Board Operation, Some Examples and Fiduciary Duties revisited - Part IIb

An Interesting Case Study:

(1) "Among many other obligations, an Association, acting through its Board of Directors has the absolute duty to manage, operate, maintain and repair all common areas and to keep them in a safe, attractive and desirable condition for the use and enjoyment of its owners. In fulfilling this obligation the Board of Directors also has the duty to prepare a budget and establish assessments for the Association adequate to meet the financial requirements necessary to maintain the common areas.

[HOA Services Group] was recently awarded the management contract for a large 25-year old condominium community.....This community could easily spend $500,000 just to address the obvious deficiencies. And, of course, their reserves are $0.

[A]tremendous opportunity for [HOA Services Group] and That's exactly what we believed as well. Unfortunately the easiest and very first step in beginning to clean up this community, the landscaping, still hasn't been addressed because the Board is trying to get the contractor to reduce his quote for an initial cleanup of the entire property from $900 to $750, a whopping savings of $150....

...we've pointed out that this “band aid” approach will ultimately cost the owners substantially more in the long run......According to the Board we just need to keep any special assessment to minimum, and be careful about proposing any increase in the monthly dues even though they haven't been adjusted in years. Is it any wonder why this property is in its present condition, and what exactly is the likelihood that we'll be able to convince this Board to properly address their many needs?

A Board of Directors has a fiduciary duty to always act in the best interests of its members. Unfortunately many Board members make decisions based on their personal situations, and sometimes forget that service on the Board carries with it the obligation to represent the interests of all the owners in the community. Failure to meet this duty will often result in decreased property values, dissention among the owners, and quite possibly lawsuits against the Association and its Board members. Defense of these types of claims against the Board of Directors can be both costly and time consuming, and typically compounds the already existing animosity between the owners and the Board of Directors.

We still have hopes that we'll be able to better educate the Board members of the community mentioned above. Unfortunately, while our efforts could be directed at returning this community to a well-maintained and desirable place to own and live, we'll first have to devote a substantial amount of time to changing this Board's philosophy. Hopefully we can do that before they have the opportunity to test out that new Directors & Officers Liability policy."

In the above, there are several interesting items, from which I draw a few parallels.

1. [The] "Board of Directors has the absolute duty to manage, operate, maintain and repair all common areas and to keep them in a safe, attractive and desirable condition for the use and enjoyment of its owners."
2. "[The] Board of Directors also has the duty to prepare a budget and establish assessments for the Association adequate to meet the financial requirements necessary to maintain the common areas."
3. The experts who wrote this stated that it was their perspective that this was an opportunity for the "Board of Directors to make a real impact on this community and to dramatically improve the property values of the unit owners."
4. The Board of Directors in this case study were having great difficulty establishing priorities and were, for example, improperly embroiled in a negotiation with a contractor over a difference in perspective which was "a whopping savings of $150."
5. The authors went on to state that it was the perspective of the Board that "we just need to keep any special assessment to minimum, and be careful about proposing any increase in the monthly dues."
6.  The authors then went on to state "we've pointed out that this “band aid” approach will ultimately cost the owners substantially more in the long run."
7. They also stated that "A Board of Directors has a fiduciary duty to always act in the best interests of its members. Unfortunately many Board members make decisions based on their personal situations, and sometimes forget that service on the Board carries with it the obligation to represent the interests of all the owners in the community. "
8. The authors closed with the statement that "We still have hopes that we'll be able to better educate the Board members......our efforts could be directed at returning this community to a well-maintained and desirable place to own and live, we'll first have to devote a substantial amount of time to changing this Board's philosophy."

Here at BLMH, everyone including our paid managers, who were put on notice, have taken the perspective that it is best to keep their collective heads down and keep their jobs, while in 2009 our new board argued in favor of parties and garage sales which benefit the few, glossy newletters, $500 bids for concrete, championed semi-trailers on the property, etc. What will 2010 bring?

In coming posts, we'll take a look at the aspects of Fiduciary Duty.

Oh, and as I promised, I will be posting an interesting chart pertaining to the condition of our reserves. This is as promised in 2009. I decided to delay this until after the new board had completed its budget "planning", which they did. According to the overwhelming majority of our board, our finances (Operating and Maintenance, as well as Reserves) are in sufficiently good condition that there was absolutely no need to raise our fees this year. In other words, we are accumulating reserves at a rate adequate to fund all the roofs, driveway paving and street repairs, etc. in a timely manner so as to "maintain and repair all common areas and to keep them in a safe, attractive and desirable condition for the use and enjoyment of its owners." Well, it seems our Treasurer wasn't as certain of this as the others on the board. As they say "follow the money". So what do the numbers say? What? Base our decisions on numbers, rather than on our constituents? Is that any way to run a political organization based on "change"? Oh, but this isn't about politics they say, it's about running this HOA.  Okay, I'll go with the flow and we'll see what the numbers tell us!

If you enjoy slick presentations and colorful charts, "you are gonna love this" as they say. According to our official HOA Communications Director, the majority of our members love our new shiny and expanded newsletter, so this post should be enthusiastically greeted by all. Frankly, more information and less pap is my approach and it seems some new leadership is guiding her in that direction. It's my perspective that the more information and data that is available to ALL of our members, the better our association will function.

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References, Errors, Omissions, Additions:

(1)  HOA Services Group - A leading provider of reserve studies and maintenance plans