Pilot Property Management

Serving Coastal North San Diego County (Vista & San Marcos), too

PPMHandbook

Deteriorating decks

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Decks are one of those items that everyone takes for granted until someone’s foot falls through or until sponginess is felt by an owner. Sadly at that time the damage has been done and all that remains is the extensive cost to repair that may include replacing not just the sealant but the underlain plywood and worse still the posts and beams on which it rests. Unfortunately decks are not the most readily visible element of an association, often above the eyesight of a pedestrian and behind closed doors. This does not mean they should not be periodically inspected and maintained. This means literally walking into and onto each deck in every unit. Maybe one can hop a balcony wall on the ground floor but one still needs permission. Having done periodic plumbing, roof and HVAC inspections in all of our rental properties we know it is time consuming but we also know that we have solved a much larger problem form looming in the future. We once inspected every unit in a smaller condo building, and found 3 leaking toilets or sinks plus of all things a bath running 24 hours a day. When asked how long the water had been running we were told about a year by the owner who was formerly a board member.  There is nothing particularly frightening about doing an inspection in fact not doing it is particularly unwise. Obviously one needs to have an experienced person in the field walk each unit. We did such an inspection in a 70 plus complex and found fully 1/3rd in dire need of work about 1/3rd Ok and about 1/3rd that could be worked on at a later date. The 1/3rd that needed immediate attention was estimated to cost over $5,000 each.

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Effective Rule enforcement

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The courts usually want to allow homeowner associations to self-police. That means they will allow communities to make and enforce rules that are reasonable. The courts will tend not to interfere with rule making unless it is patently outrageous. They will less easily turn a blind eye when it comes to enforcement if it turns out not to be equitable. So pursuing one member for an infringement yet allowing another to go unnoticed is going to become a problem. Discrimination is a big no no in California and boards that do may even lack Errors and Omissions coverage for that eventuality (see article on Directors and Officers liability) Selective enforcement is sadly not uncommon. The board is upset about a particular type of infringement and pursues the owners who are infringing that rule and that rule only while leaving alone perpetrators who may be causing much greater damage or injury within the community. We had a situation in a smaller community where one director wanted to chase out a foreign born immigrant who happened to live in one home and rent out another. The problem was her tenant not the owner, but the owner was talked about openly in very derogatory terms.

The answer is if an association thinks a rule is bad they should change it or remove it. If the CC & R’s call for such a rule, they may have to rewrite the rule but ignoring it is only going to exacerbate the issue. Speaking of the C C & R’s some associations make up rules to suit themselves where the CC & R’s are silent on the issue. Without the authority of the CC & R’s no rules may be made. Most CC & R’s have a section usually headed use restrictions. Apparent violations need to be reported in writing and a letter or two seeking remedy issued. Failure to respond or failure to comply will usually result in a hearing. That will produce a plausible reason or a fine. A fine can be issued and even suspended for a short period, say 30 days, depending on the issue, pending remedy. Repeat offenders may be treated to an escalating cost, such as doubling the fine for a repeat offense within say 90 days and tripling if necessary,. Again the reasonableness of the fine can be at issue. One association I know was charging $100 a day for a minor offense and was up to $3500 before we cautioned them that it might not be collectable. As fines cannot be liened a small claims court action is a simple way to collect reasonable unpaid fines. Owners and sometimes their tenants have a variety of excuses for not complying. The most common is “I didn’t know”. Among the others are “it’s a free world”, “it costs too much”, “I am sick or elderly and need special treatment and the most famous “why are you selectively pursuing me when others…”

To most of these the cure is a polite explanation, an extension of time, a request for the filing of plans, an offer of help or a suggestion to use mediation services, internal dispute or alternative dispute resolution as called for by the governing documents. That is a far wiser and cheaper way than going to court. In a recent appeals court case in California Pacific Hills Homeowner Association v Prun, the Pruns were made to lower a fence and gate to 3 feet or set them back 20 feet from the front property line. If the Pruns opted for the second, to set back 20 feet, they would be allowed to have a 6 foot height but the association must pay 2/3rds of the cost

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W hat limits of liability should we select for our directors and officers policy?

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Under the Davis Stirling Act of 1985 volunteer directors and officers will not be personally liable is excess of the coverage of insurance specified if they meet the following criteria:

  1. the act or omission was performed within the scope of the directors duties.
  1. the act or omission was performed in good faith
  2. The act or omission was not willful, wanton or grossly negligent
  3. the association had in effect at the tome of the incident a policy or policies of insurance covering general liability and directors and officers liability of not less than $500,000 if the association had 100 or fewer members and $1,000,000 if the association had more than 100 members.

That said the association may be sued for more than these limits. Nothing in the act shall be construed to limit the association for its negligent act or omission or any negligent act or omission of any director. So a small association might be prudent to purchase insurance in excess of the mandatory limits of $500,000.

A blanket umbrella insurance policy increasing the underlying li8mits of $500,000 by a million or two would not cost too much compared to the costs of just defending a claim for a large sum. Sometimes a carrier will determine that the policy limits will be expended and they will offer to settle the claim for the policy limits to save further aggravation and the costs of defense and a trial plus possibly enormous awards. Buying larger limits will tend to avoid that albeit remote possibility. One exclusion that needs to be bought out of these types of policies is that of discrimination. California in particular dislikes discrimination so this form of additional coverage is extremely valuable and cannot be omitted. Directors do not normally choose to discriminate but many board of directors will make a decision that is particular to one individual or family only to reverse themselves in the future with a similar set of circumstances. Sometimes the action is simply the act of a new group of people leading the association with no malice aforethought. But the possibility of these types of acts is not uncommon.

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What limits of general liability should we insure for?

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Under the Davis Stirling Act of 1985 a volunteer Director shall not be held personally responsible in excess of the coverage of insurance if the association held no less than $500,000 in general liability and errors and omissions insurance if the total number of members is 100 or fewer, or $1,000,000 if there are more than 100 members. It goes on to state that members of the association may also not be held personally liable if the association carries 2,000,000 if 100 units or fewer and $3,000,000 if there are over 100 units.  This provision protects an individual owner from being sued just because he or she is a member of the association and perhaps the plaintiff feels he or she has the means to satisfy the plaintiff’s claim. An individual owner may personally be liable for a negligent act or omission on their part. Similarly a director may be personally liable as a director if he acted not in good faith,  or willfully wantonly or with gross negligence or worse acted outside of his duties as a director. These limits however do not mean that the association may not be liable for in excess of the insurance limits. It simply limits the personal responsibility of both direct ors and its individual members. So an association may quite reasonably decide to purchase in addition to these obviously sensible underlying limits, an umbrella policy for several million more to cover the possibility of an extremely unfortunate accident or occurrence.

The limitations for personal suite have a few rules attached to them such as the director must act in good faith and not in a wanton, willful or grossly negligent manner.

So now we have established minimum limits for both general liability and errors and omissions liability policies the excess amount is up to you?

$5,000,000?

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Do we need fidelity insurance?

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Short answer. If you have any money at all yes. Long answer. The need to buy and the basis of the amount you buy may be specified in your governing documents. Unfortunately some insurance and some management companies do not read the governing documents to determine first whether bonding is required and secondly if so what amounts should be insured. Associations do have difficulty deciding how much to insure for.. Once a year review the limits to ensure they are adequate in the event of a loss.

One guide might be the sum of all the different bank accounts at one moment of time PLUS  say 3 months of dues.

Imagine that there was $300,000 in total invested in certificates of Deposit and perhaps a money market account of $35,000 and checking account of $15,000 with monthly dues of  $8,000.

My recommended bond would be $374,000 call it $375,000.made up as follows. There are a total of $350,000 in the various checking and savings accounts including the CD’s and 3 months of dues would be another $24,000. This is a formulaic suggestion. Someone else might choose a different number based on other factors.

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