Gambling with Deferred Maintenance: Food for Thought

Posted on February 16, 2015
Written by David Albrice

"Sooner or later everyone sits down to a banquet of consequences" - Robert Louis Stevenson.

We may think we can outsmart consequences, we may try creative tricks to avoid consequences, but we can only do this for so long. Sometimes we get “lucky” and we can defer things for a few years, even decades. Eventually, though, we will lose.

So what are these different types of consequences of failure that so many of us are willing to gamble?

1. Physical Consequences

The first group of consequences relate directly to the tangible, ‘hard’ things that we can touch, smell, hear and feel with our senses. Here are a few:

  • Increased DOWNTIME and disruptions with essential services, such as elevators, space heating and space cooling equipment, etcetera.
  • Greater NUISANCE from noise, vibrations, smells, etc. that affect the quiet use and peaceful enjoyment of the property.
  • Increased OUTAGES associated with power supply, water supply, gas, and other utilities.
  • Reduced RELIABILITY of systems and assets, particularly critical assets.
  • Collateral DAMAGE to finishes and substrates from water ingress and water escape conditions.
  • UNSIGHTLINESS that detracts from the exterior and interior aesthetic appearance of the building.
  • Accelerated DETERIORATION of some assets requiring earlier renewal.
  • Potential for waste and ground CONTAMINATION.

These consequences make our banquet feel like a table filled with plates of rotting food. Think of eating from a table with wobbly legs and the wine glasses are toppling over.

2. Financial Consequences

The second group of consequences hit our pocket book hard, they drain our wallets and they mess with our balance sheet. Here are some examples:

  • Increased COSTS due to lack of planning, reactive/crisis management, accumulation of deferred maintenance, unnecessary repairs, greater project scopes, etc.
  • Greater financial HARDSHIP through special assessments, demand loans, etc.
  • Diminished MARKETABILITY of the suites due to stigmatization, etc.
  • Greater risk of BUSINESS INTERRUPTIONS due to unreliable assets.
  • Lower RESALE VALUE of the property.
  • INEFFICIENCES in the use of energy, coordination of people and other resources
  • Missed opportunities for leveraging ECONOMIES OF EFFICIENCY, such as economies of scale and economies of agglomeration.
  • Increased CONTINGENCY ALLOWANCES for substrate repairs.
  • Accelerated DEPRECIATION of asset value.

These consequences make our banquet feel like a table filled with plates of scraps and leftovers. Think of being overcharged for a lousy meal.

3. Legal Consequences

The third group of consequences tie us up, they remove our freedoms. Here are some examples:

  • Potential for FINES and penalties due to non-compliant conditions.
  • Potential ACCIDENTS and injuries to owners, guests and invitees due to unsafe slip, trip and fall conditions.
  • Potential HEALTH issues due to exposures to mould and other toxins.
  • Increased insurance DEDUCTIBLES due to failure to mitigate.
  • Increased RISK exposure to individual owners and the organization from failure to do the necessary due diligence.
  • Jeopardizing of WARRANTIES due to failure to meet duty of care.
  • LITIGATION resulting from actions taken against the owners.

These consequences make our banquet feel like a table filled with food that must be eaten with handcuffs behind our back. Think of a meal on a plane with blunt, plastic utensils and no elbow room.

4. Political Consequences

Our final group of consequences relate to the people and their emotions. Here are some examples:

  • Increased STRESS and frustration of individual owners / guests / customers due to unresolved business and limited peace of mind.
  • Potential for CONFLICT between owners due to unresolved issues, greater time at general meetings, etc.
  • Residents/businesses may have to VACATE the premises during emergency repairs.
  • Diminished REPUTATION of the owners, the facility and the staff.
  • UNMOTIVATED staff due to frustration and burnout from inefficient work environment.

These types of consequences make our banquet feel like a table surrounded by angry people who get indigestion from the meal. Think of a dysfunctional family get together.

Consequences of failure come in different degrees:

  1. “Catastrophic” consequences (such as loss of life and injury to persons)
  2. “Critical” consequences (such as significant damage to the building and components)
  3. “Marginal” consequences (such as a temporary outage)
  4. “Negligible” consequences (such as unsightliness that can be corrected later)

Questions:

Are there any other significant consequences or groups of consequences that have been missed from the lists?

Do you have any food fights to share?

At RDH, we can help prevent these consequences from occurring in your building. Contact us for more information today.

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David Albrice

David Albrice

David is a certified professional reserve analyst, and a specialist in building maintenance and planning.

  • Heather

    Absolutely LOVE these articles. What can be done if past councils neglected proper financial planning from day 1 and now owners, years later, have to face a $5,000,000 assessment?

    • David

      Although it is a council responsibility to take the leadership, it is the owners who have refused to build up a Contingency (for which substitute the word “Capital”) Reserve Fund over the years to take care of these issues. Now the owners (as “shareholders” in the strata corporation) are faced with their obligation under Section 3 of the Strata Property Act to “manage and maintain the common property and common assets of the strata corporation.” The owners have no choice but to raise a special levy under Section 108. It is going to be painful! I recommend that your council seek legal help from a lawyer who specializes in strata property law. Check out all the literature and resources at http://www.visoa.bc.ca

    • David Albrice

      Thanks for your positive feedback, Heather. We will continue to publish educational content for the local strata community and other real estate sectors.

      In response to your question, may I suggest that you contact us offline so that we can properly evaluate your situation and provide meaningful advice. For example, it would helpful to know the following:

      1. How old is your building?
      2. Are you professionaly managed or self managed?
      3. Do you have a depreciation report?
      4. Has your building been adequately maintained over the years?
      5. Do you have a consultant guiding your owners through the remediation process?
      6. Is the capital project considered an “end-of-useful-life” project or some unfortunate form of premature failure?
      7. Has the impending project been properly documented and disclosed to the owners?
      8. Have alternative repair strategies been considered?
      9. How urgent is the project? Has it been demonstrated that it needs to be implemented?
      10. If the project has been deemed necessary, have you been provided with a checklist of the preparatory steps to get it underway most efficiently, cost effectively, and with minimal risk to the owners?

      Essentially, have the owners been given enough information to make an informed decision about how to proceed the strata coporation’s best interest.