Wednesday, April 29, 2009

“Visual and Accessible” is not enough: Let’s amend the Davis-Stirling Act to delete Limitations on Reserve Study Inspections

It’s the responsibility of every California community association to commission a reserve study every three years. These studies are used to calculate the amount that each association will need to save for future building maintenance and repairs. It is critical to the financial health of every association that this funding projection be as accurate as possible. The Davis-Stirling Act governs these studies. California Civil Code Section 1365.5(e) states in part:
“At least once every three years, the board of directors shall cause to be conducted a reasonably competent and diligent visual inspection of the accessible areas of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development...”
Note that this requirement is limited to a “visual” inspection of the “accessible areas of the major components.” But the assessment responsibility of the board of directors is not similarly limited. Civil Code Section 1366(a) says that the board of directors shall assess as necessary to meet the requirements of the governing documents and the Civil Code. But what are those requirements exactly? And how does a board know for sure, if only the visible and accessible areas of the project are investigated?

The governing documents of a community association usually require that the association maintain certain building components, depending upon whether the project is a condominium or a planned development. In the typical condominium the entire building, including concealed components, is the responsibility of the association to maintain--not just those areas that are visible and accessible.

But even if the association’s responsibility only extends to the exterior waterproof "envelope" of a planned development, it is still difficult to determine the condition of all of the waterproofing elements by just looking at the outside of a building. Things like building paper or roof membranes or the window flashings are concealed from view by other components. An exterior inspection can reveal some, but not all damage to such components. Unless samples of these components are exposed periodically, the failure of the waterproofing, for example, may not be known until the damage is so severe that it begins to impact the interior of a unit or the structural integrity of the framing.

The Civil Code requires that a reserve fund be established for any building component that has a “service life” of less than 30 years--not just those that are visible and accessible. But with hidden components, how do you predict the service life unless you can actually examine the component? It may be that with a new project copper pipes will last more than 30 years and are therefore excused from the original reserve analysis. But depending upon the hardness of the water or the softness of the copper, pipes are not likely to last indefinitely, so their actual service life has to be established at some point to determine when they fall within the 30-year zone.

The same is true for other components like wood framing or supporting beams that are hidden behind siding, stucco, or soffits. If water is kept away from those components, they could last indefinitely, but that is rarely the case. In one project we know, the association spent over $800,000.00 to replace rotted wood framing that was not discovered in time to reserve for this huge financial hit. Obviously those wood components had no service life left yet they were not included in the reserve program for the obvious reason that no one knew about their condition.

Intrusive investigations are not the norm in reserve study investigations because the code doesn’t require them, but they should be required, especially in older buildings. Components in a building that is in excess of 10 or 15 years old can begin to deteriorate in places that are not visible from the exterior of the building. Deterioration in copper plumbing will not likely be detected until a leak occurs and the suspected pipe is removed and inspected, usually from within the wall. But pipe material (as opposed to joints or cracks) won't normally leak until the copper has severely corroded. By then, however, the plumbing system may be ready for replacement, and if the service life was never determined, there will be no reserve funding set aside.

The point is that it is impossible to evaluate the service life of concealed components unless the walls are opened at various locations periodically to allow a survey of the condition of those components. And, if it is impossible to determine service life, it is impossible for a board to comply with the statutory requirement that any component with a service life of less than 30 years is to be included in the reserve program. If you can’t see it, how do you know?

If we amend the Davis-Stirling Act by removing the word “visual” and the phrase “of the accessible areas” from 1365.5(e) we are left with:
“At least once every three years, the board of directors shall cause to be conducted a reasonably competent and diligent inspection of the major components that the association is obligated to repair, replace, restore, or maintain as part of a study of the reserve account requirements of the common interest development...”
It would then be up to the board of directors acting upon the advice of their experts to determine just how extensive an investigation they should conduct. In newer buildings, an inspection of the visible and accessible areas may actually be all that's necessary. But in older projects, especially those approaching 25-30 years of age, or those with a leak history or a history of prior repairs to waterproofing or plumbing, an investigation of concealed components may also be required. Experts can examine the association's maintenance records and make appropriate recommendations.

Unless a board has a complete picture of the condition of the building components, it cannot comply with its statutory obligation to fund adequately for the future needs of the association. As projects age, and concealed components begin to enter that 30-year window, investigations must take age into consideration. The Davis-Stirling Act as presently written contains contradictions that make it difficult for a board to understand their obligations and to comply with the law. It should be amended to delete the provisions that limit periodic inspections to exterior inspections alone. Boards will then be encouraged to seek expert advice on how and when to conduct inspections so that the condition of all of the critical components will be accounted for.