We recently were asked by a property owner’s association whether they had a duty to maintain a bulkhead in a homeowner’s yard.  The homeowner had requested maintenance citing a provision in the declaration which appeared to require action by the association.

An association may assess and spend assessed funds only for the purposes provided in the association’s governing documents.  To do otherwise would be a breach of the board’s fiduciary’s duties.

In this instance, the declaration provided that “the association shall...construct any bulkheads or similar improvements to support or enhance the lake, the Association shall maintain any all and all improvements in good repair and condition…”  Our interpretation is that maintenance by the association is required when the bulkhead is a required element of the stormwater management system for the subdivision.  Maintenance is not required when the bulkhead was installed for cosmetic purposes or to support homeowner improvements such as a swimming pool. 

The answer would be the same if there was only a general duty to maintain the stormwater management system but no specific mention of bulkheads.  If the documents required maintenance of bulkheads but did not include the italicized language above, there might be a different answer but it would depend on what other provisions were in the declaration.

July 15, 2008

Transfer of control of an association from the developer to the homeowners is commonly known as “turnover” and most folks associate a lot more meaning to it than it really has.  Turnover has nothing to do with a developer’s obligations to the owners (other than in residential condominiums, a warranty clock starts to tick), deferred maintenance, claims or the like.  Rather, two things are required to occur: 1) the requisite number of developer appointed board members resign and are replaced by homeowner elected board members and 2) the official records of the association are delivered to the control of the board.

Other things can happen and should be explored prior to turnover.  This phase necessarily involves a group of interested homeowners who assemble and perform certain functions.  They can operate with the sanction of the developer controlled board but they don’t need to.  In either case, the turnover committee may hire and pay counsel to advise them during the review process but the benefit of board approval is that assessments can be used to pay counsel and other professionals.

Two things the turnover committee should do is to make a determination of the physical condition of the systems the association is charged with maintaining such as the storm water drainage system, private roads, or other common property and to review the organic documents (covenants and restrictions, articles and bylaws) to see if modifying them would benefit the operation of the association.

Review of the common property could be as simple as conducting a reserve study.  A reserve study takes each system maintained by the association, determines its remaining useful life, the cost of maintenance and/or replacement at the time such would be required, and determining if the association has set aside or earmarked sufficient funds to pay for the maintenance or replacement.  For example, if the association is required to maintain a private road, the study would include a professional determination of when the road would require maintenance, such as repaving, and an estimate of the cost at that time to repave.  If the useful life of a road were say, 10 years, and the cost of repaving was $100,000, the association should have set aside $10,000 per year to cover that cost when it became due.  If the roads are currently 3 years old, the association should have $30,000 in reserve today.  If they do not, such would be a discussion point with the developer at some point (which doesn’t have to be before turnover).

Most developers prepare the association’s organic documents without any regard to whether or not they allow the effective operation of the association after turnover.  Why should they?  They have complete control and can do pretty much what they want.  For example, if they want to change something, they don’t have to chase down a quorum of fifty percent of the owners to have a meeting.  However, when the owners control, they would have to do so if the quorum requirement is 50 percent (most are).  Experience proves that a quorum requirement of less than 30% creates the best opportunity to establish a quorum.  Making that change is simple if the developer has reserved the right to modify the association documents without owner consent and if the change occurs prior to turnover since that ability expires after turnover.