Legal Tips for HOAs and Condos Following a Natural Disaster
/This article was originally published on October 3, 2024 by Jim Slaughter in HOA & Condo Associations Real Estate Blog for Law Firm Carolinas.
Whenever a natural disaster strikes–whether hurricane, flood, tornado–our office is inundated with calls from HOAs and condo associations on how to move forward. That’s a difficult question to answer globally, as no one size fits all. Community associations vary. Condominiums, townhomes, and single family homes are owned differently and have different responsibilities. Governing documents, such as declarations or bylaws, also have different wording on who is responsible for maintenance of certain items. As a result, while this article can’t provide legal advice for a specific association, here are tips to consider.
(1) Prevent further damage. Almost without exception, associations are responsible for maintaining and repairing the common elements. That means doing what is necessary to prevent further damage, whether putting a tarp on a damaged roof or removing water damaged belongings from a clubhouse. The association should consider similar action over items it may be responsible for under Declaration provisions, even if not owned by the association.
(2) Make an insurance claim on the appropriate policy. We are regularly asked by associations or owners whether to file a claim for damages with insurance. If there is significant damage, almost always the answer is “yes.” Both the association and owners should contact their respective insurance agents. What is there to lose? After all, it’s not the responsibility of the policyholder to figure out whether specific damages are covered or not. That’s the carrier’s responsibility.
In addition, there could be coverage even if it’s not known or readily apparent. For instance, many associations and homeowners damaged by the recent flooding will likely discover they have no flood insurance because they weren’t in a designated FEMA flood zone. Before deciding not to report a loss, however, recognize that certain damages might be covered by other provisions of the policy. Even association policies without flood coverage might have provisions covering water/sewer backup or business income and extra expense coverage, which might help depending on the specific circumstances. While there is no guarantee specific damage will be covered, you just won’t know unless you file a claim.
“Filing on the appropriate policy” refers to the policy that would cover a particular situation. For instance, all associations should have hazard (or “property”) insurance on common areas owned by the association. As a result, damage to the association’s property should be filed with the association’s insurance. Homeowners are often responsible for insurance on their own lots or units, but that can vary in condominiums and townhomes.
We are also often asked what to do if an owner demands that a claim be filed on an association policy that covers the homeowner, such as a condominium or some townhomes. If an owner is an insured under the association’s policy and demands that a claim be filed, it should generally be filed. (If damages are well below the deductible, sometimes claims are not filed, but recognize that unknown or additional damages could greatly increase the claim.) Insurance exists to help those damaged recover from awful situations, and it is far better to make a claim that may not be covered than to refuse an owner the right to possibly obtain insurance proceeds.
(3) Determine who is responsible for specific maintenance and repair within the association. The most common questions we receive after any disaster are who is responsible for specific repairs/maintenance work and, if it’s the association, can any amounts benefiting a specific owner be charged back to that owner. Again, the answer depends. Basic real estate law is that property owners must deal with what is on their property. For instance, if in North Carolina a lot owner’s tree falls across their yard and onto the association’s road, each is responsible for the part of the tree on their property. That is, the lot owner is responsible for the portion of the tree in their yard, and the association is responsible for the portion of the tree on its common property. A state statute as to community associations even provides that, except as the declaration may provide otherwise, “the association is responsible for causing the common elements to be maintained, repaired and replaced” and “each lot owner is responsible for the maintenance and repair of his lot and any improvements.” Where things get complicated is that declarations sometime contractually re-allocate either (a) the responsibility for doing the work or (b) the cost of the work. And if insurance is involved, such as when a tree hits a building or fence, the normal rules may go out the window. As a result, a review of the governing documents should be made as soon as possible to determine who is responsible for what within the association.
(4) Carefully review new contracts. Following any disaster, there will be innumerable contracts for every imaginable type of work: storm debris cleanup, tree removal, reconstruction of buildings, roof replacement, and many more. Service providers should of course be competent and experienced, and when possible, familiar with and worked with community associations. You may wish to review the Community Association’s Institute’s Directory of Credentialed Professionals and Professional Services Directory.
During the hectic circumstances following a natural disaster, it’s understandable that some of these agreements might be handshake-type oral contracts, rather than in writing. For very small contracts, that might be fine. However, there is an accurate saying that “an oral contract isn’t worth the paper it’s written on.”
Contracts of substance should be in writing and reviewed by an attorney. Certain provisions should be included or the agreement will be lacking in the event of a later dispute. At a minimum, any contract should be clear as to:
who the parties entering into the agreement are
the terms of the agreement
what is or is not a breach of the contract
what “consideration” or money is being exchanged
by when the contract must be completed
how to terminate the contract
that the vendor is insured, and
remedies in the event of a default by either side.
Depending on circumstances, a dispute resolution provision, such as arbitration or mediation, might be warranted. While contracts will vary depending on the circumstances and scope of work, the main theme here is that in the rush to get things done, don’t forgo making certain that all contracts are in the best interests of the association and legally binding.
(5) Evaluate existing contracts that can’t be fulfilled. In addition to concerns about new contracts, the association may have existing contracts that can’t be performed due to damage of property or even destruction of buildings. As to considerations in such instances, see this recent article: Collections, Force Majeure and Other Contractual Considerations Post-Hurricane Helene
(6) Consider how to pay for things. As mentioned above, make an insurance claim. Another question we are regularly asked is whether community associations are eligible to receive FEMA aid. HOAs and condos are NOT generally eligible for FEMA assistance, but the Governor can request such a designation. Law Firm Carolinas’ partner Harmony Taylor is Chair of the NC Legislative Action Committee (NC-LAC). The Community Associations Institute (CAI) and the NC-LAC have already requested that NC Governor Cooper make such a designation. They are following this situation closely and have also been in touch with both of North Carolina’s U.S. Senators about additional aid. However, FEMA does not tend to do or reimburse for necessary work in associations. Debris removal, even when approved, must normally be done in coordination with local municipal authorities as part of local municipal debris removal efforts. Critical infrastructure repairs, such as private roads or lakes, tend to fall to the association, but assistance can sometimes be found from other places, whether insurance, a Small Business Administration disaster grant or loan, or the NC Department of Public Safety.
As to such issues, CAI has a Disaster Recovery Resources page with useful information and links as well as a page that updates advocacy efforts at Supporting Community Associations Affected by Hurricane Helene.
If not covered by insurance or any governmental entity, association expenses tend to fall to the association (and thus, its members). However, associations as nonprofits don’t tend to have extra money sitting around. If an association doesn’t have cash on hand to cover such expenses, other possibilities include a special assessment, if permitted, or a community association loan. For more thoughts on such options, see these past articles: Help, Our HOA (or Condo Association) Needs Money! and Association Loans: What You Need to Know.
(7) Don’t forget the “community” in community associations. Following a crisis, it’s easy to get focused on the responsibilities and legal duties of the association. Don’t forget that owners are hurting as well. Given a particular HOA or condo’s circumstances, a community association might provide information on available resources or news updates, provide shelter or aid, or encourage community spirit, whether through neighborhood storm-related clean-ups or social gatherings.
(8) Prepare for the next disaster. Some associations prepare a “pre-disaster loss plan,” which outlines the actions that will be taken in the event of certain circumstances. If such a plan already exists, it will address some of the issues above. If your association has not thought about plans in the event of a disaster, if should. If recent storms, wildfires, earthquakes and other weather-related events have taught us anything, it’s that natural disasters are a matter of “when,” not “if.”
The path following any natural disaster is long. We wish strength and fortitude to the associations, owners, and professionals working through this difficult situation.
Jim Slaughter is past President of the College of Community Association Lawyers and the North Carolina Chapter of the Community Associations Institute. For questions about any HOA/condo related matter, contact a community association attorney at Law Firm Carolinas’ North or South Carolina offices.
Jim Slaughter
Law Firm Carolinas, LLC
