Likely not. Your agreement is not with the person renting the apartment or condo. Your written agreement was signed by the resident in question. The renter has no idea usually that the resident isn’t paying his bills, nor does the renter have control over the resident’s actions. Also, renters pay maintenance fees as part of their rent payment to the owner. It’s the owner’s responsibility to forward those payments to the association, not the renter’s. Neither the association’s agreement with the owner nor the agreement between the renter and owner is set up to force a renter to pay an owner’s expenses, nor should they.

What is the recourse for the association? Can you as an association evict a paying tenant from an apartment or condo you don’t own because the owner isn’t paying the bills?

While your association’s legal counsel will be able to advise you in detail, I don’t think forcing a renter out of a unit by bypassing the resident is possible. However, you as an association may be able to begin foreclosure or delinquency/lien action against your resident, which could allow your association to recoup some of the delinquent association fees.

Unfortunately, associations have little recourse with renters when unit owners won’t pay their bills. Short of forcing a foreclosure and taking over the property itself, the association has to follow the same procedures as with any other unit owner who is delinquent in paying dues.

If your association has attempted to seek payment from renters, that could result in an errors & omissions claim against your association. Make sure to conduct association business in accordance with all bylaws and regulations governing association practices.

Flickr photo credit: NNNIIIIICCCCCKKK HUM

And in today’s uncertain real estate market, those criteria could mean you’re either underinsured and assuming more risk than you need to or you’re paying for too much coverage. Let’s look at it from an underinsured perspective. Suppose your association purchased a new policy five years ago. At that time, the property consisted of three buildings, a pool, and six acres with a paved walking trail. The property value then was $1.2 million.

Since that time, your association has built two new residential buildings and added an exercise facility and community room. The property value today, even with a dip in real estate prices, comes in at $2 million. Your insurance policy is still capped at $1.2 million, leaving $800,000 of your property value unprotected.

That’s not all. Your policy has a 20 percent deductible. For the sake of argument, let’s assume a hurricane and ensuing flood destroyed your entire property. Under your existing insurance policy, your condo association is left to pay a $240,000 deductible on the original amount of $1.2 million in coverage. However, since no coverage is in place for the additional property, your association is also on the hook for the remaining $800,000. If you’d increased coverage, your total deductible would have been $400,000. Instead, your association’s total out-of-pocket expense is $1.04 million.

Likewise, your association may be paying for coverage it doesn’t need. Suppose your association property is sitting in a region hit hard by the housing market collapse. Your original $1.2 million value has dipped to $800,000 and your occupancy levels have plummeted to 30 percent. Not only are you carrying – and paying for – $400,000 too much in property coverage, you aren’t carrying enough protection to offset lower occupancy levels.

Don’t assume that the status quo coverage still fits. If you haven’t reviewed your coverage in the last year, call me. 

Flickr photo credit: snacktime2007

Too often associations have claims denied because the coverage they once had was dropped due to budget concerns. Also, many association boards failed to understand critical elements of their policies, leaving them with unnecessary or unknown gaps in coverage. The most common areas that cause trouble for associations include:

• Misrepresentation of facts on insurance applications: if you’re unsure, don’t fill out the application until you are sure. Many a policy claim has been denied and coverage cancelled due to inadvertent or intentional misrepresentation on applications.

• Policy exclusions: Don’t assume that all claims filed will be covered. If you’re unsure, read the exclusions section of your current policy. If you’re still unsure, talk to an insurance specialist. Don’t leave to chance any gap in coverage.

• Co-insurance penalties: When determining the value of your covered property, make sure it’s the most accurate representation of the entire value of the property. If not, you could see claims paid on just that portion of the value you have insured. For instance, if you insure your property for $500,000 and it’s worth $1,000,000, your insurer will pay your claims based on that $500,000 amount, leaving you to pick up a huge coverage gap.

• Deductibles: If your deductible has been increased within the last few years, now is the time to re-examine that decision based on your association’s current reserves and claims history. Often the cost savings you think you’re getting is negated by claims.

If it’s been a while since you last reviewed your insurance coverage, contact me for an evaluation of your policy and recommendations based on your current business structure. As businesses change, so should coverage. Keeping your policies current and in line with property values is an easy way to alleviate unexpected claims issues.

Flickr photo credit:  bulent_yusuf

Take the example of Ohio-based condo association Lakewood Condominium Association, which is suing their property management group on allegations of stealing over $830,000 and allowing overdue association bills to go unpaid. The property management group is charged with, among other things, lying about the association having over $217,000 in CDs in the bank. The CDs, according to court documents, were withdrawn in January 2006, and over $378,000 in reserve funds remain missing.

 It’s hard enough deciding to hire an outside firm to manage the property. The impact on profits is significant enough that many associations opt to handle the management side in-house. But if the task is too much for your association to handle, there are ways to approach hiring an outside firm that can help lessen your risk.

Determine your needs:

1. What do you expect the management company to handle?
2. Decide the parameters of your relationship with the property manager.
3. What percentage of rented or occupied units do you require as a minimum?
4. Will your manager oversee property projects, such as remodels or upgrades?
5. Will the manager set the annual budget, and who will handle annual inspections and reports?
6. How will you verify monthly financial statements?

When looking for a manager, ask the following questions:

• Is the company licensed (if applicable in your state)?
• What are the manager’s insurance coverage amounts? Get copies of all policies, including those covering the company’s employees?
• Does the manager have experience managing similar properties?
• What’s the collection process for rent and association fees? Delinquencies?
• What does the manager charge? Are there any additional fees? If so, for what?
• Will the manager be proactive in preventing issues, or is it a more passive response process?

Get and check references. Also, make sure the company has a physical location and visit it. Expect your property manager to be present at board meetings. Work with the manager to establish a transparent financial relationship so that your association doesn’t become a victim.

What have your experiences been with property management?

Flickr photo credit: Thewmatt

 Such is the case for one Florida-based condo association, whose association board announced recently that its residents are delinquent to the tune of $675,000. That figure represents half of the West Palm Beach-based Palm Beach Grande association’s resident population. With 106 of its 304 units facing or in foreclosure, it’s a crisis situation for the condo association.

 Without condo association fees, owners of condos who aren’t delinquent are beginning to experience a shortage of services that they expect and pay for. That leaves condo association boards fighting a larger issue – how to maintain contractual obligations without bankrupting the condo association? Frustration on both sides of the equation are apparent. Condo association owners will wage complaints and possibly litigation over the condo association’s inability to afford basic property maintenance and services. Condo association boards have their hands tied and are openly upset about delinquent owners’ obligations and how their negligence affects all owners. Yet there’s no easy resolution.

 A few condo association boards have gone to the authorities to seek solutions. In some cases, boards are asking for the right to rent vacant units, gaining landlord control and applying rental fees to association costs. In some cases, condo association boards are voting to enter bankruptcy proceedings in hopes of reorganizing and erasing some of the bad debt owed.

 If your condo association is facing a large delinquency or foreclosure situation, talk with your condo association insurance broker to discuss potential solutions and all risks involved.  Anyway you look at it, this is a troubling situation. What is your association doing about foreclosures? How are you maintaining cash flow?  How have you adjusted your budgets?  Comment and share your solutions or ideas with others facing similar issues.

 Flickr photo credit: etgeek

Some states take a very broad view of the definition of “employer-employee” relationship under workers compensation coverage and claims. If your association has any volunteers on staff, you could be setting yourself up, in appearance, for the law to define your relationship as employer-employee. Your volunteer is instructed by your board to complete work that causes injury to the volunteer. Your general liability policy will more than likely not cover such activity because under the general liability description on your condo association insurance policy, those completing work for your association are generally not included or may be specifically excluded.

So do you get workers compensation coverage just in case? This is the fine line condo associations walk when dealing with non-employee volunteer work. Workers comp rates are high, so the instinct is to take a chance. However, your state may interpret such work as a loss under workers comp laws, such as California does. In that case, your association may owe not just workers compensation coverage, but also state fines for not having appropriate coverage. Both could be quite substantial should the injury be severe.

If your state’s interpretations are less broad, there may not be an issue. However, most condo association insurance companies would rather the condo association opt on the side of caution and carry even minimal workers compensation coverage to protect the policy holder from unseen claims and loss exposures.

Talk to your condo association insurance broker, who should be well versed in your state’s laws and requirements. Make sure any relationship you have with your volunteers or other people performing work on or for your property are adequately covered in the event of an accident or injury. Your broker can direct you to products that can help mitigate this gap in coverage.

Flickr photo credit: Stephen-Korecky

 1) Bare Walls In – policies covering all real property from the exterior framing inward, excluding fixtures or other installations within the unit.

 2) All In – policies covering all fixtures, installations, or additions within the interior surfaces of the individual units.

 Obviously the best one for your unit owners would be the All In condo association insurance policy, which would limit the need for owners to purchase additional coverage. Condo associations buying Bare Walls In coverage leave a bit more loss exposure for their unit owners. Most condo associations will advise unit owners on which policy is covering the premises. But what about deductibles?

 Most condo association insurance policies have a deductible. As condo associations reassess their insurance limits and premiums and increase their deductible amounts, many unit owners are left exposed to large loss amounts. Why? Because condo associations can, and do, pass the deductible on to the unit owners.

 In the past, deductibles topped out at $5,000. With historic losses in the insurance industry, many policies became hard to obtain, had lower limits, had higher deductibles, or simply cost too much to continue at the current level of coverage. These days it’s not uncommon to see a condo association with a deductible of $25,000 or even $50,000. If the damage to the building is spread among 25 residents, the deductible is much easier to afford than if the damage is limited to one or two units.

 If your condo association has opted for higher deductibles, inform your unit owners in writing of their exposure. Unit owners can purchase their own property policies to cover any losses not handled by the condo association policy, thus reducing the amount they’re responsible for should disaster strike. Paying  $25,000 – $50,000 to cover the association’s deductible isn’t in everyone’s budget. Unit owners who currently have property policies should confirm with their personal agent that their policy would cover the deductible in the event of damage. 

Flickr photo credit: doyoubleedlikeme

  Even the most comprehensive apartment or condo association insurance package can become less so, as the association’s needs change. Today your association may have a set agreement in place, but amendments, additions, and changes to that agreement, as well as changes in the state of the property or to the grounds themselves could leave your apartment or condo association uncovered as a result of these changes.

 That’s why I recommend all apartment and condo associations have a broker conduct an insurance audit. Audits, which cost customers nothing more than time, allow brokers and customers to see a more complete picture of how the business and the association’s needs may have changed. By examining thoroughly the business operations, the board make-up, and the association’s practices and recent changes, brokers can compare current business with the apartment association insurance policy.

 Also, policy limits rarely change at the same rate as inflation or business changes. Often, apartment associations have purchased coverage limits that were adequate five years ago, but have not kept up pace with economic conditions. Is your current policy in line with any regulatory changes in the industry? An audit conducted by a broker can show you areas in which your coverage doesn’t match with current regulations.

 An added bonus of an apartment or condo association insurance audit – audits can determine if the customer has been overpaying on premiums. Often, newer policies cost less and offer better coverage terms. And sometimes the relevance of coverage no longer applies. A professional insurance audit will help you determine if what you have is really what you need.

Flickr photo credit: yui.kubo

Flickr photo credit: michel_langendijk

Forming your condo association is a system. You set up the board, the office, and you purchase general liability/property coverage and you are ready for business, right? Wrong.

What most condo association clients don’t recognize is that the general liability policy does not cover every risk.

In fact, general liability covers the bare minimum of risks that could befall a business.

So how do you know whether the condo association coverage you have is adequate? First, look at the declarations page of your policy. What kinds of coverages are listed? Note also how those coverages answer your specific needs. For instance, your general liability policy may cover damage or theft, but does it cover accident or injury caused by employee negligence? Does that policy cover wrongdoing of a board member or members that cause residents or employees monetary or physical loss? If your accounting clerk commits fraud, will it be covered?

In short, probably not. Most general liability policies cover claims involving damage or injury caused by the insured during normal performance of the business. If you have purchased a condo association insurance policy, you have coverage for the buildings, commonly owned property, and liability covering the association. Any additional coverage is an added-on coverage option, and will be listed either on your addendum pages or sold as a stand-alone policy or policies.

So what should you have? Typical risks associated with condo association operations include:

- Property claims
- Liability claims
- Board member actions
- Employee actions
- Retirement issues
- Workers compensation
- Cyber liability
- Contractor liability for any remodels
- Floods, earthquakes, equipment breakdowns

While the general liability policy typically will cover property and liability claims, the rest of the risks are excluded, depending on your policy. However, associations are able to purchase supplemental coverage to lessen the exposures that these risks produce. Directors and officers coverage can diminish board-related risks, employee practices liability can address acts of your employees, and other policies can help to reduce your association’s risks for a reasonable price.

If you need a free review of your current coverage, call Emerson Poort at 877-201-3113 or click here to send an email. Emerson specializes in condo association coverage and can help put together a comprehensive package that fits your association’s needs.

Understanding your policy and gaps in your current coverage is the first step to preventing unnecessary, costly losses. Read through your policy today and call Emerson with any questions.

Flickr photo credit: MBK (Marjie)

Standard Property insurance forms, unless properly endorsed, specifically exclude monetary losses that arise from the enforcement of building ordinances, building codes, or similar laws.
 
You may have carefully set a 100% Replacement Cost limit on your policy that is adequate to cover inflationary increases, but that “replacement” is to replace your building with “like kind and quality” of design and materials. Upon applying for a building permit to start repairs after a loss, you may be advised you’ll have to:

A. Tear down the undamaged portion of your building; and/or
B. Pay for the cost of that demolition to the undamaged portion; and/or
C. Replace the damaged portion (and the torn-down undamaged portion, if applicable) with construction that meets current codes, including (perhaps) such things as sprinkler and alarm systems, ADA-compliant entryways and facilities, earthquake- or windstorm-resistant construction features, etc.

None of the additional costs of such items are covered by standard, non-endorsed Property insurance forms – regardless of the Replacement Cost limit of insurance you purchased.

Insurance coverage for these items is available (for example, the Insurance Services Office, or “ISO” form that provides coverage is CP 04 05 “Ordinance or Law Coverage”). That form covers the above listed items, and a limit can be selected for each one, Coverage A, Coverage B, and Coverage C (sometimes coverages B and C share the same limit).

Some Property forms automatically include as an “Extension of Coverage”, a modest amount of “Ordinance and Laws” coverage – and often the limits on that coverage can be increased at modest cost.

It is unlikely that your insurance agent or broker has access to the knowledge required to assess your exposure to such losses. Rather, periodic consultation by you with an architect and/or an experienced local builder (or construction industry attorney) may be required. They have the knowledge to advise you, based upon how old your building is and what features it has, as to how much extra you’d have to pay to “build it to code” today or tomorrow; with that information you can talk with your agent or broker about getting proper insurance against this potentially significant exposure.