Theresa Torgesen and Ann Hart
If we had titled our article “High Risk Component Programs: The Key to Preventing Unanticipated Repair Expenses” would you have immediately moved on to the next page?
That’s what we thought.
Instead, we wanted to grab your attention so you would read about an effective and practical way to avoid spending money on repairs that your association cannot afford. Prevention of fire and water damage in communities where owners share walls, floors and ceilings is critical to overall risk management and will result in significant savings to the Association and individual owners.
All community associations experience unanticipated repair expenses now and then and some seem to be plagued year after year. Uninsured damage from slow water leaks and mold can cost associations and individual owners thousands of dollars in unbudgeted expenses. Even when a fire or water loss is covered by insurance, if the number of claims exceed the amount the association budgeted for deductible payments, Boards and association managers have to figure out how to come up with the money for those repairs.
One of the best and most practical ways to manage risk and prevent unanticipated repair expenses is to adopt a community wide policy and procedure for inspection, repair and replacement of any portions of the property that will likely cause damage if they are not properly maintained (often referred to as “high risk components”). The most common high risk components are fireplaces and chimneys, smoke detectors, dryer vents, water heaters, refrigerator and toilet supply lines, and supply and drain lines for dishwashers and washing machines.
Having a good high risk component management program in place not only prevents high risk component failure, but can also shift responsibility for uninsured damage and the association’s deductible to individual owners when there is a failure. Key pieces to any high risk component management program are: (1) Prevention, (2) regular inspections and reports, and (3) repair and replacement schedules.
The primary goal of a high risk component program is prevention of unexpected repair projects. Prevention could include adding governing document language that: prohibits certain components such as water/ice maker supply lines; requires repairs when inspections reveal they are needed; or requires replacement of particular components, like water heaters, at the end of the warranty period. It may also include requiring drain pans with alarms for water heaters, seismic gas shut-off valves, or stovetop fire suppression canisters.
Preventing failure of high risk components requires regular inspections to identify the need for repair or replacement. Inspections could be coordinated with a plumbing or other professional to inspect the high risk components listed above and provide a report to the association and owners, advising them of concerns and recommended repairs or replacement schedules. If an owner refuses to make repairs or to replace a component that has exceeded its useful life and that component subsequently fails, it could constitute negligence on that owner’s part and they could potentially be liable for all related uninsured expenses and the association’s deductible.
Repair and replacement schedules can help the association identify opportunities for group projects like cleaning and repair
of fireplaces, chimneys and dryer vents or replacement of water heaters, ice maker supply lines, and washing machine hoses and to ensure qualified professionals are used for that work. Plumbers, electricians, chimney sweeps and other contractors typically offer lower rates for community wide projects. A good example is a water heater replacement program. A discount could be negotiated for buying multiple water heaters and the labor for installation would likely be less per water heater if the contractor can perform multiple replacements in a single visit. Although these programs may create some additional administrative burden for Board members or managers, they are effective in preventing high risk component failures and the resulting repair projects that require a lot of time and effort.
In addition, individual owners save money and they are relieved of the responsibility for finding a qualified contractor to perform repairs and replacement. Communicating the details of the significant savings to homeowners and making the process easy are both effective methods for getting owners to sign up. Even if your current governing documents only allow for adoption of a voluntary inspection, repair and replacement program, saving money and less responsibility are compelling reasons for owners to participate.
The association can also save money by reducing premiums and avoiding higher deductibles. Some insurance companies have specific program guidelines and requirements that result in premium discounts for non-smoking buildings, installation of stovetop fire suppression canisters above stoves and, in the case of a community with multiple losses, implementing programs to show the association is attempting to reduce risk of a claim. Talk to your insurance broker or provider about what programs might be beneficial to your association.
Governing documents can be amended to provide specific authority for inspection, repair and replacement of high risk components and to shift responsibility for uninsured repairs and the association’s deductible to individual owners. Some of this requires an amendment to the Declaration and a vote of the owners, but if that is too difficult, you may already have general authority that would allow the Board to adopt a limited, enforceable policy as part of the rules. Many Declarations contain a broad right of entry for repair and replacement that is the association’s responsibility or to perform maintenance and repair that an owner has failed to perform. Language like this could provide a basis for a limited program. Contact your association attorney to find out what authority our governing documents already provide and what you can add to make the most of your high risk component program.
For community-wide programs where the association takes on responsibility for inspection, repair or replacement of components that would ordinarily be an owner’s responsibility, an increase in regular assessments may be needed. While this is not always appealing to owners when attempting to roll out a high risk component management program, with appropriate communication and comparison to individual expenses for the same work and increased insurance premium, it can be well received and contribute to the overall success and financial well-being of the association.
We tried to pack a lot of information into this (relatively) short article to highlight the benefits of a high risk component management program and encourage you to take control so you can manage risk and save money. We hope you found it helpful and thanks for not skipping to the next page.
www.wscai.org
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