To keep your association operating as a well-oiled machine, you need to take care of your valuable assets, equipment and common areas – maintaining, repairing, and replacing them on a regular basis. And the best way to do that is by performing a comprehensive reserve study and making preventive maintenance a priority. Taking these steps can help secure property values, strengthen your association’s reputation, prevent major special assessments, and most importantly, keep residents safe. To get on the right track, start with these 8 do’s and don’ts.
DO: Make sure you have an updated reserve study and maintenance plan.
To start out strong, every association should have a comprehensive reserve study and preventive maintenance plan. Responding reactively to maintenance issues as they come may seem like the easy path to take, but it often leads to surprise maintenance costs down the road or a large special assessment. Even if you abide by manufacturer guidelines, other external factors that may cause additional wear and tear that are not reflected in those guidelines (e.g., severe climate changes, extensive use of equipment by residents, etc.). Only a comprehensive reserve study that meets state law requirements and a consistent maintenance schedule will help protect against surprise repairs.
DON’T: Put off minor repairs and replacements because you think you can prolong the equipment.
A piece of equipment or an asset in your community may look “good as new,” but there may be underlying issues to consider. Plus, if it’s an asset that’s designed to protect another common area component (e.g., asphalt sealcoating, wood painting, ironwork fence painting, deck sealing, etc.), you may be facing even bigger challenges. For these projects, it’s best to complete any repairs or replacements on schedule. The small amount saved by delaying the project can lead to significantly higher expenses because of damage to the underlying (and expensive) structural component. Even worse, putting off repairs on these “minor” elements could lead to safety risks to your residents.
DO: Know your reserve study and update it according to local requirements.
In addition to having a reserve study completed by a licensed reserve specialist, it’s important that you and your board understand what’s included in it so that you’re budgeting effectively. “Your board should fully understand how much of your reserve fund is allocated for each item in your reserve study,” said Karen Lillie, regional director at FirstService Residential. “Meet with your reserve firm to make sure you thoroughly understand each line item, what elements it includes and how much of the budget is allocated to it.”
State requirements vary when it comes to reserve studies. For instance, Tennessee law requires condo association boards to have had a reserve study done on or before January 1, 2024, if the board has not had a reserve study conducted on or after January 1, 2023. The law also requires boards to have an updated reserve study done within five years of the original reserve study date and every five years thereafter. The legislation further outlines that if an association has performed a study after January 1, 2020, it will count as the first study and start the five-year clock.
DO: Use reserves on projects that meet National Reserve Study Standards.
Many boards think that they can’t use their reserve fund to pay for certain projects (e.g., painting) because it doesn’t meet the IRS’s definition of a capital component. While your taxes should be prepared per IRS guidelines, your reserve planning reflects National Reserve Study Standards. For instance, if your painting project falls under the category of a reserve project (e.g., common area maintenance responsibility, limited life, predictable remaining useful life, and above a threshold cost of significance), it may be funded through your reserves.
DON’T: Underestimate the cost to maintain community assets.
Undervaluing the cost of ongoing renovation and repairs can come at a high price. This is particularly the case for major components such as swimming pools, chillers, boilers, and elevators. The cost of maintenance for these assets often has a higher price because the elements involved are more complex. For example, replacing a chiller system or modernizing an elevator system is easily a five- or six-figure expense. Work closely with a proven reserve study firm and experienced property management company to make sure you aren’t underestimating any major maintenance costs.
DON’T: Assume equipment that appears “fine” doesn’t need inspection or repair.
Similar to underestimating major costs, your association shouldn’t avoid maintenance on exterior assets like siding or windows. While the exterior siding of your clubhouse or windows on your high-rise may seem perfectly fine now, they will require replacement eventually (in 30+ years). It’s important to keep them maintained on an ongoing basis and prepare for the future cost of replacement (which can be substantial). Even if you’re a relatively new association, building those long-term costs into the budget is critical if you want to avoid being hit with a major special assessment.
DO: Focus on visible and hidden assets.
Some of your association’s equipment may go unnoticed because it is hidden from plain sight – but it still needs regular maintenance. For example, you’ll want to regularly recoat above-ground planter-box systems (typically located on patios above walkways or underground garages) to avoid leaking. The water will then overflow into whatever is beneath it, potentially causing significant damage. While it’s pricey to remove vegetation and re-coat planter box systems, it’s more expensive to rebuild a deck or repair concrete that resulted from months or years of moisture exposure. Make sure to perform regular inspections of these “hidden” assets.
DO: Consider other budget factors aside from current reserve funds.
Market conditions fluctuate, the cost of goods and services may rise, and other external factors can impact the cost of your maintenance. Even if you have well-funded reserves now, that may not be enough down the road. Eventually, the items that your reserve fund covers will need to be paid for, and too often, it’s in the form of a special assessment. The good news is that if you update your reserve study annually and adjust your budget accordingly, you’ll be less likely to require a special assessment. Small, regular increases in assessments (and regular updates to your reserve study) will help your community avoid a hefty special assessment down the road.
The key to a healthy maintenance plan
Following these do’s and don’ts can help position you for maintenance success and help you avoid costly surprise repairs down the road. Remember to follow local requirements when it comes to your reserve study and work closely with an independent, credentialed reserve study professional. Your property management company can also help you create or evaluate your preventive maintenance plan to ensure you’re making proactive decisions that keep your community’s best interest in mind.