Board Games: Your Rules or Mine?

By Kathy Danforth / Published September 2016

I

s There a Problem Here?

Like a warm, sunny day in Florida, a good—even great—association board doesn’t make the headlines. It is the rare occurrence of misbehavior, or the perception thereof, that catches the eye and slants the public’s view. “It’s frustrating when there are tens of thousands of board members who are truly trying to give back to their community, but they are lumped with those few who are on the board to benefit themselves,” comments Matthew Zifrony, attorney with Tripp Scott P. A. While actual wrongdoing is infrequent, complaints about boards are not. In Zifrony’s opinion, these instances arise from three different scenarios:  actual wrongdoing, unintentional mistakes, and disagreements.

Zifrony explains, “In the first case, the board members know what they are doing is wrong. They want to stay in power, so they will intentionally not run an election. Or, they’ll run an election and disqualify ballots. While they’re in power, they abuse it by intentionally not taking bids in order to get their friends in as vendors. If you want to take it to the extreme, it is for those friends to pay them under the table to remain vendors. There are cases where that happens; it’s undeniable.”

Jordan Goldman, Vice President with Castle Group, notes, “You read about fraud, but I’ve never seen it firsthand. What we read about in the news is usually a self-managed community where they don’t have a management company involved. Generally, most people want to do the right thing—they just don’t always know what that is,” Goldman explains. He continues, “People are not career board members. Our job as a management company is to guide the board to make decisions that are correct, without misbehavior or illegality. A board member is not supposed to make a decision unilaterally, which you do see from time to time. If a manager sees that a director is making decisions beyond his scope, which varies from association to association, then it’s the manager’s job to remind him; and if it continues, to bring it to the entire board’s attention.”

Zifrony relates, “They’re volunteers, they don’t know exactly what they’re doing, and they’re trying to save money by not engaging an attorney to oversee what they’re doing. For example, failing to get multiple bids is not fulfilling your fiduciary duty, but sometimes a board doesn’t realize that even though they obtained multiple bids, it was one vendor using three different company names. Likewise, for an election they may not realize they are supposed to send notices, or they may send them improperly. In this category, they may have done something wrong, but it’s not intentional.”

The most common cause of disgruntled residents, though, is just a matter of differing opinions or lack of communication/participation. Ramon Palacio, a partner with Association Law Group, describes a typical scenario: “Every once in a while, typically at the time of an annual meeting and election, an owner will ask to speak and then list a number of issues not being addressed to his/her liking, and will then throw in an unsubstantiated accusation or two against a particular board member or perhaps the board in general. Most commonly, perhaps, is an accusation of using association funds for personal gain or of receiving kickbacks from vendors.”

Zifrony points out, “On most decisions a board makes, there is no clear-cut right or wrong answer. The board may not take the lowest bid because it’s a new company they don’t have confidence in, and they instead choose a reputable company to do the job properly and in a timely manner. On the outside, it’s very easy to allege wrongdoing—that if they don’t take the lowest bid, they’re getting kickbacks—but that’s not necessarily so.”

“Rarely do the owners making accusations volunteer to run for the board or even a committee position,” says Palacio. “In some instances, they are simply unhappy with some of the decisions that the board may be making and would rather someone else (other than themselves) take the helm. Those who do become board members, however, typically find once they are a director themselves that their perceptions were unfounded and that, for the most part, there are enough safeguards in place to keep most honest people honest. For example, unless an association is self-managed, the association’s management company is very much involved in the screening of potential vendors…In fact, except for projects of

limited scope or duration, the selection process typically involves a presentation by the potential vendors at meetings with the board of directors that (pursuant to Florida Statutes) are open to the owners.”

Zifrony states, “I advise my associations to have any project costing a decent amount of money on the agenda for months, first as a proposal under consideration, then with added information, and eventually with the cost. If a person comes in three or four months later saying they shouldn’t be spending money on the pool deck, you can say politely that it’s been discussed for five months, so where were you? That can minimize their reaction if they’re rational, but with some residents, you can’t convince them that you even had meetings.”

If an owner is unhappy or suspicious of the board’s actions, what are the remedies? Zifrony advises involvement. “Attend board meetings. Give your opinion—you may be able to persuade the board to accept your position. Run for the board. Explain why you want on:  the different vision you have, or why you think the association should spend less or more.”

“Owners may take issue with the manner in which directors communicate with them,” Palacio points out, “or perhaps view the directors as unresponsive to the needs of the community. Similarly, in a manner some may characterize as ‘abusive,’ some owners may be of the opinion that the board of directors does not enforce its rules and regulations or provisions of the governing documents fairly, or perhaps in an overly restrictive manner, or conversely, perhaps not at all.”

The initial remedies do not necessarily require outside intervention, though—just an election. Palacio states, “Owners have the opportunity to be a candidate themselves. They are free to campaign for themselves or for or against anyone who may be a candidate. In fact, a candidate for the board of directors of a condominium association has the right to submit a one-page information sheet about himself. As long as the information sheet is provided on time and the candidate is eligible, the information sheet must be sent by the association to all the owners in a mailing together with the information sheets provided by other candidates, voting ballots, and other required information.” A free platform is available!

If a resident is suspicious of a contract situation, association records may help in settling the issue. Though there are various exceptions, Palacio advises, “There are statutory provisions requiring that most contracts, such as those that cannot be fully performed within one year, or for the purchase, lease, or renting of materials or equipment, be in writing. Generally, competitive bids are required by statute for contracts exceeding five percent of a condominium’s budget or ten percent of a HOA’s budget.”

Palacio explains, “Thus, an owner who questions whether a contract may have been awarded in haste, or who wishes to understand the terms of a contract, has the legal right to see the bids that were received as well as a copy of the signed contract. This would arguably provide for a certain degree of openness in the awarding of contracts and promote fair dealing. Nevertheless, if someone who is dishonest in nature is elected to the board of directors, dishonest people will find a way to be dishonest, at least for a period of time.”

Zifrony concedes, “It’s probably more difficult than it should be for an owner to pursue action for wrongdoing against a board or an individual board member. An association has more resources, and legal action takes time and money and can be drawn out, even if the claim is valid. If a resident is not able to get documents, he may come across to other residents as the problem. It takes less money and is quicker than a lawsuit to have a recall or vote out the board. And, if you have questions and get on the board, then you will have access to the records from the banks, vendors, etc., yourself.”

“Where the conduct of a director is believed to be more egregious and waiting until the next election is not deemed to be a suitable option, the Florida Legislature has provided a recall mechanism whereby a director (or all directors) may be removed from their positions,” Palacio explains. “There are rather detailed procedures that must be followed, and obtaining agreement of a majority of the voting interests will require some effort by those who believe a recall is appropriate. On the other hand, a majority vote requirement helps to ensure that the process is used selectively and helps deter disruption of association business by what could be a small group of individuals.”

Outside Resources and Prevention

For irregularities that are not necessarily illegal, the Florida Department of Business and Professional Regulation (DBPR) may be of assistance. Travis Keels, press secretary with the DBPR, states, “The mission of the Division of Florida Condominiums, Timeshares, and Mobile Homes is to provide education, complaint resolution, mediation and arbitration, and developer disclosure to Florida consumers in the communities we regulate…The Bureau of Compliance, the enforcement arm of the Division, investigates complaints involving election disputes, financial disputes, and disputes involving the right of unit owners to access official association records for associations controlled by unit owners. The Bureau has broader authority for developer-controlled associations. This broad category of disputes encompasses several issues, including the failure of the developer to turn over control of the condominium association in accordance with the Florida Condominium Act, election notice requirements, candidate eligibility disputes, board member delinquency, the suspension of voter rights, the failure of the association to assess properly, the failure of the association to maintain official records, and the failure of the association to comply in a timely manner with an official records request.”

Keels clarifies, “Homeowners associations are not registered with the Division of Florida Condominiums, Timeshares, and Mobile Homes. They are only required to submit a one-time report of some specific information per Chapter 720.303(13), F.S. The Division’s homeowners association jurisdiction is limited to arbitrating election and recall disputes.”

According to Keels, “Topics of complaints include document enforcement, election/recall, financial management, maintenance, meetings, records, and sales activity.” And though there has been an increase in publicized issues, the number of complaints has remained relatively stable from 2011–2015, varying from a low of 1,840 complaints in 2013 to a high of 1,992 in 2014. Though the method of resolution varies, Keels shares that the goal is to achieve regulatory compliance through education, voluntary compliance, or enforcement authority. Zifrony observes, “The Division of Florida Condominiums can do a lot of the legwork and request records. They will send an investigatory letter and have some investigatory power.”

“If there is a perception in a condominium association that owners (whether directors or not) may be intending to falsify signatures (for example, absentee owners who are unlikely to attend the election in person or to mail a ballot), a request for an election monitor may be made so that the state of Florida is in essence running the election,” Palacio shares. “Additionally, ballots may be watermarked and other precautions may be taken to deter fraud. In the event of an election irregularity, such as an election being held at a time or place different from that which was communicated to the owners, arbitrary disqualification of ballots, the qualification of a candidate for the board, etc., a petition for mandatory binding arbitration may be filed with the DBPR, which has jurisdiction on election issues involving residential condominium associations as well as homeowners associations.”

In one case of voter fraud that Zifrony observed, a new group was competing with the existing board. “I expected about 30 ballots for that election, but there were 45. Mysteriously, there were two ballots for every name that supported the old board, and I had to disqualify every one of those votes. That group hadn’t voted twice; the other group had added a second ballot for everyone in that group to disqualify them. The association had gone to great lengths to achieve confidentiality with a two-envelope system, but when I arrived, I saw that there was a pile of ballots and envelopes on the side, which they said was in case someone forgot their ballot. The opposing group had taken advantage of these accessible ballots to cast an extra vote in the name of their opponents.”

In the event that there is clear-cut criminal activity, Goldman states, “It’s anyone’s responsibility, resident or manager, to contact the police.” “If you have records such as checks written to individual board members, the association won’t have to bring a lawsuit because the State Attorney will,” reports Zifrony. He does caution, “If you use resources against board members who have unintentionally done wrong or with whom you disagree, you are setting a precedent that volunteers who have not done anything intentionally wrong can be sued; there may come a time when nobody wants to serve on the board in that setting.”

Prevention of problems is an attractive option. Goldman advises, “Board education is number one, two, and three in preventing board misuse of power. We give boards orientation on how to be a board member whenever the board changes. It’s a matter of knowing what you can and can’t do and the extent of power. Most problems occur because a board or member doesn’t know better.”

In keeping with education, Keels states, “The Division encourages association members and board members to read and understand Chapter 718, Florida Statutes (The Condominium Act), and the governing documents of the condominium.”

The number of directors can facilitate proper functioning, also. “The number on the board should be somewhat relative to the size of the association,” notes Goldman. “You don’t want a small group in power, but if you get 12–20 directors, it becomes unwieldy. In our experience, five to seven directors allow the community to be represented but also allow decision-making to proceed quickly.”

“I’ve always felt that five to seven is a correct number of directors,” Zifrony concurs, “though I’m not sure board size in itself is a solution as long as it’s above a minimum number. If there’s a three-member board, if two are in cahoots, there’s nothing to stop them, and there’s also more chance of disagreements because there aren’t enough opinions on the board. If there are too many directors, it’s difficult to get anything done, and it allows corruption to take place under the radar.

“If someone is trying to do wrong, they will look for weaknesses in any system,” Zifrony remarks. “You can push for two signatures on a check, but that’s not much good if two members are doing wrong. Even in government voting, fraud happens, but you can take precautions. In association voting, I recommend boards check the outer ballot of early voters before the election. Ballots should always be attended and accounted for.”

The best preventive is not the easiest. As Alexis de Tocqueville recorded, “The health of a democratic society may be measured by the quality of functions performed by private citizens.” No system can be devised to eliminate wrongdoing, errors, misunderstanding, and disagreements while still accomplishing anything. Participation conquers most association foes.

Keels recommends, “To ensure the association functions properly, the Division encourages individuals to be involved and engaged in association affairs, participate in board and unit owner meetings, remain current and knowledgeable of association issues, and vote during election cycles.”

“Owners have a right to receive a copy of the year-end financial statement and may wish to review these statements with a trusted accounting professional. In short, by becoming more knowledgeable about the operation of the association, owners can help their boards remain better informed on the needs of the community, offer solutions when appropriate, and be better able to fulfill their own duties and responsibilities as a director if they later choose to serve in that capacity,” advises Palacio.

“Be part of the solution,” Zifrony advocates. “Complaining without a solution doesn’t get us anyplace.” As kids say when they play, if you point one finger at me, you’re pointing three at yourself. Somehow, the games don’t change that much after all! 

 

Contributors

•  Matthew Zifrony is with Tripp Scott P.A. For more information, visit www.trippscott.com.

•  Jordan Goldman is with Castle Group. For more information, visit www.castlegroup.com.

•  Ramon Palacio is with Association Law Group. For more information, visit www.algpl.com.

•  Travis Keels is with the Florida Department of Business and Professional Regulation (DBPR). For more information, visit www.myfloridalicense.com/dbpr.