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The “Window Replacement Reserve Funding” Conundrum
A reserve study tells you (a board) roughly how much it will cost you to replace a big ticket item when that item reaches the end of its useful life. Jim Talaga’s companion article – “Reserves – The Big Six” – says the biggest six of the big ticket items are painting, roofing, siding, asphalt, windows, and decks.
That an association will foot the replacement bill for painting, roofing, siding, asphalt and – for the most part – decks, generally goes without question under language found in many condominium declarations. But who foots the contractor’s bill to repair and replace windows is often unclear.
What difference does it make? A lot. To be precise, it will cost the hypothetical owner of “Unit 7” about $122 a month, (based on a hypothetical 76 unit condo that will pay $780,824 to replace all windows seven years from now that has not collected any reserves for windows since the beginning of a typical 30 year useful life period, and calculated based on second grade math.)
Before you levy the reserve funding assessment for that window replacement project, and make owners pony up $122 a month that most of them don’t have, you want to be as sure as possible that window replacement is an association responsibility, instead of each owner’s responsibility. So you ask the reserve consultant why she included window replacement as an association obligation in her reserve study. She explains that your condominium declaration appears to obligate the association to replace windows at the end of their useful life, but adds that, quite frankly, the declaration is not crystal clear on that point. (Wait – it gets worse.)
To clear it up, you ask the association’s lawyer a simple question: “Is the association obligated to replace windows at the end of their useful life?” You need, and expect, a simple “yes” or “no” answer. (And you secretly fear an answer that begins with “it depends.”) What you receive is an answer that goes something like this: “Well, the association must replace the outer pane of the window, and the unit owner must replace the inner pane of the window, and the enclosed color-coded schematic identifies the 7 window structure components the association must replace and the 4 (or 6, depending on the window manufacturer) window structure components that each unit owner must replace. Assuming the association contracts and pays for the replacement in its entirety, there remains some question about the board’s right and/or duty to specially assess each unit owner for partial reimbursement of funds advanced for replacement of those window parts the unit owners were obligated to replace.”
Welcome to Alice in Wonderland. Rather than clear up the confusion, the lawyer’s answer adds three new layers of confusion. (Wait – it gets worse.)
Appellate courts around the country, when called upon to set things straight on the “who replaces the window” question, give widely contradictory answers. For example, eleven courts faced in recent years with deciding just the first part of the “repair” question – i.e. who owns the window – couldn’t agree: 7 said the unit owner does; 2 said windows are common elements co-owned by all; and 3 said it depends on which parts of the window you’re talking about.
A board facing decisions about funding reserves needs clarity. And a replacement matrix, as Jim Talaga notes, is a helpful tool in creating some clarity. Creating a reliable matrix is as difficult, or as easy, as the condominium’s declaration makes it, since a matrix captures what a declaration says, and different declarations say different things.
Here, though, is a common sense framework to help guide you through this “funding reserves for window replacement” conundrum.
1. Who is the contractor’s “customer?” Start here. A window replacement contractor thinks “This customer is paying me to install this window.” The “customer” is either (a) the association, or (b) a unit’s owner. An association “customer” may well be entitled under the condominium’s declaration to be reimbursed by a unit owner(s) for what the association paid the contractor, where the declaration shifts ultimate financial responsibility for a replacement to the unit owner. “So what?” the contractor will say. “Makes no difference to me. My contract is with you, association, and I expect payment from you for the replacement work I do.”
2. “Ownership” and “Use.” As a general rule of thumb, the obligation to replace an item works like this: (a) you own it, you replace it; (b) we own it, we replace it; or (c) we own it (and you exclusively use it), we replace it (and you reimburse us what we paid to get it replaced). (Note: Item (c) above describes a common way of handling funding for replacement of a limited common element.)
3. “Stake” Boundaries. Applying the “we/you” replacement rules above assumes you know exactly where the boundary line between the unit and the common elements is. That boundary is wherever the declaration and survey map and plans say it is. The problem is that, when it comes to windows (and, sometimes, doors), that boundary line is often described in ways that have it running smack dab through the middle of the window. (Indeed, that’s largely what caused those 11 courts mentioned earlier to reach such different results about who owned a unit’s windows.)
4. Forget About Everything Else. “Repair” is a huge umbrella term that triggers all sorts of questions about insurance and voting procedures and the like, but this article is narrowly focused on the subject of funding reserves. When focusing on trying to figure out whether the board should fund reserves for window replacement, consider asking yourself this question: When a window needs replacing, who will the window contractor’s customer be? If your answer is “the association,” then there is a better-than-even chance that you should include window replacement in your reserve study. (Yes, lawyers hate giving odds.)
By Terry Leahy
Partner, Leahy McLean Fjelstad