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Legal Counsel’s Two Cents on Community Association Budget Considerations

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It is that time of year.  Summer vacations are in the books, schools are in session, and pumpkin spice lattes are back on tap.  These signs of Fall also mean many Virginia community associations are in budget season.

Community association boards rely on their budget committees, management team, accountants, auditors, and/or reserve specialists for input to create a proposed budget.  As a supplement, there are a few line items we think Virginia community associations should consider from a legal perspective[1].

Disability-Related Accessible Parking Requests

As of July 1, 2021, the Virginia Fair Housing Law (“VFHL”) provides that all requests for accessible parking to accommodate a disability will be treated as a request for a reasonable accommodation, even those that include a physical modification.  This is significant because Virginia community associations will now be financially responsible for costs associated with accessible parking requests, unless the request poses an undue financial and administrative burden or fundamentally alters the nature of the Association’s operations.

Accordingly, budgets should be reviewed and adjusted, or prepared to include consideration of the potential costs of providing accessible parking accommodations.  For more information related to accessible parking requests, see our article.

Insurance Coverage

Associations should consult with their insurance representative yearly to discuss existing coverages, exclusions, and what, if any, additional coverage may further protect the association.  Associations can be caught off-guard if proper insurance is not in place, which in turn can impact an association’s financial wellness.  One example of a common insurance exclusion is a discrimination claim, such as a fair housing complaint. Consulting with its insurance representative will help an association determine whether additional coverage is needed and the needed budget changes, if any.

Reserve Studies and Building Inspections

Both the Virginia Property Owners’ Association Act and Virginia Condominium Act require associations to conduct a reserve study once every five years and to review the results of the study annually to determine if reserves are sufficient and make any adjustments the board deems necessary to maintain reserves.  Accordingly, associations should make sure their budget accounts for the cost of a reserve study to be conducted at least every five years.  An association should also consider budgeting for updates that need to be made before the next five-year study.

In the wake of the tragedy that occurred at Champlain Towers South in Surfside, Florida, condominium associations are increasingly including a line item for, or accelerating in next year’s budget, hiring a professional engineer to conduct a more invasive inspection than is normally covered in a reserve study. Condominium associations may consult the Community Association Institute (“CAI”) directory for a professional and/or seek referrals from your reserve specialist, attorney, management team, or city/county officials.

See Va. Code §§ 55.1-1826 (Virginia Property Owners’ Association Act) and 55.1-1965 (Condominium Act).

Relying on the Reserve Study for the Annual Budget

The Virginia Property Owners’ Association Act and Condominium Act both require that, if the reserve study indicates a need to budget for reserves, the association’s budget must include the following information:

  1. The current estimated replacement cost, estimated remaining life, and estimated useful life of the capital components as defined in 55.1-1800 or § 55.1-1900;
  2. As of the beginning of the fiscal year for which the budget is prepared, the current amount of accumulated cash reserves set aside to repair, replace, or restore the capital components and the amount of the expected contribution to the reserve fund for that fiscal year;
  3. A statement describing the procedures used for estimation and accumulation of cash reserves pursuant to this section; and
  4. A statement of the amount of reserves recommended in the study and the amount of current cash for replacement reserves.

See Va. Code §§ 55.1-1826C  and 55.1-1965C.

Several Ombudsman determinations have addressed allegations that an association failed to include all of the statutorily-required information in a budget.  It is therefore prudent for associations to include this information in the budget.

Expanded Jurisdiction of Court of Appeals

Effective January 1, 2022, the jurisdiction of the Virginia Court of Appeals will expand so that most civil litigants will have a right to a full appeal from a decision at the circuit court level.  This jurisdictional expansion may lead to increased litigation costs. Associations may want to account for such costs in their budgets, particularly if the association has any pending, threatened or anticipated litigation in circuit court.

For more information regarding the expansion of jurisdiction for the Court of Appeals, see our article.

Snow and Ice Management

It has been some time since southeastern Virginia has experienced a significant snowstorm (much to the dismay of children and the kid in most of us).  Nonetheless, winter weather events happen and cause stress to residents who need to navigate in and out of the association.  Associations have an obligation to maintain common areas/elements, and snow and ice management is a maintenance item.  It can be a costly event that increases operating expenses and wreaks havoc on a budget.  Associations should contact a vendor now and obtain a price so that a line item can be included in the budget.

Board and/or Committee Trainings

Knowledge is power.  Boards should budget for training that will help directors understand their duties and obligations.  Whether a board is filled with veterans or rookies, training helps board members minimize risk and avoid legal pitfalls.  Training ranges from general board orientation to covenants enforcement to law and regulations to fair housing training, etc.  The management team and/or legal counsel can provide such training, and both CAI and SEVA-CAI have regular educational classes that are excellent resources.

Creation of and/or Review of Rules and Policies

Boards should consider budgeting for review and/or creation of rules and policies. Drafting rules and policies is not a DIY project.  In fact, it could be an unauthorized practice of law to prepare documents that affect title to or an interest in real property. Before adopting and/or amending rules and policies, consult with legal counsel to ensure the requisite authority exists in the recorded documents, the rules and policies are enforceable as written, and they comply with applicable law and regulations.  There is no one size fits all, and rules and policies need to be tailored appropriately for the particular association.  For more information on suggested resolutions, see our previous article.

Vandeventer Black has a knowledgeable and experienced team of community association attorneys to guide you.  If we can help your community association, please contact us.  We are here to help.


Upcoming Webinar: Our core Community Associations team will be hosting a complimentary webinar on Monday, September 20 from 12-12:45 p.m. on the suggested line items Virginia community associations should include in their budgets.  We hope you will join us.  Register here.

 

[1] Please note that this suggested list is not exhaustive of what may be required and/or what should be included in a community association budget.

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