Monday, June 20, 2011

What are the Traits of a Highly Functioning Board of Directors? Part I: the Dysfunctional Board

Some time ago I wrote an article comparing and contrasting the traits and habits of the following types of boards: dysfunctional; functional and highly functional. I will be breaking that article into three separate blogs starting with a discussion of what constitutes a poorly functioning board.

Whether you serve on behalf of a condominium, cooperative or homeowners' association, there are several traits (good and bad) that these volunteer boards share. It is important to remember that boards of directors for common interest housing communities in Florida are made up of your neighbors who take time away from jobs, families and hobbies to serve their communities. The experience level of any given board is typically varied and can run the gamut from school teachers, tradesmen, former CEO's of Fortune 500 companies to stay-at-home parents.

The vast majority of these folks volunteered to serve on their board in order to safeguard their largest asset, their home. Despite scattered media reports on directors treating the association coffers as their personal piggybank or generally acting as despots, most directors conscientiously undertake the duties and responsibilities attached to board membership. It is important to remember that board members are held to a "reasonable businessman" standard (also known as the business judgment rule); they are not held to a level of absolute perfection.

Board members should not be expected to act as quasi-accountants, engineers, attorneys, etc. They should know and understand that certain elements of the association operations will be beyond their level of expertise and, at that point, they should seek counsel from experts to guide them in the decisions they make on behalf of the association. Some boards seem to know both their responsibilities and inherent limitations from the outset and others have to learn it the hard way. Let' take a look at the traits which make up three different types of boards: the poorly functioning (aka dysfunctional) board;the functioning board and the highly functioning board.

The Poorly Functioning Board: These boards are not hard to spot and woe to the persons living in a community served by this kind of board as well as to the board members who know better who find themselves sharing duties with directors who do not.

-Board meetings are held sporadically and without proper notice. Actions which would typically require a fourteen (14) day advance meeting notice (such as for special assessments or changes to rules) are passed with only forty-eight (48) hours or less notice since they are always "an emergency";

-When board meetings are held unit owners are not allowed to participate and, in some cases, even attend. As a result, these meetings often deteriorate into chaos and are quickly adjourned. There is little to no transparency in terms of association operations;

-Owner requests to inspect the books and other requests or inquiries may be ignored or made more difficult than necessary;

-Architectural control guidelines may be applied selectively depending on the whims of the board or a particular member of the board;

-The annual corporate report is not timely filled out and the corporate entity has been dissolved at some point which not only exposes the association members to potential individual liability but requires costly reinstatement fees;

-Contracts requiring payments in excess of 5% of the total annual budget (including reserves) for condominiums and in excess of 10% of the total annual budget (including reserves) for HOA's are entered into and signed without first complying with the competitive bid requirements of Section 718.3026(1) and Section 720.3055 (1) respectively;

-Contracts are given to companies with whom board members may be connected either directly or indirectly and these contracts are not reviewed by counsel prior to execution. Typically, these contracts are written for the benefit of the contractor/vendor and, among other problems, fail to provide any protection to the association in the form of payment and performance bonds or the use of liquidated damages to discourage lengthy delays. Sufficient warranty language may be missing altogether. Some contracts are signed unilaterally by only one board member without a board resolution and occasionally without the knowledge of the full board;

-Maintenance assessments are not collected in accordance with the provisions of the Declaration (either on a square footage or pro-rata basis) and delinquencies are allowed to go beyond the three month or two quarter mark with no attempts to collect;

-The common areas are not properly maintained, repaired, replaced and insured as needed and as required by both the Statutes and the community's governing documents;

-The Board (if it is a condominium association) does not pass a budget with full reserves each year. If reserves are in place, the board (either a condominium or HOA) uses reserve money for purposes other than that for which it was collected without a membership vote;

-Important decisions regarding new tenant or potential purchaser approvals, disability accommodations and covenant enforcement violations are made without regard to the board's statutory and documentary authority and without legal consultation as to the association's ability to obtain a successful outcome; and/or

-This Board may have no idea what amendments to the governing documents have been passed over the years and may be using an unrecorded set of documents which provide little or no guidance.

Now that we've seen where a board can go very wrong, our next blog will discuss those functioning boards who get the job done but aren't scoring A's on anyone's report card.

See also:

Traits of a Highly Functioning Board? Part II: the Functioning Board

Traits of a Highly Functioning Board? Part III: The Award Winning Board!

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

3 comments:

  1. Donna

    What do you do if you have a Dysunctional Board?

    Where does a Board Member or a Homeowner go? Most attorney's represent the Associations not the individuals?

    Attempts have been previously made to have the current Board follow the Association documents and current Statutes, but to no avail.

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  2. Linda,
    The best thing to do in a community with a dysfunctional board is to take control back from that board either through a recall, a complaint with the Division or a legal action or just waiting for the next election to vote on a functioning board. It is not easy but doing nothing is not really an option if you want to maintain your quality of life and real property value.

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  3. Dear Donna,
    Our HOA was formed in 1983. Our By-laws specifically state that each amendment must be recorded in the county records. Since such provision exists for amendments I infer the original By-laws have to be also recorded to be effective and enforceable. But they have never been recorded. I discovered this anomaly two years ago, but it has not been corrected.
    What do you recommend should be done now? Also, does state of Florida require the By-Laws be recorded?
    Thank you, Eva

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