras can monitor exiting passengers to ensure that the visitor arrived at the appropriate location. These and all cameras in the surveillance system are connected to a hybrid video recorder (HVR), which allows you to access archived footage at any time, from any location, with a WiFi connection.

Of course, every company has different security needs. But, while specific needs may vary, one thing is constant: access control requires a convergence of tactics. If the ideal access-control system exceeds your needs, remember that, if nothing else, a secure entry mechanism – combined with a high-quality surveillance system – is a safe bet.

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Tim Arel: Typical Condo Restrictions

Tim Arel — Sun, 21 Aug 2011 18:12:34 GMT

From the desk of Tim Arel:

TYPICAL CONDOMINIUM RESTRICTIONS

Unlike with a single home, a condo sometimes comes with strings attached. Whether it is part of a contemporary downtown building or a detached living area in a golf course community, the condo offers residents luxury and comfortable living, but residents are held to a covenant. Some restrictions one might find when buying a condo include:

• Painting: Depending on the agreement for buying the condo, you may be restricted to specific shades and styles of paint if you wish to do decorate some of your new rooms.

• Pets: Not all condos accept pets. Those that do may impose weight and size restrictions and the types of pets you can keep at home.

• Age and Occupancy: "Adult-only" communities tend to discourage families with small children from buying. Also, senior communities will have age requirements.

• Cable and Satellite TV: Some condo communities will provide cable or satellite, which are covered by condo fees, and prohibit residents from going with another service.

• Gardening and Landscaping: Condo fees may also cover services like maintenance of lawns and greenery. As such, if you want to set up a garden in your backyard you may need to clear it with your condo board first.

• Construction: If you wish to build on to your home or work on a project within, like installing a new bathroom or taking down a wall to make a room bigger, you could run into trouble with your condo board if you don't get permission first.

• Security: Changing locks may need to go through your condo. Best to clarify this if you want to update security.

• Visitors: If you entertain relatives or friends from out of town, keep watch on how long you can have them over. Lengthy visits or a month or longer are typically restricted.

Granted, living in a condo doesn't necessarily mean you will be stifled of your personal living flair. Restrictions to design and structure are set mainly to keep condo units looking information for resale value. If you plan to adapt your living space to suit your needs, you will want to find a community that is open to change. Research well to find the condo that's right for you.

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Tim Arel on funding maintenance needs

Tim Arel — Wed, 10 Aug 2011 03:40:07 GMT

from the desk of TIM AREL

FUNDING MAINTENANCE NEEDS
Many communities are going through it. While you may think your community is prepared, it can sneak up on you. In this case, when it rains, it pours, and, too often, it is pouring through the roof of your clubhouse or units in your community. What is it? It is the roofs which can no longer be patched. It is the siding which looks like a sponge. It is the parking area which resembles Swiss cheese. While these conditions don’t affect all communities, they are presenting significant challenges for many communities. The challenge can seem insurmountable when owners are behind in paying assessments due to current economic problems, when the current year’s budget maintenance category is insufficient and when the community has limited or no reserve funds.

Duty of the Board to Act: It’s likely that the governing legal documents for your community require that the association maintain, repair and replace common areas or common elements. When maintenance, repair or replacement is needed now, the Board has the duty to take steps to obtain the needed funding for the project. There are several options, but the most common include:

• Using funds from other budget categories;

• Raising assessments mid-year;

• Loans; or

• Pursuing a vote for a special assessment

Each of these funding tools has advantages, disadvantages and possible limitations. One or more may not be a practical or available option for your community, but understanding the

options will help the board plan the best strategy to address the financial need.

Option 1: Using Funds from Other Budget Categories: When faced with a budget crunch, the first option to explore is to look for other possible funds within your community’s budget. In most communities, a yearly budget is adopted which serves as the basis for the annual assessment, and that budget usually identifies line items for broad categories of expenses. For most communities, the Declaration of Covenants or Condominium does not require that the board spend the funds on the particular line item. Most documents state (or can be interpreted to mean) that the budget is an “estimate” of expenses rather than a specific limitation as to how funds are to be used by the board.

This means that the board can have the flexibility to use a surplus in one category to pay for a deficit in another. The board may determine that it makes sense to temporarily eliminate one or more categories of expenses and use the funds to pay for a more critical need. It may not

make sense to pay for new flowers when the association is short on funds to repair leaking roofs.

Option 2: Annual Assessment Increases: If you cannot rework your current budget to fund your current needs, then the logical next step is to increase that budget and increase your annual assessments. Some communities’ documents can be interpreted to allow for a mid-year increase in the annual (or monthly) assessment. In other cases, the documents may limit the ability to do this to year-end only.

Option 3: Loans: A third method of obtaining needed funds is to seek a loan. Loans have many advantages, including:

• Providing immediate funds to complete large capital projects;

• Allowing the community a longer time to pay for immediate work, often five to seven years; and

• Allowing the board to explore smaller budget increases to pay debt service on the loan, rather than larger special assessments.

Step 4: Special Assessments: Though not popular, sometimes a special assessment may be the only remedy. Some communities’ legal documents require a majority or two-thirds vote of the total community to pass a special assessment. What is the best strategy to pass a large special assessment? The strategy is the same whether you are pursuing a community vote for a loan, a special assessment, or a budget increase. The key is communication. You must be frank and upfront with the members about the association’s financial situation. Here are steps that have

resulted in successfully passed special assessments for other communities:

• Evaluate and identify the association’s specific needs. Use professionals to determine those needs. Engineers, community association managers and consultants can help identify maintenance and repair needs, costs of necessary work and a reserve study to

illustrate the financial facts about the association’s financial position and needs.

• Educate your members. This step is vital -- since a special assessment is often considered a drastic remedy, the need for it must be obvious and clear-cut. The board should send and provide the community with full, accurate and frank information about

the situation, the options being considered, and the plan chosen to address the situation. If there is a supporting engineer’s report, send it. If there is a listing of the work to be performed, provide a copy. When members are educated with the facts, they are more likely to support a special assessment. Understand that the board and your manager will likely have more information than the members, so be patient with their questions, and make the board and its experts (engineers, manager etc.) available (at a community meeting) to address member questions and concerns.

• Ensure that the board meets the requirements of law and the association’s legal documents. This means following all procedural requirements under the association legal documents and obtaining any required member vote. This will help avoid challenges to the special assessment and make collection of the funds easier if the

assessment passes.

• Provide flexible payment options and/or a discount for early payment. Consider payment options such as dividing the special assessments into two or more payments

and offering a discount for paying in full upfront. Review your documents to see if these are available options.

• Keep your members updated on your progress. They need to know what the association is doing with their money – this will also be an implicit reminder to make that next special assessment payment. As the work proceeds, email them details and photos.

The lesson to be learned from many associations --- is that to have faith in your fellow members. If properly informed, whether it is using funds from other budget categories, obtaining a loan, or passing a special assessment, most members will understand and support a responsible plan for addressing legitimate community needs.