When you own property in a homeowner association (HOA), you are technically a member of a common interest development (CID). By definition, these developments include common areas that you both benefit from and are responsible for maintaining, repairing, and potentially replacing in the future. The common areas an association is required to care for are typically outlined in the governing documents, specifically the CC&Rs (Covenants, Conditions, and Restrictions). Many associations will have an attorney review those documents and create a community matrix that clearly states who is responsible for the maintenance and replacement of each item in the association. For example, the association may be responsible for the exterior wall, while the owner is responsible for the interior wall.
What Counts as a Common Area?
Common areas can include, but are not limited to:
- Roof
- Exterior walls
- Interior plumbing
- Exterior paint
- Balconies
- Community pool
- Streets
- Lighting
- Landscaping
These common areas are the “assets” of the association, and the board has a responsibility to protect them. That means paying for the everyday operation and maintenance of those assets and setting aside money for future repairs and replacements.
How Are Reserve Funds Determined?
In California, boards are assisted by a reserve study, which must be provided annually to all owners. Every third year, a reserve study specialist must conduct an on-site inspection of the common areas to assess their condition and depreciation. The study provides a line-by-line analysis of every common area asset, informing the board how much it will cost to maintain each asset and when it will need to be repaired or replaced.
What Do Your Dues Actually Pay For?
Your dues pay for both current operating expenses and future expenses. Think of it as a combined checking and savings account. If you did not live in an HOA, you would pay the gardener, the pool cleaner, and utilities monthly out of pocket, and if your roof needed to be replaced, you would have to pull from your personal savings to cover it.
In an HOA, the majority of dues go toward monthly operating expenses such as landscaping, streetlights, and the management fee. A portion, however, is deposited into a reserves account so that when large expenses arise, like repaving streets, funds are already available. If the board neglected to build that reserve account, they would have to levy a special assessment on every owner at the time the work was needed.
For example, if the roofs in a 50-owner complex needed to be replaced at a cost of $500,000, each owner would need to come up with $10,000. But if those roofs have a 20-year expected lifespan, collecting $41 per month over that period is a far more manageable planning approach. Owners can easily budget $41 a month, and coming up with a lump sum of $10,000 is a much harder ask.
What Happens When Boards Don’t Fund Reserves Properly?
Unfortunately, some boards have neglected their duty to properly fund reserves, opting instead to “keep dues low” rather than plan responsibly for the inevitable costs of protecting the association’s assets. Some owners fall into short-term thinking as well. If the roofs won’t need replacing for 20 years and they only plan to live in the community for 10, it can feel like someone else’s problem. Why pay for something you won’t get to enjoy?
Owners may think that way, but boards cannot. Board members have a legal fiduciary responsibility to the assets of the organization and a duty of care to the association. A red flag when evaluating an HOA is not an association with high dues; it is typically the association with very low ones.
Are Low Dues Always a Warning Sign?
Not necessarily. Some communities have lower dues because they are newer construction with many years before expensive repairs or replacements will be needed. Others simply have fewer common areas and expenses to cover. A detached single-family home community with minimal amenities, where the association only manages street lighting, street maintenance, and general landscaping, should naturally have much lower dues than a condo complex with pools, tennis courts, and full responsibility for all common areas and insurance.
But if a community with extensive amenities and responsibilities has unusually low dues, that is worth a closer look. It may indicate that reserves are underfunded, and that future expenses, both expected and unexpected, will ultimately be passed on to owners through special or emergency assessments.
