(Blog co-authored by Harmony Taylor & David Wilson)
We are often asked by board members for HOA and condominium associations to review their community’s documents and “update” them or “make them more modern.” While there is no one-size fits all solution for any community association, we have noticed that some amendments are a good idea for most communities. Over the next few articles, David Wilson and Harmony Taylor of Law Firm Carolinaswill be exploring some of the amendments that we frequently recommend to the associations that we represent.
Whether you are a single family, townhome or condominium community, you may want to think about some of the amendments that we describe and see if you and your community would benefit from one of these changes.
Part One: Adjust Insurance Provisions for Townhomes
Townhomes are a bit like the red-headed step child of the HOA / condo world. They aren’t single family homes and they aren’t condominiums, but they usually share characteristics of both. One of the things that makes a townhome community different from a traditional single family community is that the townhome association takes on more responsibility to maintain, repair, and replace different features of the community. The association may have responsibility for roofs, exterior building surfaces, landscaping on the townhome lots, and other items. This reduces owners’ individual maintenance obligations, but can create difficult situations where owner property is damaged in a casualty event.
When it comes to insurance for townhomes, there are many different ways of going about it. One common model, particularly in older townhome communities, was to require that the townhomes be insured like a condominium. Typical covenant language requires that the association maintain coverage for the full replacement value of all buildings and structures within the community, including the townhomes and any betterments or improvements. This means that the association has coverage for the townhome exterior and interior, and sometimes for upgrades (improvements) that the owner may have installed. This model is not required by the law. In North Carolina, new townhome communities subject to the Planned Community Act are only required to insure common elements. Nevertheless, there are many communities in both North Carolina and South Carolina that are required by their covenants to insure the community as if it were a condominium, even though it is not. And, where the covenants require this more extensive coverage, the association will be required to obtain and maintain the more extensive coverage.
There are many reasons to consider amending your community’s documents to adopt a more limited role for association insurance in townhome communities. To begin with, townhomes are not condominiums. The primary reason that condominiums provide almost blanket coverage is that much more of the building in a condominium is comprised of common elements. In townhomes, that is not the case. Instead, everything in the buildings that is being insured belongs to the individual owners. While the townhome association may have responsibility for some routine maintenance for exterior building surfaces, roofs, and other items, if there is ever a casualty event it is most like not going to fall under the association’s routine maintenance responsibility. And, perhaps most significantly, moving away from condo-type coverage can protect associations from catastrophic leaps in insurance premiums.
Associations that provide condo-type insurance are far more likely to see significant increases in the cost of insurance than if the townhomes were insured individually by the owners of each townhome. Because the insurance covers all buildings, each time there is a problem in another building, every homeowner must pay more.
- Owner flushes a cabbage down the commode, and toilet runs unattended for hours. Association coverage pays.
- Renter forgets charcoal grill on back (wooden) deck, leading to fire. Association coverage pays.
For those communities that are more than fifteen years old this becomes more and more of a concern as roofs, pipes, and other causes of water leaks increase with age. We have even seen some communities that become uninsurable as a result of the number of claims made against the association’s policy.
Amending your townhome community’s governing documents to shift more insurance responsibility to individual homeowners is a significant undertaking. However, this type of change may not be just advantageous—it may be necessary for the longevity of the community.
We have worked with many townhome communities to amend their documents to better fit their community’s needs. If you have any questions about your townhome in North Carolina or South Carolina we would be happy to speak with you at any of the Law Firm Carolinas law offices (Charlotte, Greensboro, Wilmington, and Triangle) to see how we can help your community.