Pay As You Go?

Published in the ECHO Journal, January 2009

Can a Program of Periodic Maintenance Reduce the Number of Major Repair Projects in a Community Association? 

There are some repairs by homeowner associations that require a large specialty or general contractor, a project-wide bid and major funding. Examples are: wholesale reroofing; a complete repainting project; or reconstruction of a major portion of a building—especially where engineering or architectural expertise is required. But a lot of the work required keeping an association looking and working well can often be done by a small contractor and, in at least one case, by an employee of the association.

An association in Pebble Beach has found that the right employee can do many necessary repairs and save the association money in the process. We have written about the need for an association to maintain proper reserves for long-term repairs[1]. Most of the templates for a reserve program operate on the assumption that the work will generally be project-wide and bid as a single large project. This is certainly true with most major re-roofing projects, for example, or periodic painting projects. Large-scale dry-rot repair also falls into this category, especially where structures such as staircases or carports will have to be removed and replaced. The sheer size and complexity of such jobs require a large specialized crew, with architectural or engineering support and supervision.

But there are smaller, less complex jobs that can be done on an as-needed basis. Examples of such work are wood trim replacement around doors and windows and partial repainting where weather exposure on some elevations has weathered the paint far more than on more protected exposures. Certain door or window replacements can also fall into this category. Removal and replacement of a few weathered siding panels or boards prior to painting, where wholesale siding replacement is unnecessary, is another example. Some otherwise big jobs can often be accomplished as a lot of small jobs strung together, over time. These are examples of the kind of work a well-trained, experienced employee-handyman or small contractor can do, and if your association is lucky enough to find such a person at a point where the deterioration of building components is not yet widespread, the economic benefits can be substantial.

Ocean Pines

Several years ago, the Ocean Pines Condominiums homeowners association in Pebble Beach, California, hired just such an individual. His background was in general construction and he came to the association with solid credentials. He soon began to demonstrate how having a construction generalist on the payroll can keep the association ahead of most maintenance. Here are some of the projects he has undertaken on behalf of Ocean Pines that have helped to obviate the need for a single, larger project in the future:

1. Sand, prime and paint weathered (rusted) surfaces.
2. Spot paint hallways, entryways, some exterior.
3. Small flooring replacement (carpeting, linoleum).
4. Paint/varnish exterior unit doors.
5. Repair/replace irrigation pipes and fittings as needed or in response to a failure.
6. Replace water valves as needed.
7. Repair and replace walkway railings.
8. Identify and repair or replace small dry rot areas.
9. Paint, waterproof and maintain cinderblock garage walls.
10. Small roofing repairs (temporary or permanent).
11. Small driveway and walkway patching.
12. Fence installation and maintenance.
13. Identify exposed or worn electrical wiring.
14. Maintain common area doors, hinges and sweeps.

The association has also been able to rely on very quick reaction times to emergency situations such as leaks, pipe breaks, electrical malfunctions, and similar issues, which has helped keep small problems from becoming much larger ones.

Concierge

But this employee also serves a second purpose—that of an owner’s representative or concierge who can assist not only the association itself, but also the individual owners who are remodeling or who have repairs being done. Here are some examples of the tasks he performs in that capacity which assist in recognizing and resolving problems at an early stage:

1. Consult with elevator professionals, roofing and painting contractors to identify ways to increase service life and focus interim repairs on what is needed.
2. Consult with satellite television providers to install a master satellite dish.
3. Meet with owners to resolve unit damage due to common area plumbing failure.
4. Consult with reserve study professionals to identify additional reserve components and help determine service life.
5. Educate owners and management on the requirements for maintaining the project.
6. Translate the interests of the board of directors into instructions for contractors.
7. Provide written reports to the board of directors on repairs and maintenance undertaken and recommended.
8. Coordinate and schedule contractors on behalf of the association and individual owners.

Having the skills and the experience to tackle jobs as diverse as those above requires a multi-faceted individual; but that, coupled with the public relations advantage such an individual brings to management and the board of directors, argues favorably for such a position if the right person can be located.

When contractors come to bid a project, the association’s representative can identify exactly what the board wants done and can also provide secure access to units when necessary. He directs the contractors to the areas to be repaired, as well as to water valves and electrical panels. He assists in identifying the best way to repair a problem and generally has the latitude to make immediate decisions. He also makes suggestions to the board for various improvements that he believes are necessary. Having the ability to facilitate access to individual units has proven helpful. If there is a pipe leak, for example, he can immediately get to the source and stop the leak; when the response to a leak is fast, the consequential damage is reduced significantly. This also results in fewer and more modest insurance claims. If there are common area repairs that require unit access, it can be provided to the contractor. He can also direct fire services and law enforcement when necessary.

What to Watch Out For

At this point, we must raise the caution flag. How much work can be accomplished by any one individual obviously depends on the competence of that person and the complexity of the project. Also, the association must have management that is willing to supervise the employee’s work, not always a role that management companies will accept. They are rightfully concerned about the appropriate insurance, credentials and licenses, not to mention the necessary construction expertise.

Further, the employee must be very clear with the association about the limits of his expertise. There can be nothing worse than having an unqualified worker attempt something that makes what would otherwise be a small problem worse, or a big problem a disaster! As an employee, no contractor’s license is required, but that would not be true for someone not on the association’s payroll. Anyone who would be hired for a single job under an oral or written contract should hold the necessary contractor’s license for those jobs that fall under the rules of the California State Contractor’s License Board. A properly licensed contractor should always be the association’s choice when using non-employees for construction tasks.

Also, it is important that the board not substitute using the services of an employee for maintaining a proper reserve budget. Eventually there will be projects that are well beyond the scope of any individual and must be adequately funded for that inevitable big job.

But within the areas of his proven expertise, an employee or small licensed contractor can do many jobs on a periodic basis as an alternative to full-scale, one-time renovations. For example, if an association has wood siding and trim that has now reached a point in its service life where it will need to be replaced within 30 years, it must be included in the reserve budget[2]. Normally, the cost of that job would be estimated and the remaining useful life calculated, so that at the end of the siding’s service life the reserve fund should have enough cash to re-side the entire project. However, as an alternative, an annual operating expense of “miscellaneous carpentry” could be calculated and budgeted so that a percentage of the trim and siding could be replaced each year in lieu of wholesale replacement in the future. Certain elevations can be upgraded and painted each year so that some siding and trim replacement is done in conjunction with re-painting, as an example.

Operating Expenses vs. Long-Term Reserves

If such work could be accomplished using an employee or a small contractor, it could obviate the need for a portion of the long-term reserve fund for those specific components that can be replaced or repaired gradually. Placing the cost of this work in the operating budget could also result in more predictable expense projection because it could be easily adjusted as conditions and quantities were revealed. However, and here’s that caution flag again, the association’s expectations have to be realistic. If the decision is made to tackle a project on the “pay as you go” basis described here, and it turns out later that the project is too big for an employee to handle in that manner, the association would have delayed collection of sufficient reserve funds during the period of that failed experiment. For this reason it is recommended that any major components[3] that are being maintained in this way should also be inspected as part of the association’s three-year reserve study.

While larger or technically more complex jobs will always need the services of general or specialty contractors, gradual repairs or replacements could be accomplished with an in-house employee or small contractor, most likely at a savings to the association. Again, supervision and proper insurance are very important, as is use of an architect or engineer to provide specifications and standards and occasional inspection. These design professionals can also determine whether the rate of deterioration of the component justifies continuing the “repair-as-you-go” approach or whether it would be more efficient to move the job to a larger contractor sooner and do the work all at once.

With these options available, many associations should be able to place the repair and maintenance of its buildings in the right hands. Remember, the most important thing is to investigate actively and address problems immediately, and not wait until the deterioration has exceeded anyone’s capability or financial ability to control it. The California Civil Code requires that all “visible and accessible” areas of the buildings be investigated as part of the association’s reserve study. That’s not enough in older buildings—most conversions or any common interest development that is twenty or more years old or approaching that age. Without some intrusive investigation, an association is likely to miss such things as dry rot in structural components or plumbing suffering from corrosion—both very expensive repairs when necessary.

More extensive investigations and the ability to address some component repairs on a gradual, as-needed basis can assure greater accuracy in funding predictions and more control over the condition of the project.

Tyler Berding is a founding partner of Berding & Weil, LLC, a community association law firm located in Alamo, CA. He has taught real estate and community association law at California State University East Bay and is the immediate past president of ECHO. Alfred (Tod) McKelvy is the Executive Director of Berding & Weil and is a member of the board of directors of his homeowners association. Questions or comments can be directed to Dr. Berding at www.berding-weil.com or www.condoissues.com.