Read planned community covenants carefully

May 24, 2021

To the good folks of Sussex County who have, or are considering purchasing, a home in a new planned community, I want to share with you some general thoughts.  I live in a planned development that is near completion and have been involved in several key initiatives/issues that impact our community.    

And based on my experience, there are several lessons learned which may offer some helpful perspectives as they relate to your specific community.

Read your community charter and bylaws as well as all amendments to the governing documents.  Most everyone does not when considering a new home - myself included. I have now read our governing documents and amendments, and I am surprised at what I read.  

Insist from your board the necessity of establishing a long-term capital reserve.  While this will increase your annual dues, there is no escaping the necessity of building a cache of funds now to cover the needed future repair and replacement costs of hard assets such as roads, sidewalks, hardscape, irrigation, etc. The sooner you do this, the better.  Failure to get a formal reserve assessment program started at the outset could create an unwelcome underfunded situation in the later years with the burden to recover landing on the shoulders of the current residents.  

Bring in a qualified and independent firm who meet or exceed the Association of Professional Reserve Analysts standards to estimate your community’s future repair and replacement costs of common-area capital assets. Because your community is growing, so will the future spending requirements.  As your community expands, have a study done on a consistent and frequent basis. This will ensure the reserve requirements are in lockstep with the evolving future spending needs and allow you the opportunity to right-size your annual reserve assessments over time. 

Establish a finance committee and seek volunteers who are comfortable with numbers and who are willing to dig, to press for timely and accurate reporting, and to challenge the board/developer.  This cannot be emphasized enough. Finance committee members need to invest the time to understand the financials - the fiscal management of a community is not as easy as one would think, and requires the impartial and clear oversight of capable residents who have the interests of the community in mind. 

Find an independent accounting firm to conduct an audit of your financials and have that relationship managed by the property manager with oversight by the finance committee.  In my opinion, it is never too early to get this started.  Yes, it is an expense that some would argue as unnecessary, particularly for a new(er) community.  My advice is to spend the money and have an audit done regularly.  Having clean, audited financials early in the life of the community will minimize the second-guessing on what happened in the later years.

Establish a grounds committee.  Like the finance committee, members of the grounds committee need to be actively involved and attentive to details of common assets the HOA is responsible for. When the developer is considering conveying community property to the HOA, require the grounds committee be part of the inspection and approval process. This committee should also be the primary contact with the firm conducting reserve evaluations (noted in point 3).

Rely on your intuition when listening to developer explanations on key issues. Does it make sense?  If not, press the issue with questions until you are satisfied. We would all like to think developers have the residents’ best interests in mind, but developers are in the business of earning a profit - we all understand that. Do not lose sight that the road to making profit and the interests of the residents are not always aligned. There needs to be a balance between these two objectives.  

There is a concept called fiduciary responsibility, and board members are bound by that responsibility.  The fiduciary responsibility requires all board members to make decisions that are in the best interests of the community, irrespective of who they work for.  Engage with your HOA attorney on concerns where you believe this responsibility has been breached.  Remember, the HOA attorney is there to advise the board on what is best for the residents of the community.  

Do not throw up your hands when you get pushback and believe there is no way to “beat City Hall.”  You have invested your hard-earned money to purchase into a community you absolutely enjoy.  Fight for what is right now; you will be rewarded for doing so later.   

Hope this is helpful.  Good luck.

David Chun
  • Cape Gazette commentaries are written by readers whose occupations, education, community positions or demonstrated focus in particular areas offer an opportunity to expand our readership's understanding or awareness of issues of interest.

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