Strategies for Implementing Emergency Assessments

By Becky Jolly, CCAM & Jasmine Hale, Esq., CCAL

All too often, when managers, counsel, and experts warn boards and their communities that the failure to maintain their association’s infrastructure can result in liability and create safety hazards, the calls for action fall on deaf ears. Sometimes those deaf ears lead to recalls when the board is attempting to do the right thing and move forward with lasting repairs to the failed infrastructure. Doing what is right sometimes means making the unpopular and hard decisions.

So, what should the board do when the siding has failed, balconies are about to fall off, or the association is underfunded in their reserves and cannot realistically pay for its upcoming SB 326 inspections? Oftentimes, there is no way these projects can wait when life potentially hangs in the balance. Here we will try to answer these questions by focusing on the legal issues and strategies for assisting communities in successfully navigating the process to implement emergency assessments.

Before we address the process and tips on how to implement an emergency assessment, we will cover when an emergency assessment is legally permissible. We will also focus on the liability associations face for failing to maintain its infrastructure to the point when such assessments become necessary. Civil Code §5610 permits boards to levy emergency assessments in any amount needed, and without owner approval, but limits the circumstances to the following: court ordered expenses; costs needed to repair threats to personal safety; and/or costs that could not have been reasonably foreseen when the associations current budget was adopted.

As for the liability associated with the circumstances that lead to safety hazards within a community, they are myriad. Claims can include personal injury, property damage, public/private nuisance, trespass, breach of fiduciary duty, and breach of CC&Rs (including for failure to maintain the property to the standard that many governing documents have as a boilerplate type of provision). Claims can increase an association’s insurance premiums and there is always the potential that some or all of a claim is not covered by insurance. Beyond the financial risk associated with safety hazards and other maintenance issues, the time it costs the community due to the diversion of attention by management and the board cannot be underscored enough.

If you manage a community confronting an emergency assessment situation, don’t panic. This is likely to be a stressful time for everyone involved, including the board and membership (who, like sharks, will smell blood in the water and come for you). Now is the time to get the experts out if you have not already. They need to determine what needs to be fixed and how.

Too often, boards try to cut costs and skip on hiring the appropriate experts that can make a meaningful impact on helping to prepare scopes of work and ensure projects remain on time and budget. We recommend boards consider the following types of experts in connection with imposing an emergency assessment:

• Engineer:Engineers will prepare plans for various structural issues. Once completed, those plans can be shopped out to your construction vendors.
• Construction Manager:Construction managers can help navigate the process from start to finish, including helping obtain competitive bids, reviewing requests for payment, and serving as the communication hub between the contractor, board, and owners, taking that stressful component off management’s plate.
• Construction Company:Construction professionals are needed to bid on the work to tell you how much everything is going to cost. Hiring an appropriately licensed and insured contractor is important; but, hiring one with prior experience working with associations can make all the difference in a successful outcome.
• Attorney:Legal counsel should not only look at all contracts, but also help formulate the association’s emergency assessment approval documents and membership notices to ensure they comply with the law.
• CPA:The association’s CPA will help with how to apply and account for the emergency special assessment.
• Bank:Depending on the size of the emergency assessment and the membership’s ability to repay it, an association may need a loan. Ensure the bank understands the project funding needs, the type of community involved, and has a clear picture of the association’s financials.

The board can meet with, and approve, the experts in executive sessions (which are not open to members) where they can have candid conversations and obtain the necessary education on the problems. This step is important so that the board can present a united front to the community. Imposition of an emergency assessment is not the time to have a squabbling board at war with each other or to have directors who do not understand the particulars on why, how much, and when the emergency assessment is needed in the first place.

Once the association has its experts all lined up, getting the issue and experts in front of the community is the next step. While the board approves the emergency assessment in an open meeting, community buy-in is critical to an overall successful process. The only emergency assessment that requires a resolution is one that is based on a lack of foreseeability; however, boards are advised to adopt a resolution for any type of emergency assessment to help document the legal basis and help protect against challenges down the road. We also recommend bringing the experts to a town hall meeting to have open dialog with the community where they can be educated and ask questions. Other tips include having the association’s experts walk the community and film the issues, which should be shared with the community during the meeting. If a picture is worth a thousand words, a video showing issues and hazards is worth a million.

Most important, when levying an emergency assessment, the board needs to be honest without placing blame. Blame will get them nowhere and typically divide the community. The best way to approach an emergency assessment is similar to looking at a business plan. First, identify the "what" and call in the experts to determine the scope of repairs. Next, determine the "how" and whether the community can self-fund or if a bank loan is needed to allow members to pay over time. (When seeking a loan, the association will need to collateralize the loan, which takes time.) Then, determine the "when" and marry the project funding needs with payment due dates. To be most successful, hold town hall meetings, shoot expert videos, and write letters explaining the history, project needs, and the funding aspects. And, make sure to communicate, communicate, communicate! These steps take time and patience; however, following these best practices can help ensure a more successful and less stressful imposition of an emergency assessment.

Becky Jolly began in the community association industry in 2001, working part time for a homeowners association. She was hired at a management company and was promoted to community manager and in 2008 joined the OMNI Community Management family and transitioned from management to running the sister company, CARS Collections. In 2016, she transitioned again to community manager. Jolly received her Certified Community Association Manager (CCAM) designation in 2007.

Jasmine Hale is a partner at Berding & Weil, LLP and has been representing community associations for more than 15 years in matters of board governance, enforcement, elections, even employment. Hale is a fellow of the prestigious College of Community Association Lawyers (CCAL) and serves as a delegate to the California North Chapter’s Legislative Action Committee. She can be reached at [email protected].