Pilot Property Management

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

Pilot Prop

How to bid out big jobs.

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Everyone has their own idea of what a big job is. If capital monies are being expended that’s one definition. Another is a job that does not get done more often than every five years. Another is just a dollar amount. Either way a board would be unwise not to call in an expert at some juncture of the process. Using an n architect to design and bid out and then supervise the work is obviously both effective and costly. Hiring a consultant to draw up bids specifications, review the proposals and perhaps a final walk through may be cheaper.

Using the specifications of a trusted vendor to seek alternative bids is a tad unfair but very much the practice in this industry. We used to have an architect on staff but did not have enough major work to keep him busy. The single most important arena is the bid specifications. Proper specifications save a bundle in change orders, and ensure apples to apples bids. If they are prepared professionally with all the workmanship and cleanup, warranty and payment options included leaves less chance of miscommunication. Many a proposal asks for instance, for more than 10% of the initial contract price up front. This is illegal but many associations are paying in advance of work done. We came across a roofing contract where there were 3 buildings. All the material was neatly stacked on one roof and no work was done before a bill was presented for preparation. We were not the managers at the time but were on site to make a proposal for management when we pointed out that the materials were visible from the street.  The bill was promptly denied and we became the managers. The filing of liens is something to be careful about also. When it comes to paint projects hiring a paint manufacturer to draw up the specifications can be invaluable, as that company will examine the work in progress to validate the manufacturers warranty. Checking the work in progress is essential especially if the contract seeks partial payment at the end of certain stages of the contract. It has been my experience that a general contractor, site coordinator or licensed professional not involved in the project but hired to supervise it to whatever degree the associations chooses is worth their weight in gold coin.

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How to write a budget: Bottom Up

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No-one likes to write a budget, especially now when money is tight and associations may be feeling the strain of rising receivables. Presently the law makes no provision requiring the funding of reserves although some of the government’s insuring agencies are demanding to see at least 10% funding annually. What’s a board to do?

Bottom Up.

Usually community budgets start with the various sources of income and then list by category the expenses divided into administrative, common area repairs, utilities and finally the reserve deposit. The reserve deposit is where they should start. All too often the reserve deposit is the balancing number between the expected income and the expected normal expenses.

In my view the process should start with an analysis of the reserve study and its projections. The reserve study, which is usually prepared by a third party who provides a dispassionate view of the number of years a capital item has life and its anticipated cost of replacement. They include a modest projected interest rate on both the funds being reserved and the likely cost when the item is to be replaced. From that study they propose a variety of scenarios for achieving full funding of the reserves and alternative plans for shorter terms. Boards should review that study and select a rate at which they choose to fund the reserves to meet a certain objective, such as to be 60% funded in say 5 years.

From that decision they can determine what amount to set aside for the forthcoming years as a reserve deposit each month.

Then working upwards they would determine say the cost of utilities for the ensuing year, followed by maintenance and administration. The sum of these costs will provide a total expense for the coming year. Divide that by the number of units and that is the amount of dues needed from each unit annually.

Sadly boards and managers start from the top and decide not to increase dues FIRST and then shuffle the numbers to fit that scenario leaving the reserve amount until last. It is the leftover difference between income and expense.

While that will make perfect arithmetical sense and be exactly correct it make consideration of the reserve study almost worthless.

In 2006 we suggested making a provision for bad debts. There were howls of derision. “That will mean we have to raise the dues, we have no money for that.” When the results for the year came in, the lack of a provision resulted in a shortage of funds transferred to reserves. Following my suggestion, at least in the drafting stages, allows an association to see the real cost of doing business and therefore the necessary dues required. Any shortages can be seen in advance and perhaps alternative changes to the line items can be made to cover whatever increase in dues is suggested by the study.

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How to get quorum

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Since the law changed to demand secret ballots for the annual elections it has become increasingly difficult for some associations to get quorum at the first attempt. Whereas in the past, members came to the annual meeting to meet the candidates and catch up on the local musings of the board and some of its members and to enjoy an afternoon of socializing, now the voting is secret with specially appointed ballot counters to ensure correct counting and anonymous votes, everyone attending has almost nothing to come for and in many cases they simply forget to vote or choose not to exercise their vote. Reminds me a of a large English speaking country close by, really close by.

What’s a board to do?

Here are a couple of suggestions.

Hold a raffle drawing names from all those who vote for a prize or two.

Save a gift certificate to a local restaurant movie theater, 2 tickets to a community event etc etc

Give one month or more of free monthly dues to the winning voter.

Publish the names of all those who voted and the winner of the contest and their prize.

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Do we need workers compensation insurance?

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Short answer. Yes. Long answer yes for 3 reasons.

Association Boards often ask the question – Why do we need workers compensation.

First, if you employ any staff such as a resident manager even if part time you almost certainly need it. To remove the need you would have to have a very strong contract with an “independent contractor that does not give the association the right to tell the contractor how when and where to do their job. An unlikely scenario and one to review with a labor lawyer FIRST.

Secondly, members of the board do from time to time odd jobs for the association. Buying janitorial supplies, changing light bulbs in the common areas, checking pool equipment, landscape walks, instructing vendors, inspecting buildings. We used to have an association in which two male directors at or past retirement age were walking g on the roofs and these were not flat roofs, inspecting for potential leaks. There are many tasks undertaken by directors some willingly some not and by committee members or members of the community appointed by the boards to a certain task force or study group.

Under the Labor code one section defines volunteers as a person who performs voluntary service without pay for a private nonprofit organization as designated and authorized by the board of Directors of the organization, who shall when the board of directors of the organization in its sole discretion, so declares in writing and prior to the injury, be deemed an employee of the association for purposes of this division while performing such service.

In other words if the board names the volunteers in a board meeting and outlines their duties or tasks that person becomes an employee while acting within that capacity. The ultra vires rule would apply, i.e. duties or activities not contemplated or anticipated might not be included such as visiting Disneyland with their family to treat them for the time Dad was “at work for the association.” So both board members and appointed volunteers are potential risks that may need to be covered.

 

Thirdly your governing documents may call for it.

 

The fourth and final reason is an insidious one. Some vendors may arrive on site with employees and may for one reason or another no longer have valid insurance. While management companies do some validation of insurances carried there may be times when a policy is lapsed, cancelled for non payment not renewed and the association is unaware. An injured employee or that contractor is likely to become an employee of the association, especially if the injury is severe and there seems to be no-one else willing to take care of him.  There was a roofer nearby who was outbidding most of his competition by not buying workers compensation insurance. The state found him fortunately before anyone was injured; or maybe that’s how they found him.

So the short and long answer when no actual employees are on staff to the question should we buy workers compensation is YES and YES.

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The key to good communication

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The oft spoken complaint from both directors and homeowners in Community associations is “they never return either my phone calls or my emails”.

The truth of the matter is we all delay returning some calls sometimes even with good reason. We want to check the facts, we want another opinion, maybe even a legal one, and we want the customer to cool down first. Most of the time however we just don’t want to take or return the call because we know it is going to be awkward, difficult, stressful, obnoxious and certainly not pleasant. Our day would go a lot better if we attacked the problems first and having dealt with them however bad they might be we now have the ability to focus on managing the routine functions without the dreaded call or email waiting out there for us.

If we could only realize that prompt attention to the difficult saves us from worrying about it all day. The news or complaint or request or demand may not be what we want to hear but now it’s over and we can move on to other things rather than be suspended inanimately waiting to deal with the dastardly call. If we recognized that our job is to sooth the fevered brow, to lower the temperature as I call it, we should be ready and eager to learn how better to do something. Owning up to a mistake, omission failure is in itself cathartic, it allows our emotions to relax and slow down. Instead of building up a fever postponing the inevitable we are able to release some of the tension as the difficult emotion has passed. The goal of management should be to answer all calls and emails in a reasonable time. Each person has their own definition of what is reasonable. A blackberry user probably has a shorter fuse than someone who still has a rotary phone at home. Whatever the standard adopted by the management company it should stick to it. There is even some software that tracks phone calls.

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What if an owner declines access?

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Most Declarations of Covenants, Conditions and Restrictions (CC&Rs) include a basic “right-of-entry” provision, usually with additional provisions for emergencies. Unfortunately, from time to time a homeowner thinks their lair is their castle and that it cannot be invaded by the beastly homeowner’s association.  Many CC & R’s allow for access by the association subject to reasonable notice and with reasonable cause. Far from being an intruder, the association often needs to gain entry in order to perform tasks that directly benefit the unit owner, as well as the association in general. Inspection for water leaks, mold testing, sound attenuation testing, and inspection for and/or repair of construction defects can be necessary in order to perform the association’s duties under the association’s governing documents Even though the association’s right to do this may be explicitly spelled out in the association’s governing documents, some homeowners refuse to allow the association entry.

In some cases, a lawsuit must be filed, seeking a court order to allow entry. Attorneys’ fees and costs may be awarded to the association, in addition to the cost for a locksmith, which may become a judgment lien against the owner’s property. And all of these costs could have been avoided by the owner simply opening the door. Furthermore an owner may be held responsible for deteriorating conditions and be found liable to contribute to a repair cost as a result of unreasonable delays.

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