Why Deferring Common Area Repairs Could Cost You Thousands

By: Mitchell Drimmer, CAM

As a homeowner, you want to ensure your property is well-maintained and secure. However, deferring maintenance of common areas could lead to increased expenses that cost your HOA thousands of dollars. In this article, we will explore the hidden costs that arise from deferred maintenance and provide practical tips on how to avoid them. From increased repair fees to legal expenses related to lawsuits, we will delve into the real-life consequences of delaying common area repairs. By the end of this article, you will have a clear understanding of why maintaining your common areas is crucial and how you can save your association from unnecessary expenses.

Increased Repair Costs Due to Inflation

It’s no secret that the cost of labor, supplies, and materials necessary to repair and replace standard area components increase annually, thanks to inflation. Most reserve studies include a 1.5-3% inflation rate in the calculations. However, in real life, this rate fluctuates wildly and is often higher. For example, this U.S. inflation calculator shows that in 2021 inflation was 4.7%, and in 2022 it skyrocketed to 8%. 2023 is already at an average of 4.9%, with data only available through April. 

Inflation means that in a stable economic climate, the proposed cost for inspection, repairs, and replacement of the association’s balconies rises by 1.5-3% every year the project is delayed. In times like the present, costs could increase by 5-8% in a single year, even if the damage magically does not get worse, which it will. So, it’s simple math that the sooner the work gets completed, the lower the total cost. 

More Significant Damage

Another consequence of deferring common area repairs is the probability of more significant damage to the property. Issues like roof leaks, cracked pavements, and faulty elevator mechanisms worsen over time if left unaddressed. As the damage increases, repair costs also increase, leaving the association with a much more substantial bill to foot. The longer you wait to address repairs, the more you stand to lose in terms of time, money, and legal disputes. 

The risks of allowing minor issues to spiral out of control can be debilitating. As water damage spreads or structural problems worsen, it can lead to a chain reaction of damage that ultimately requires much more significant repairs. For example, a leaking roof can cause mold to grow, which, if left unaddressed, can become a health hazard for residents. Once the mold is present, more extensive measures are required to eradicate it, leading to even more significant expenses for the association.

In addition to the heightened repair costs, significant damage can lead to legal disputes. Residents may become more frustrated with the state of the property and demand action, leading to potential litigation. In many cases, deferring minor repairs can lead to more substantial legal battles and further expenses for the association. In worst-case scenarios, deferred maintenance causes the loss of life. Consider this list of fatalities caused by elevated walkways or balconies in recent decades:

  • 1992, Malibu, CA – during a party, a balcony filled with people collapsed onto the rocky surf two stories below, causing the loss of two lives and injuring twenty-nine others.
  • 2003, Chicago, IL – a balcony collapsed due to extensive wood rot, killing thirteen and injuring over fifty people. A subsequent inspection found that over 1,200 balconies in Chicago were in similar condition.
  • 2015, Berkeley, CA – a third-story balcony full of students collapses, resulting in the loss of six lives and injuries to seven other students. In this case, a subsequent inspection found that over 400 balcony decks in Berkeley needed repairs.
  • 2019, Wildwood, NJ – a condominium association has three levels of decking collapse one upon the other. While fatalities resulted, over twenty people were injured, with people on the lower two levels sustaining severe injuries.

In light of the dangers of deferred repairs to elevated surfaces in particular, some states, like California, adopted laws mandating timelines for inspections and reporting by qualified architects of all structural or load-bearing components of stairs, elevated walkways, decks, and balconies. Similarly, in Florida, the collapse of the Champlain Towers condominium building that killed almost 100 people resulted in legislation that requires milestone inspections of the structural components of buildings themselves, with timelines dependent on proximity to the coastal elements.

The bottom line is that deferring common area repairs can create a domino effect that leads to more significant and costlier issues in the long run. The best course of action is promptly addressing minor problems to avoid further complications and expenses. Otherwise, associations may find themselves footing the bill for repairs that could have cost much less if addressed early on. 

Interest on Bank Loans for Under-funded Repairs

Deferring common area repairs not only leads to more significant repairs and costlier issues in the long run but can also lead to additional financial burdens for associations. One example of this is interest on bank loans for underfunded repairs. Associations must keep in mind that actions taken today will have repercussions tomorrow. 

When repairs become too costly and the membership can’t handle or won’t approve a special assessment, associations often turn to bank loans. Interest on these loans can add up over time and lead to long-term financial hardships for associations. This is why promptly addressing minor problems is crucial to avoiding these additional financial burdens. 

Furthermore, when associations need to finance unexpected repairs, they may have to resort to special assessments, whether they want to or not, to secure loan approval. In most states, loans and special assessments require ballot approval of a majority of the membership. Unfortunately, obtaining membership approval is not easy, and it can come with its own expenses. In the following section, we will delve into the costs of secret ballot member approval for special assessments and loans, another reason why deferring common area repairs is not a viable solution.

Costs of Member Approval for Special Assessments and Loans

When an association needs to cover unexpected repairs, it may have to resort to special assessments and loans. Unfortunately, this process is not fast and costs more than you might think. 

Understandably, membership approval is an essential check and balance to protect against a bad board of directors. Still, it has financial implications. The costs of printing and mailing ballots can be high, as can the fees for hiring third-party companies to handle the voting process. There are often extra meeting costs to hold town hall meetings to garner member support for the proposed assessment or loan. Additionally, there may be legal fees associated with secret ballots, as it is crucial to ensure that all ballot language and voting procedures comply with state and federal laws. 

All these expenses can add up, resulting in significant costs for the association. As such, it is vital to avoid the need for special assessments and loans by addressing common area repairs promptly. Doing so can help an association avoid the additional financial burdens of obtaining member approval for special assessments or bank loans.

It is also worth noting that attorney review of ballots and voting notices is not the only legal expense in which delaying necessary maintenance projects results. In the next section, we will explore the more severe potential legal pitfalls HOAs may face when they neglect essential repairs.

Legal Expenses Related to Lawsuits

Deferring common area repairs can create a domino effect of expenses for an association. The costs of special assessments, loans, and additional damage can quickly add up and strain an association’s budget. However, there is also the potential for legal expenses related to lawsuits to exacerbate the financial burdens. Neglecting essential repairs can leave an association vulnerable to legal action and liability, leading to even greater costs. 

Consider the case of Champlain Towers or the slew of balcony and elevated walkway collapses we discussed earlier. Those associations faced or are in the midst of litigation, alleging that the association is at fault for the injuries and deaths. Even if a community is successfully defended against such a claim, the legal costs for the defense are astronomical. And when financial damages are awarded because the courts agree, the association is financially devastated.

As you can see, avoiding these hidden extra expenses is imperative. So in the next section, we will explore how associations can proactively avoid these hidden costs of deferred maintenance by taking a preventative approach.

How to Avoid the Hidden Costs of Deferred Maintenance

By staying on top of repairs and conducting routine inspections, associations can catch problems early and take care of them before they become larger, more expensive issues. Regular maintenance can also help extend the life of common area components, reducing the need for costly replacements. Budgeting adequately for routine maintenance and funding reserves appropriately are two financial best practices that all HOAs should adopt.

Associations can also invest in preventative measures, such as weatherproofing and regular power washing, to protect common areas from damage and wear and tear. By addressing minor issues as they arise and taking steps to prevent future problems, associations can save money on repairs and avoid the potential for legal expenses related to lawsuits.

In addition, associations can work with a trusted contractor to develop a long-term maintenance plan that prioritizes repairs and outlines preventative measures. By budgeting for maintenance and repairs on an ongoing basis, HOAs can avoid the need for special assessments or loans, which can add to the financial burden of deferred maintenance.

In conclusion, deferring common area repairs is a recipe for disaster for homeowners associations. By neglecting regular maintenance, associations risk paying significantly more for repairs. HOA boards must prioritize regular maintenance and proactively address any issues to avoid these hidden costs. Remember: neglecting maintenance now can lead to thousands of dollars in expenses later. As the saying goes, “An ounce of prevention is worth a pound of cure.”

If delinquent assessment payments are holding your HOA back from completing necessary common area repairs, contact us today for more information on how we can help you collect more while spending less

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