As buildings age, more attention has to be paid to repairs and replacements. Plumbing problems are more expensive than other repairs because they are hidden. Locating the source of a leak may not be easy, even though wet areas or standing water may be evident. Finding the actual problem source may require the assistance of a professional leak-finding service, as well as invasive tactics, including drywall or concrete removal. Plumbing leaks of every kind usually come with collateral damage, not only to the property owner of the home where the leak originates, but also to the neighbors.

When you experience one leak in a building that is over 20 years old, chances are you will start to see them more frequently. If you live in an older community association, including an HOA, condominium association, townhome community, or other multi-family community, a call to action is needed. You may try to make do, repair the one leak here and there. But living through these repairs is misery to all involved, and expensive. Most of the time the expenses are shared between unit owner and the association, and just how the bill gets shared is not always clear. Just because “you’ve always done it this way,” that doesn’t mean someone took the time to research it properly, and the laws have changed recently in every state regarding who is responsible to do the repair and pay for the repair for each part of the damaged property.

You can look to your condominium documents, HOA bylaws, deed restrictions, and other forms of legal documentation for your community for answers. It may say plainly in these documents that the unit owner is responsible to repair the pipe, but the association must pay for the drywall repairs, regardless of fault, cause, or location. There can be any number of variations on this theme. However, you must also look to your state laws, because they have probably changed since your documents were recorded, and they may take precedence over your documents, depending on many factors. You can always call your attorney and pay for a letter to define the current responsibilities.

However, there is one rule of thumb that I always go by, and that is to look to your property insurance for answers first and last. In other words, follow the money, or better said, those with the gold make the rules. The insurance industry doesn’t play around, and they lobby legislatures all over the country to make laws that favor them, and perhaps not necessarily for the consumer or property manager. For example, recently in Florida, regarding a “pipe burst” event, the law was changed to make the drywall, regardless of location, the responsibility of the community association, even though in most condominium documents, the interior walls, as well as the plumbing pipe (providing it services only that unit), are defined as being “a part of the unit,” and therefore the responsibility of the unit owner. In the past, the association was only responsible for common walls. But now, we look to the insurance industry to explain to us what is the responsibility of the association versus the unit owner.

I use a visual when explaining the principal of “no-gap” coverage. Take your right and left hands, fingers stretched out, and bring them together so that each finger fits into the other. The right hand represents the community association insurance policy, and the left hand represents the unit owner’s insurance policy. The state laws are written so they fit together with no gaps. Theoretically, if both the association and the unit owner call their agents and each file a claim, the adjusters for both companies will determine what is covered under which policy, with no gaps in coverage. The only thing out of pocket for both parties should be the deductibles and/or co-pays.

Let’s take this one step further. If a building experiences leaks, and they become more frequent, then the issue of “neglect” or “negligence” starts to pop up in conversations. The implication is, if you “know” you have pipes that are getting old and need replacement, and claims are adding up on the loss history charts, the insurance company is going to require you, the property owner, or community association, to make significant if not total repairs and/or replacements to stop the leaks. They will not simply keep paying for property damages year after year. They will either increase your premiums tremendously or drop you. If you get dropped, and/or have a large claims history, it may come to the point where you cannot get insurance, you will pay through the nose for it, or you may have to use an insurance company that is not “admitted” (in your state) or even rated well.

By law, community associations have to make “their best effort” to get insurance. Best effort here includes repairing the property as needed to get the insurance at a reasonable rate. Most building owners, boards of directors, and HOA, condominium, and community associations put off the huge expense of replacing plumbing for obvious reasons. However, if you count the cost of premiums that are 10 times more than you are paying now for many years, it makes sense to just spend the money before that time comes on the one-time replacement, eliminate the issue and risk from the picture, and keep low premiums. It makes economic sense to, for example, pay $100,000 to replace the plumbing pipes in a building, than to pay five times your current insurance premium over the next five years, only to have to pay the $100,000 anyway, five years from now.

Replacing plumbing pipes is invasive, it is miserable, and it may seem expensive until you do the math when you bring the insurance factor into the equation. If you have a building that is aging, and especially if you are starting to have leaks here and there, start a reserve now for replacing your plumbing. Being proactive and funding a reserve, as well as conducting a study to establish what the scope of work and eventual cost will be, not only makes good financial sense to your community, but it also shows your insurance company that you are taking steps to reduce the risk, which is the thing they rate their premiums on and whether they will offer you a renewal policy.

This blog submission is only for purposes of disseminating information. It does not constitute legal advice. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.

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