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Residential Real Estate
Sep 8, 2022

Community Association Terms: Definitions and Explanations

Sponsored Content provided by Mike Stonestreet - Founder, CAMS (Community Association Management Services)

If you're like most people, you've probably seen community association terms and acronyms bandied about but don't really know what they mean. Fear not! We're here to help. This post will define some of community associations' most common terms and acronyms. So, whether you're a new homeowner or board member, read on to learn more!

Architectural Review Committee
The Architectural Review Committee (ARC) is a group of neighborhood volunteers who manage owners' applications for exterior changes to their properties and enforce the restrictions within the community's governing documents. The ARC may be a separate committee, depending on the size of the community. Still, sometimes it is a role fulfilled by the board of directors. An important thing to understand is that the ARC is not there to judge owners' taste in outdoor décor. Instead, they must enforce the guidelines as laid out in the governing documents to maintain the community aesthetic according to the standards established by the original development plan.

Assessment
The assessment is the periodic amount due from each owner to cover the common area expenses, pay for ongoing maintenance services within the community, and fund reserve accounts. The community's governing documents will determine assessment frequency and due dates. In addition, the board of directors has the authority to raise assessments when needed to keep up with the rising costs of labor and materials. There can also be "special assessments" – you can learn more about those here. Assessments are an obligation per the association declaration – dues are voluntary, which is why we don't refer to these as dues.

Board of Directors
The board of directors is a group of people elected by owners to oversee the community. The community's bylaws will specify the number of board members, term lengths, and election procedures. Board members have a fiduciary responsibility to the association and its members. In addition, the board is responsible for determining a budget to allot funds brought in by assessments, maintaining the community, maintaining appropriate insurance policies and coverage, enforcing the governing documents, and vetting and hiring contractors to perform maintenance in the community.

Committee
Community association committees typically consist of volunteer members appointed by the board of directors. The role of these committees is to assist the board in fact-finding, making recommendations, and gathering different viewpoints on community issues. The number and type of committees will depend on the size of the community. There are standing committees that stay in place long-term (think a social committee or landscaping committee) and ad-hoc committees (committees formed for a specific purpose that will dissolve once that purpose has been met). Joining a committee is a great way to increase member participation in the community.

Common Areas
A common area is designated land in the community that isn't sold to individual owners but is owned by the association. In a single-family neighborhood, some examples of common areas might be playgrounds, neighborhood parks, stormwater ponds, or community pools. In a condominium, the common area includes the building, hallways, and other structures.

Community Manager
The community manager works to carry out the day-to-day functions of the community. For example, community managers work with the board and various committees to obtain bids for and oversee maintenance projects, and handle billing and collecting assessments. Managers may also assist in drafting budgets, performing community inspections, creating agendas, and attending meetings. However, it is important to remember that the community manager has no authority to act outside the board's direction.

Fiduciary Duty
Fiduciary duty, in a nutshell, is the board's obligation to act for the benefit of the community as a whole. If you're in a fiduciary role, decisions must be made in good faith, with due care, and in the association's best interest. The board must make decisions that they think will be beneficial to the community (even if those decisions turn out to be incorrect), handle any issues that arise reasonably, and seek out the help of professionals when needed. They must also remain honest with members and loyal to the association, not just their friends or fellow board members. 

Governing Documents
Community associations are beneficial in providing services like maintaining common areas, enforcing rules and regulations, providing amenity access, and ensuring that the neighborhood maintains a uniform aesthetic. However, for the association to provide these services and benefits, governing documents must outline what owners can and cannot do. The governing documents typically consist of a plat map, articles of incorporation, bylaws, the declaration, and rules and regulations. Keep in mind that some of these may go by different names depending on where your community is and how it's set up. In addition, these documents contain information on board members' and owners' rights, restrictions and obligations, common areas, voting procedures, the board's authority, ARC guidelines, and much more.

Reserve Fund
The reserve fund (sometimes called capital reserves) is a separate bank account set up by the association to fund large, non-recurring repairs. Reserve funds may be used for these repairs, such as repaving streets or roof replacements. Reserves can also be used for damage caused by natural disasters such as hurricanes or deep freezes. However, reserves should never be used for regularly occurring expenses.

Reserve Study
A reserve study, typically performed by an engineer or reserve study specialist, looks at what repairs are needed, projects future capital expenses, and helps determine how much should be put into the reserve account. For example, a reserve study typically includes repair cost estimates of major expenses like amenity repairs or exterior building repairs in condominiums. In addition, it will present cost and time estimates of when these repairs might be necessary over the next few decades. It is advisable to have reserve studies updated every 3-5 years.

Interested in learning more about community associations and how they work? Visit our website for additional information!
 

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