Yalnes, Inc. Blog

A Resource for Condo Owners

How to increase operational efficiency while retaining control of your Association’s finances.

We come across a wide range of approaches Associations take to managing and maintaining their Common Areas.  Some Associations wish to address any and all maintenance needs as quickly as possible when they arise and some prefer to go through a competitive bidding process prior to performing repairs.  We suggest developing and implementing a specific policy to provide guidance to the Board of Directors (and the Management Firm, when the Association is professionally managed).  Doing so will eliminate (or at least minimize) lengthy discussions over whether or not something should be repaired, how many proposals from independent vendors should be obtained (does replacement of a light bulb really require three proposals?), how vendor invoices should be approved for payment, etc.  A resolution will also provide consistency in Association’s operations as Board elections are held and the composition of the Board of Directors is changed.

Below is a sample Board Resolution.  There are many things that go into development of a Resolution; however, all Resolutions should include:

  • Purpose – state the reason why this particular Resolution is being adopted;
  • Authority – reference / quote applicable language from Association’s governing documents (commonly referred to as Declaration; Covenants, Conditions and Restrictions (CC&Rs); Master Deed; ByLaws; etc.), giving the Board of Directors / Association the power to adopt the Resolution;
  • Result – this is the main portion of the Resolution and will typically describe a specific process, implementing the Purpose of the Resolution.

 

SAMPLE ASSOCIATION
BOARD RESOLUTION # 09-01
GENERAL COMMON AREA REPAIR/EXPENSE APPROVAL GUIDELINES

WHEREAS, Section X.X of the ByLaws obliges the Board of Directors to provide for the operation, care, upkeep and maintenance of all of the Common Areas; AND

WHEREAS, Section X.X of the ByLaws empowers the Board of Directors to manage and supervise business affairs of the Association and to employ services of any independent contractor and to prescribe their duties; AND

WHEREAS, Article XX of the ByLaws permits the Board of Directors to authorize any officer or officers, agent or agents, to enter into any contract and to sign checks, drafts, or other orders for payment; AND

WHEREAS, the Board of Directors wishes to maintain effective control over the Association’s expenditures while providing for efficient day-to-day operations of the Association;

NOW THEREFORE, be it resolved that the following approval levels and repair procedures are agreed upon:

  1. Invoices for recurring services (contracts for services and maintenance and utilities), which were previously approved by the Board, shall not require additional approval for payment;
  2. Required repair work of non-recurring and non-emergency nature: (a) The Association Manager (or a Board member appointed to oversee Association’s maintenance) shall have authority to approve repair work and/or invoices not exceeding one thousand dollars ($1,000.00).  An independent contractor’s proposal/estimate shall not be required for repairs below $1,000 unless deemed necessary by the Association Manager (or a Board member appointed to oversee Association’s maintenance);  (b)  President of the Board of Directors shall have authority to approve repair work and/or invoices not exceeding five thousand dollars ($5,000.00).  An independent contractor’s proposal/estimate shall not be required for repairs below $2,500 unless deemed necessary by the President.  In the event estimated repairs exceed $2,500, the President and/or Association Manager shall obtain at least two (2) independent proposals for the work;  (c) Approval of the Board of Directors and at least three (3) independent proposals shall be required for expenses exceeding five thousand dollars ($5,000.00);
  3. Any one (1) Board member and/or the Association Manager shall have authority to approve repairs / expenses of emergency nature; however, such Board member and/or the Association Manager must notify all Board members of the emergency work while making the protection of life and property a first priority;
  4. Checks and / or drafts for operating expenses shall be signed by the Association Manager (or one (1) member of the Board of Directors);
  5. Checks and / or drafts for reserve expenses must require approval and signatures of at least two (2) Officers of the Board of Directors.

Adopted at the Board meeting held on _____ day of ___________________, 200__.

SIGNED BY:

________________________________
President

 

ATTESTED BY:

________________________________
Secretary

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September 20, 2009 Posted by | Board of Directors, Governance | , , , | Comments Off on How to increase operational efficiency while retaining control of your Association’s finances.

Why does an Association need reserves?

Equipment and major components (like the roofs) must be replaced from time to time, regardless of whether the expense is planned for. Most Association members prefer to set the funds aside now instead of having to pay a Special Assessment to cover cost of a major project such as a roof replacement. Reserve funds aren’t an extra expense – they just spread out expenses more evenly. Funds for a particular project are accumulated over a period of several years instead of a one-time Special Assessment levy. There are other important reasons why Associations put monies into reserves every month:

1. Reserve funds meet legal, fiduciary, and professional requirements. A replacement fund may be required by:
– Any secondary mortgage market in which the association participates (e.g. Fannie Mae, Freddie Mac, FHA, VA);
– State statutes, regulations, or court decisions;
– The community’s governing documents;
2. Reserve funds provide for major repairs and replacements that will be necessary at some point in time. Although a roof may be replaced when it is 25 years old, every owner who lives under or around it should share its replacement costs.
3. Reserve funds minimize the need for special assessments or borrowing. For many association members, this is the most important reason.
4. Reserve funds enhance resale values. Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Reserve Study bill passed in Washington just recently requires Associations to disclose the amounts in their reserve funds to prospective purchasers. It also contains specific requirements for Reserve Studies.

March 26, 2009 Posted by | Accounting | , | Leave a comment