Managing Unexpected Expenses in Community Associations: A Proactive Approach

Community associations often face unforeseen expenses, from emergency repairs to sudden maintenance needs. Effectively managing these costs is crucial to maintaining the community's financial health and ensuring the well-being of its residents. Here are some practical strategies to help your association navigate unexpected expenses:

1. Evaluate Your Operating Funds

Start by assessing whether your operating funds can cover the unexpected expense. It's advisable to maintain an operating account balance equivalent to approximately three months of operating costs. This financial cushion allows the association to handle sudden expenses without significant disruption. Regularly reviewing and adjusting the operating budget can help maintain this balance.

2. Utilize Reserve Funds When Appropriate

If operating funds are insufficient, consider using reserve funds. Reserve accounts are typically designated for major maintenance, repair, or replacement of common elements. In Washington State, associations may withdraw funds from the reserve account for unforeseen or unbudgeted costs, and if those costs are for major maintenance, repair, or replacement (whether listed in your reserve study or not!) they are not required to be repaid and the notice requirements to the membership are not necessary. RCW 64.34.386 

3. Conduct Regular Reserve Studies

Regular reserve studies are essential for anticipating future expenses and ensuring adequate funding. In Washington State, associations with significant assets are required to prepare and update reserve studies annually, with a visual site inspection by a reserve study professional be done every three years. These studies help in planning for major repairs and replacements, reducing the likelihood of unexpected expenses. RCW 64.90.545 

4. Consider Special Assessments When Necessary

If neither operating nor reserve funds can cover the unexpected expense, a special assessment may be required. This process involves evaluating the cost, obtaining proposals promptly, presenting the information to homeowners, and holding a special meeting to ratify the assessment. Transparent communication and homeowner involvement are crucial during this process to maintain trust and cooperation within the community. The special assessment ratification process is outlined in RCW 64.90.525 

5. Implement Preventive Maintenance Programs

Proactive maintenance can prevent many unexpected expenses. Establishing a preventive maintenance calendar helps identify potential issues before they become costly problems. Regular inspections and timely repairs can extend the lifespan of community assets and reduce the likelihood of sudden failures.

6. Maintain Adequate Insurance Coverage

Ensure that the association has comprehensive insurance coverage tailored to the community's declaration. Adequate insurance can mitigate the financial impact of unexpected events such as natural disasters or accidents. Regularly reviewing and updating insurance policies is essential to keep pace with changing circumstances and property values.

By implementing these strategies, community associations can better manage unexpected expenses, ensuring financial stability and the continued well-being of the community.