When an HOA is created, the assessments are triggered when the first lot or unit is sold. For planning purposes, it’s important to note that the DRE Regulations allow for HOA assessments to be waived for HOA-maintained improvements that are not complete. In a nutshell, Regulation 2792.16c stipulates that any assessments for costs or expenses for common area which has not been completed can be deferred – removed – from the budget.
To take advantage of this Regulation, The CC&Rs for the development must be drafted to include specific deferment of assessments provisions, and the HOA manager should be alerted to the provision. The provision can literally save thousands of dollars in assessments for projects where completion of HOA-maintained improvements are delayed.
The regulation provides a list of examples but for HOA management and oversight, the facts are simple: any costs for maintenance and reserves associated with an improvement that is not complete are erased from the HOA budget. The provision also helps to avoid having to re-phase a development which, in addition to the obvious legal and engineering costs, takes up valuable time in the public report approval process.
Following are a few simple real-life examples of developments where the deferment provisions have had a meaningful impact on assessments:
- A major recreation amenity was scheduled to be complete at a certain date, and the budget increased by $85 per lot at the time of completion. Completion was delayed, resulting in an $85/lot/month reduction in dues.
- When the HOA maintains the exterior and roof of the dwelling units, the amounts owing for those elements can be erased for any buildings that are not completed.
- Front yard maintenance costs only apply to the yards which are installed and complete.
These are just a few examples of savings that can be gained through the use of Regulation 2792.16c. Since the Subdivider pays dues for unsold lots/units, the use of this provision can reduce carrying costs. If you are not sure how the Regulation can apply to your project, feel free to call us.
(C) The subdivider -and his successor in interest, if any -is an owner subject to the payment of regular and special assessments against subdivision interests which he owns provided, however, that the subdivider and any other owner of a subdivision interest which does not include a structural improvement for human occupancy may be exempted by the governing instruments from the payment of that portion of any assessment which is for the purpose of defraying expenses and reserves directly attributable to the existence and the use of the structural improvement. The exemption may include, but shall not necessarily be limited to:
Walkway and carport lighting;
Cable television; and
Domestic water supplied to living units.
(1) Any exemption from the payment of assessments attributed to dwelling units shall be in effect only until the earliest of the following events.
(A) A notice of completion of the structural improvements has been recorded.
(B) Occupation or use of the dwelling unit.
(C) Completion of all elements of the residential structures which the Association is obliged to maintain.
(2) The subdivider and any other owner of a subdivision interest may be exempted by the governing instruments from the payment of that portion of any assessment which is for the purpose of defraying expenses and reserves directly attributable to the existence and use of a common facility that is not complete at the time assessments commence. Any exemption from the payment of assessments attributed to common facilities shall be in effect only until the earliest of the following events.
(A) A notice of completion of the common facility has been recorded.
(B) The common facility has been placed into use.