Poor Business Decisions

Poor Business Decisions

by Richard White / Published Apr 2014


No Liability Insurance

Q Our HOA board of directors has not carried general liability insurance on our common areas for almost 18 months. The homeowners found this out when a homeowner could not close on his unit sale because the title company wanted insurance. The homeowner paid for the insurance so closing could take place. The builder controls the board of directors and said there was not enough money to pay the insurance. In your opinion, is this criminal negligence on the part of the board?

JJ, Broward

A I would begin by saying the failure of the developer/board is more of a poor business decision rather than criminal negligence. An attorney would need to answer your question about civil liability versus criminal negligence. Not having enough money to pay for insurance is not a valid answer. When boards are short on funds to pay for required items, they are then obligated to increase the budget or pass a special assessment. It would be my belief that the major reason the developer did not have the funds was strictly his economic position in this slow market. He feared that to pass an increase in the budget or to approve a special assessment would hurt his sales. As the statutes, and I’m sure your documents, require liability insurance, he was clearly in violation of these requirements. Since there were alternative methods to raise the funds to pay for necessary insurance, he made a poor business decision.

Removal of Common Area

Q I am on a homeowner association committee to decide what to do with our tennis court. It was listed as an amenity in the original documents, from 30 years ago, and needs to be resurfaced. We have only 40 units, and some owners want to make changes to remove it and make a parking lot, a park, etc., and some want it to remain a tennis court. Can you tell me whether you are allowed to remove one of the original amenities and, if so, what kind of vote needs to take place?

E.M., Minneola

 A What you are addressing is a common area that you are trying to eliminate. When you start altering common area elements, it can create a serious liability for the association, and for that reason, I strongly recommend you seek legal guidance. An attorney would research documents as to the correct procedures, draft a legal motion, and assist with the required votes. Most documents would define how the removal of a common area would be conducted. The major reason that I recommend legal guidance in removal of common area elements is because I have seen an owner sue the association when they removed a common element. You refer to tennis courts, so let’s say an owner purchased in the community primarily because he had use of the tennis court. If you remove the tennis court and he did not vote for the removal, you may find that he sues the association for that action because you took away the one amenity that was very important to him. My recommendation is that you seek legal counsel to guide the board in this action.

Election Procedures

Q Our HOA board operates as an old boy’s network. In the past, I have spoken out on various issues. More recently, one of the old boys moved, and they appointed a new member. Elections were due for three slots so I put my name into contention. When I received no ballot or notification of an election, I assumed there were no more folks running than the number of openings. Well, I was wrong since a neighbor asked if I won. When I made inquiries, the management company did not know why I did not get a ballot; they said I should check my spam filter to see if the one e-mail notice from a different than usual server sent a notice of election. Of course, there was nothing in the spam filter. Can this be challenged or do I just need to be smarter?

L.J., Estero

 A There are two types of election notices and election ballots. The first is the election for all condominiums and some homeowner associations. The condominium annual meeting election requires two mailed notices, including specific documents. The first notice is 60 days before the meeting and asks that any person wishing to be on the ballot submit their name to be on the ballot. The second notice includes the ballot that must be returned properly enclosed in envelopes and signed by the owners of the units. The HOA annual meeting and election do not require these two notices unless it has been approved either by member vote to amend the documents or it was initially established in the documents. HOAs, normally, do not mail out the ballots but make them available at the meeting. They should not be preprinted or filled in with the candidates’ names as there may be new candidates nominated from the floor at the meeting. Preprinted ballots would be a disadvantage to a candidate so nominated at the meeting. I’m not sure why your association is using e-mail as this would not necessarily be the proper way to notice meetings and include ballots. I do see a problem with your question. That is, you should have sent the board of directors a letter stating that you wished to become a candidate. While it’s not required, I recommend such letter be sent by certified mail. I would recommend that you study your documents for the type of annual meeting election and also read the statutes involved for your association.

Talk at Board Meetings

Q At our HOA monthly board of directors’ meeting, we have a member who attends every meeting and asserts that she can address and discuss any business that the board members discuss. Her interference sometimes has caused dissent and has predisposed some of the board members votes. Do the statutes say that any member can sit in on all board meetings and talk to those items placed on the agenda?

B.S., Stuart

 A The statutes allow the board to establish meeting policies. Those policies could include allowing members to address any agenda items up to three minutes. They can also require that a request to talk on a specific agenda item must be in writing and presented to the secretary before the meeting is called to order. They can also limit when the discussion by the owner occurs as to just after the motion has been made and directors have discussed the motion but before the vote. If an owner does not submit in writing to discuss an agenda item before the meeting is called to order, they can be denied the right to talk. Using such a policy will limit discussion from the floor but allow an owner to present their information or concerns.

Richard White is a long-time licensed manager who lives in Florida. He answers questions on a wide variety of community issues. You may send your questions to Richard at camquestion@cfl.rr.com