Your building is leaking. Your pipes are failing. Your insurance company might even be calling. You need a repipe. The problem is that it’s going to cost millions of dollars, and your board doesn’t have it in your reserves. Do you take out a loan, issue a special assessment, or both to cover the costs? Or do you wait, hoping you can raise the funds over the next several years, and try to buy more time?
Unfortunately, for boards facing the prospect of a repipe in their community, making this choice is increasingly difficult, increasingly costly and increasingly litigious. As I write this article, there are pending lawsuits against condo boards on both sides of the equation.
Pay Up and Stop The Leaks!
In Hawaii, where a typical cast iron waste line replacement costs tens of thousands of dollars per unit, most properties, and homeowners, simply don’t have the cash to pay for it out of pocket. Buildings that are in critical condition are declaring a “state of emergency,” and taking out loans to get the pipes fixed. To pay off the loan, each owner’s portion of the loan payment is added to their monthly condo fees in order to cover the loan costs. Sure, no one is happy about the increased fees, but the job gets done and the leaks stop.
But what happens when you live on a fixed income, can’t afford the increase, and are being forced to sell your home because you can no longer make the payments (and the reason was entirely out of your control)? You sue the decision maker, and boards are increasing being sued by homeowners for negligence. For a building that needs a pipe replacement, failing to properly reserve for a repipe can be one of the costliest decisions a board can make. So it’s better to start reserving now on a smaller scale, and wait to get the pipes replaced at a time when the financial burden is not as great, right? Not so fast…
Just Fix It Until We Can Afford It.
For boards not wanting to financially burden their residents and think they can limp along, the risks are equally as great. “Hawaii construction costs are rising 7-12% per year, which is well above the national average,” according to Dana Bergeman at Bergeman Project Group. Bergeman states that, “holding off two to three years can easily cost a condo association an extra 20-30% or more on a repipe project.” As a result, any potential financial gains of deferring a repipe are wiped away by the increased costs.
Likewise, knowingly waiting may violate a board’s fiduciary responsibilities to maintain the building, and residents are suing their board for everything from leak damage costs to reduced property values when they try to sell. Failing to act can result in some serious liability.
Sued If You Do, Sued If You Don’t.
So what’s a board to do? With increasing pressures, and liability, around whether or not you choose to repipe, there is only one answer: act early. “By the time your property starts leaking, you are already behind the curve,” says Bergeman. “If you have a Hawaii condo built in the 1960’s or 1970’s with cast iron piping, you need to start reserving now, even if you are not experiencing any leaks.”
The volume of properties needing a pipe replacement in Hawaii has escalated exponentially in the last five to ten years. If your pipes have not started leaking yet, they will, and you need to be prepared. Communicate with your residents early and often, and prepare them for what is likely coming. It may not be this year, or next year, but the sooner you can get ahead of the situation, the more options your condo association will have when faced with the challenging financial decisions that come with replacing your pipes. And ignoring the problem could land your board in hot water. Regardless of what you choose, everyone agrees the tides are rising quickly around condos that need a repipe, and acting early is the best option for boards to avoid being flooded out.
Note: While this article focuses on Hawaii, we are seeing similar situations play out across the country and across various piping systems. Southern California, for example, is experiencing similar problems with their domestic supply pipes stemming from corrosion and pinhole leaks on their copper piping. In the mid-Atlantic, HVAC piping systems are failing at an alarming rate due to corrosion, resulting in failing risers causing significant leaks and property damage. In both of these instances, condo boards are under extreme pressure from residents, and face potential lawsuits for not upholding their fiduciary responsibilities to maintain the property.