Marcie and Jeff are typical condominium owners: they are retired and do not want to do the yard work or repairs any more. They thought that owning a condominium would make their life easier. They could travel and their neighbors could help keep an eye on everything. They bought into a new development called “Round Top Condominiums located at the top of a hill overlooking the ocean on the Oregon coast. The association has 100 units and it includes a pool, hot tub and a clubhouse.

It was an idyllic community and everything was going great until the board of directors suggested a massive $10,000 per unit special assessment to offset maintenance costs. Since most of the owners of the condominiums lived on fixed incomes, the special assessment created massive heartburn. After one particularly rough annual meeting, Jeff decided that if he did not become involved, he might never be able to sell his condominium. He decided to join the board of directors, because the property was looking tired. The ocean winds and the sun had bleached the homes, but the board of directors could not seem to come to an agreement on how to take care of the property.

At his first meeting, no one could agree on any thing. Jeff voiced his opinion that the whole board should read the association declaration and bylaws, and that they should read chapter 100 of the Oregon Revised Statutes. Every one grumbled about it, but agreed to return in one week. The following week they all met again. This time they had a better understanding of the rules for “Round Top.” The president asked Jeff to form a subcommittee with the treasurer and the representative of the property management company to examine their finances and make a report to the board at the next meeting.

Jeff met with the treasurer and the property manager, and discovered that there were no reserves kept for the maintenance of the property. He was stunned. Marcie and he had purchased this property because of its beauty and the low -- very low -- monthly assessments of $75 per month. Now he saw how foolish he had been to wait five years to get involved. He remembered reading the 100 chapter of the ORS and asked the property manager why no reserves had been held aside. The manager said that the board of directors and the association had resisted because they did not want an increase in the monthly assessments.

Jeff knew that they were in trouble. He had to find a way to help both the association and its members at the same time. He decided education was the best approach. The treasurer and the property manager agreed; the following week Jeff made a report to the Board of Directors. First, he reminded the board that the declarations, the bylaws and State law outlined that maintaining and preserving the property was the prime duty of the Board of Directors. In addition, the Board of Directors is responsible for holding funds in reserve to have money available when the property deteriorates. In addition he told them that Oregon law requires the preparation of a “reserve study”(ORS 100.175). To set up proper funding of the reserve funds the state even outlined specifics. ORS 100.175 (1) states “the Declarant shall: Establish a reserve account for the replacement of those common elements all or part of which will normally require replacement in more than three and less than 30 years, for exterior painting if the common elements include exterior painted surfaces, and for such items as may be required by the declaration or bylaws. The reserve fund need not include:

(A) Items that could reasonably be funded from operating assessments.”

Jeff also pointed out that according to the ORS, the reserve assessment should have accrued from the time of the first conveyance of the first individual unit assessed (as provided in ORS 100.530). Finally, he concluded that the Board of Directors was responsible for an annual review of the reserve study.

He then informed the board that the Community Associations Institute had published National Reserve Study Standards, which include:

1. A summary of the number of units, physical description and reserve fund financial condition
2. Projection of reserve fund balances for at least 25 years (Oregon state law requires a 30 year life review)
3. A tabular listing of the component inventory, clearly described and annotated with useful life, useful remaining life and current replacement cost of each item
4. A description of the methods and objectives used in computation of the fund status
5. Sources used to obtain the component repair/replacement cost estimates
6. A description of the level of service by which the reserve study is prepared.
7. The fiscal year for which the reserve study is prepared.

Finally Jeff told the Board they had no choice but to hire a qualified company to prepare the reserve study immediately. Their property management company had obtained three bids from companies that prepare such studies. The board reviewed the information interviewed two of the companies, choosing one to prepare the study.

Within a month the Board received the report. Jeff suggested a hybrid approach to solving “Round Top’s” problems. He proposed that the association incur a smaller special assessment to get over the emergency issues. The Board agreed to increase the reserves component $75 per month per unit in addition to the $75 operating assessments, for a monthly total of $150 per month. This would get the ball rolling towards saving for building repairs. They also agreed that if they found they did not have enough money for major projects, they could approach banks that were amenable to lending the association money for projects. This would allow the association to pay out over time instead of implementing a $10,000 special assessment.

As you can imagine all of the pieces finally fell together to fund the repairs. Jeff is still on the board -- now as president. He sees light at the end of the tunnel, and expects to not run again for another term.

Published: January 30, 2003

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Clifford A. Hockley is the President of Bluestone & Hockley Real Estate Services, one of the larger brokerage and property management companies in Portland, Oregon. Mr. Hockley holds an MBA Willamette University and a B.S. in Political Science from Claremont McKenna College. He is a Certified Property Manager and Bluestone & Hockley Real Estate Services is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM). Mr.Hockley serves as member at large on the Portland IREM board. He has twice been named Certified Property Manager of the Year (2001 and 2003) by the Institute of Real Estate Management and is a frequent contributor to industry newsletters.