By Donna DiMaggio Berger, Esq. / Published September 2016
More than a decade ago, I served one two-year term on the board of directors for my homeowners association. At that time, our community had a number of projects underway, including a comprehensive landscaping plan that was not welcomed uniformly by some of my fellow directors. In fact, one director vehemently believed that our board could plant a certain type of tree on each lot as a common expense despite the fact that our documents provided no such authority to the board. We also were requiring the installation of uniform mailboxes at the time, which some members resisted as being too restrictive and utterly unnecessary, and the board sought no input as to the type of mailbox that should be selected and used for years to come. Lastly, we were contracting for improvement of our green parks and renovating our guardhouse, and some directors felt that they could do a good enough job negotiating those contracts without having to pay our attorney to review them.
We had a lot going on. The vast majority of our board members worked and had families, our time was at a premium, and we were a small but self-managed community, so we did not get it right all the time which was disappointing but really not surprising. Having represented volunteer boards for more than two decades, the following are some of the most common mistakes I’ve seen boards make, including the one I served on. The good news is that many of these mistakes can be corrected and certainly none of them need to be repeated.
10. Not reading the governing documents—The relationship between the association members and the elected board is defined by the governing documents. Each board member should have a solid familiarity with the declaration, articles, bylaws, and rules and regulations. This problem is slowly but surely being overcome in Florida by the statutory requirement that all members of community association boards be certified to serve on those boards either by attending a state-approved education course or by signing a certificate that the directors have read, understand, and will uphold the governing documents.
9. Reading their documents and interpreting them incorrectly—An equally common mistake after not reading the documents occurs when directors read them and misinterpret them. All association governing documents start out as a creation of developer’s counsel and most contain an abundance of legal jargon that makes any interpretation by lay persons difficult at best. In fact, many association attorneys have varying interpretations when confronted with certain standard provisions in governing documents. Directors must remember that restrictions on use are construed narrowly, which means that a trier of fact will typically interpret any ambiguous restrictions in the owners’ favor. The best ways to overcome this mistake is to ask for a legal opinion when interpreting all but the most basic provisions in your documents and to amend those documents when they do not adequately address the problem you are experiencing.
8. Not knowing when to ask for help—When boards make this mistake, it can be very costly. The list of topics that are typically beyond a volunteer board’s skill set includes labor decisions; contract drafting and negotiation; handling insurance claims; pursuing construction defect claims; and rejecting purchasers, tenants, and disability accommodation requests. Most boards do not consist of every type of expert needed to successfully navigate daily and extraordinary association issues. Even if you have an accountant, association attorney, engineer, architect, banker, and insurance agent on your board chances are your board will still need a neutral, outside expert to guide you. Qualified, professional advice will enable the board to make better decisions and often provides the safety net required by your D&O policy. Overall if your board questions whether or not you should seek a professional opinion on a certain topic, it means you most assuredly should seek that opinion.
7. Underinsuring—In an effort to cut costs, some boards will skimp on insurance coverage as required by both their governing documents and the pertinent statutes. Property/windstorm, liability, director’s and officer’s coverage, and flood insurance, if your community is located in a flood zone, are not optional; they are mandatory. Other coverage such as umbrella, ordinance and law, vehicle, and workers’ compensation may be advisable depending on your community’s needs. Boards who fail to purchase the proper type of coverage and in sufficient coverage amounts risk being sued by their members for breach of fiduciary duty since properly insuring the community is one of the principal responsibilities of the board. The board should review the association’s insurance coverage each year with both its insurance agent and its association attorney to confirm that insurance appraisals remain accurate and that the board’s purchasing decisions comply with its insurance obligations.
6. Suing—We all know people who can be trigger happy when it comes to litigation, and some directors are no different. Boards need to carefully consider their various enforcement options so the punishment fits the crime. There are various potential tools in an association’s toolkit: fines, suspension of use rights, and a special assessment for self-help measures.
Pursuing arbitration and/or injunctive relief in court may be the appropriate step to take to cure a violation, or it may be overkill. Just as importantly, unsuccessful lawsuits expose the association to legal fees for both sides.
5. Not suing—For every board that is too aggressive about litigation, there is an equally problematic board that is too timid about pursing the association’s rights on behalf of its members. For example, boards should not forego pursuing collections, developer claims, breach of contract claims, and violations because of budgetary concerns. Failing to pursue the association’s rights can create enforcement challenges in the future and undermine the community’s confidence in the board.
4. Signing contracts without protecting the association’s interests—This mistake falls under the category of associations trying to cut economic corners. For every community that saves a few dollars by not having its counsel review, negotiate, and modify its contracts, there is another one which will wind up losing thousands of dollars due to inadequate protections in the contracts they sign. Contractor proposals are typically written by the contractors’ counsel and are designed to protect those companies from the association; they are not written to protect the association from shoddy work, cost overruns, delayed completion dates, and more. Even contracts for minimal amounts require at least a cursory legal review to ensure that the association is not buying long-term problems. It is important to remember that just about every contract is negotiable.
3. Not running the association like a business—Condominium, cooperative, and homeowners associations are not-for-profit corporations, but how many of them are actually run as a business? The answer is very, very few. What does it mean to run your association like a business? For starters, boards must take creation of the annual budget seriously, ensuring that proper amounts are budgeted to fund the essential community services. In addition, reserve funding must be prioritized and directors have to be prepared to make the tough decisions needed to properly maintain, repair, replace, and insure the common property even when those decisions are unpopular with the members. Boards who understand that they are running a business (sometimes with budgets in the millions of dollars) take operational protocols seriously by ensuring the integrity of meeting and inspection procedures as well as committing to transparency and confidentiality goals.
2. Basing vendor decisions on price alone—Some boards mistakenly think that statut-ory competitive bid mandates require them to accept the lowest bid received. Others are just accustomed to using price as their sole litmus test to determine value. In either event, failing to vet vendors on more than pricing alone can result in poor service and, in the worst case scenarios, possible litigation. While price is certainly one factor to be considered when selecting a vendor, contractor, or professional advisor, other factors which must be explored include expertise, track record, and reputation. There is a lot of truth to the adage that “you get what you pay for.”
1. Shopping around for a free legal opinion on a matter of importance—This is the number one mistake that community association boards make. I have personal experience with this kind of opinion shopping as far too many directors and association members use social media sites to ask me questions that require a paid legal opinion. Sometimes these folks are looking for a second opinion which allows them to do what they wish to do regardless of what the law or their documents require and despite what their attorney has already told them. In other cases, board members may be looking for a free initial legal opinion. In either event, blog posts, Facebook, and LinkedIn groups are the places to start a dialogue and share wisdom about common association issues but not to find a solution to your specific legal issue. It is simply not reasonable for boards to rely on these venues to make important legal decisions in their communities. If you are receiving free legal advice from anyone other than the attorney with whom you have established an attorney-client relationship, you are operating outside the bounds of safety.
Did my board make some of the mistakes outlined above? You betcha, but overall that board and subsequent boards made a concerted effort not to make the same mistake twice.
Donna DiMaggio Berger, Esq.
Becker & Poliakoff
Donna DiMaggio Berger is a shareholder at the community association law firm of Becker & Poliakoff and has represented all types of shared ownership communities throughout Florida for more than two decades. She is the author of a popular association industry blog www.communityassociationlawblog.com. She can be reached at (954) 364-6031 or via e-mail at email@example.com.