Part of the monthly HOA assessment is designed to cover the HOA’s yearly operations. Operations like landscaping and lawn care, snow removal, maintenance, insurance, and water. Another portion should go into an account reserved for one-time or periodic expenses. These might be for replacing equipment, repairing community-use buildings, paving roads or adding parking space.
What Should Be Covered Under Monthly Assessments or Fees?
While most homeowners think of their monthly HOA payment as a fee, it is a kind of assessment. The HOA has assessed what maintaining community property and other expenses should be. It has also determined an amount to be put into a reserve fund for unexpected or occasional expenses. The reserve fund should have enough money for any repairs needed in addition to the monthly expenses. It plans for the funds brought in on a monthly basis to cover all these expenses.
Some items commonly covered by the monthly HOA assessment may include:
Maintenance and Repair of Common Areas
This should include any landscaping or outdoor maintenance, including lawn care, snow and ice removal, and trimming of trees and shrubs. At times, removal of debris and fallen limbs may be part of outdoor maintenance. Any expenses for taking care of and maintaining common use areas such as swimming pools, gyms, walking trails, and community centers should also be considered when assessing monthly HOA fees. This should include everything from the cost of pool chemicals to wages of a cleaning crew for common areas.
Salaries and Wages for HOA Employees
While the HOA board is made up of volunteers, management details and day-to-day responsibilities may be farmed out to an HOA management company. The salary or fees paid to the management company should be included in an assessment. If the HOA has an attorney on retainer (and it probably should unless an HOA member has generously volunteered to do the work for free), that retainer and any added legal fees should be part of any assessment.
Most HOA’s don’t have enough insurance or they don’t have the right kinds. An HOA should have the following kinds of insurance in place:
Property Insurance – If there is fire, storm or other damage, vandalism or theft of communal property, this will cover the losses.
General Liability Insurance – If someone falls in the parking lot or is injured at the gym, liability insurance will cover any damages if an individual holds the HOA liable.
Officers and Directors Liability Insurance – This is an often-neglected coverage that is crucial. This offers protection for members of the board and trustees against liability when acting as representatives of the HOA.
Fidelity Insurance – This protects the HOA against theft or damage done by members, volunteers, employees or (Heaven forbid!) management companies.
Worker’s Compensation Insurance – This covers volunteers who do not get paid who do work for the HOA.
This is one of the more flexible items for your HOA board to consider including in monthly assessments. Some homeowners associations pay for every utility, then passing the cost on to homeowners in their monthly HOA fees.
This can be seen as democratic by some and as unfair by others. For instance, some people have far more garbage picked up each week than others. Some people watch cable TV and others don’t. If your HOA pays all utilities, negotiating a flat rate for the community is a way to keep things fair. Water is one of the most commonly assessed utilities included in monthly HOA fees.
Reserve funds are set aside to cover emergency expenses such as natural disaster damage not covered by insurance, the unexpected need for more common space, or added employees. Any unexpected expenses or scheduled upgrades not included in the monthly fees can be paid out of the reserve fund.
It is best to put at least twenty-five to forty percent of monthly fees into a reserve fund. To know how much you should have in a reserve fund, hire a professional to do a reserve study.
When to Get a Special Assessment?
In a perfect world, an HOA reserve fund will always have enough money to cover unusual expenses, changes, upgrades, and repairs. It is not, however, a perfect world. Sometimes a major expense comes up and your homeowner’s association will have to impose a special assessment. This won’t make you part of the popular crowd, but in some situations, it has to be done for the safety of everyone.
Being honest with homeowners about what a special assessment is for and asking for help on how to best implement it will help. No one wants to pay more than they budgeted, but if you explain why the repairs or upgrades have to be done and how it helps them, they will be more open to it. You may also ask for input on how the HOA can increase the size of the reserve fund to avoid a special assessment in the future.