A directors toolkit for renovation success
The reserve fund study
Before even thinking about a renovation, take a look at the corporation’s reserve fund study (RFS).
Directors need to know their RFS thoroughly and understand its limitations. Specifically, it’s critical to understand that reserve fund studies don’t provide exact implementation schedules or precise budgets for anticipated projects and always seem to calculate the annual interest rate for the reserve fund account using interest rates that no local banks offer.
There are no rules requiring directors to follow their RFS exactly. The RFS schedule shifts when any part of the physical infrastructure is damaged by an “act of God” or fails prematurely. Decisions about implementation can only be made after consulting with the appropriate experts.
Corporations with a good record-keeping system will know their property’s history and will have valuable data on previous work, resident maintenance requests, and other pertinent information. A trend in minor leaks, for example, can indicate that the windows are failing faster than expected.
Delaying work to future years to keep condo fees from increasing is possible but only acceptable if delays do not cause adverse consequences. The key lesson is to understand that the RFS is not an absolute road map and to consider the pros and cons of delaying a project thoroughly.
Plan, plan, and plan
Planning always takes longer than expected, so start early; a year in advance is not too soon. Large projects demand careful planning and budgeting to ensure that a contract is in place before the onset of the construction season. If directors allocate enough time for planning, they can relax (a bit) and avoid pressure to make snap decisions.
Ask owners for their opinions
Another benefit of advance planning is that it leaves directors plenty of time to consider owners’ opinions. Any renovations that include an aspect of colour or design — for example, redecorating the party room — need special attention that replacing the roof does not.
The annual general meeting (AGM) is an opportunity to speak directly with at least some of the owners. After the AGM and with the input from this initial group of owners, the board can follow up with the rest using readily available and often free software.
Consulting the owners is not mandatory, so why would a board want to do this? The most obvious answer is to prevent complaints once the work is finished. A colour choice that the owners dislike can result in a never-ending stream of complaints and ill will. The best answer is because asking the owners gives them a say in the look and feel of their homes. Technology makes it much easier and cheaper to do this than ever before, so why not?
As general rules, keep surveys short and ask focused questions. Provide a short-list of possible choices, or it will be impossible to make a final decision. And don’t forget to leave enough time to collect feedback from a survey.
Be flexible (and creative)
There are so many options and pricing possibilities for any project, but the following few tips will help directors navigate this complex process.
Always choose the best quality materials possible because they usually have a longer life expectancy, lower annual maintenance fees and will cost less over its expected lifespan. Higher quality materials might not pay for themselves until 20 or 25 years have passed, while lower cost materials might seem the best option for today but could cost more in the long run after including the cost of maintanance. It could be an excellent decision to levy a special assessment if a higher cost option reduces future costs. Always evaluate total costs based on the lifespan of the project.
Redecorating projects present a unique challenge because style is subjective, and it’s hard to predict how long today’s trends will look good. What’s more, certain features could look great but end up becoming costly if the feature is easily damaged, for example, by residents moving in and out.
Major projects require expert oversight. Most contracts stipulate a payment schedule contingent upon meeting specified milestones, but who determines if the project meets the prescribed standard? It may be appropriate to engage an engineer to help monitor the project and conduct regular inspections.
It’s important to monitor large and complex projects closely and make any necessary corrections earlier rather than later. It’s possible to take legal action against a contractor if the project has issues, but consider this option a last resort. Preventing problems mid-project is always better than trying to fix problems at the end.
Throughout the process of planning and implementing any renovation project, directors are expected to consult with the appropriate experts. Property managers have considerable expertise in renovation and should always be the first person directors consult. Engineers also play a key role before and during renovations.
Successful renovation projects rely on condo directors understanding their RFS, planning, asking owners for input, being flexible and creative, and assigning proper oversight. If directors consider these factors and consult experts, there is a much higher probability of a positive outcome.
Originally published in Condo Business Magazine. Vol 32 #4 September 27, 2017.