How to Manage Increased Costs During COVID-19

2020 has strained the purse strings of California homeowners associations. When the pandemic hit in March, it forced HOA’s into uncharted territory, which resulted in unanticipated legal fees to address a myriad of issues such as how to conduct meetings, enforce the governing documents, and maintain common areas during state-ordered shelter-in-place directives.

As restrictions were lifted, re-imposed, and continuously adjusted, HOA’s needed the advice of counsel to determine how to best navigate the fluid landscape of COVID-19 regulations. When the heat of summer arrived and quarantine-fatigued residents were demanding pool re-openings, Boards had to consider whether to adopt emergency rules to safely and legally reopen community facilities, again with the assistance of legal counsel. COVID-19 regulations also required increased cleaning and sanitation measures, which were further unanticipated costs.

The pandemic has also resulted in unemployment and reduced incomes for millions of Californians, many of whom live in HOA’s and pay assessments. Government programs have been supplementing unemployment benefits, providing stimulus checks, and issuing emergency loans, but this temporary relief is not unlimited and many fear we are heading toward a crash similar to 2008 where Associations were faced with a wave of delinquent assessments.

As 2020 nears its end, many California communities are finding themselves over budget. Pursuant to Civil Code § 5600, Directors have a duty to levy regular and special assessments sufficient to perform their obligations under the governing documents, which includes maintaining the common areas. To this end, Boards will need to evaluate how to best accomplish this task within budgetary constraints, focusing on safety as a first priority and possibly putting off larger, non-urgent projects until the pandemic has subsided and the economy has begun to recover.  If the community facilities are too costly to safely remain open, Boards may consider closing them or increasing assessments to offset the increased sanitation, cleaning, and monitoring costs if they decide to keep the facilities open.

Boards should review their financials closely with management and their accountant to determine where they may be able to cut costs and/or increase assessments to operate within budget. Although directors may be sympathetic to owners experiencing financial hardship, Boards have a duty to collect assessments and the failure to collect places a burden on the paying members who may be subject to increased assessments and reduced services to cover budgetary shortfalls. To protect against this, boards must record liens on delinquent owners and initiate collection actions. Associations should retain the services of a competent collection firm for these purposes.

-Blog post authored by TLG Attorney, Carrie N. Heieck, Esq.