Tuesday, September 2, 2014

Five things a community association Board of Directors should never do!


I have represented association boards for more than two decades and served on my own HOA board at one time so understanding the mechanics of a volunteer board comes easy at this point. Part of that understanding, however, is also an acknowledgement that boards often want to undertake certain actions on their own either as a means of cost-savings or because they simply don't understand the repercussions.

While the following is certainly  not an all-inclusive list when it comes to ill-advised actions , these five do come with significant and sometimes costly results if a board goes it alone. So what are the five things your board should never do?

1.      Negotiate the Legal Terms of a Contract.  Yes, we all know that you and your fellow board members previously signed legal contracts in your business careers and sign them personally now and again but doing so on behalf of your membership without having those contracts properly reviewed and negotiated by your association attorney is just bad business, period.

Boards can and should discuss with potential vendors what they want the business terms of a contract to look like: how long the project should take, what materials will be used, what it will cost, etc. However, ensuring that the contract language used actually garners you the results you negotiated is your association attorney's job and not yours.

2.      Fire an employee or vendor without seeking prior legal advice.  I am often asked at social gatherings by family and friends whether or not someone can be sued for this thing or that thing. My answer is always the same "Yes, if an attorney can be found who is willing to file suit (and let's be honest there is usually that attorney out there) then you can and likely will be sued."

Firing employees and terminating contracts with vendors are two areas fraught with the potential for retaliatory lawsuits. Tell people you no longer want them and many do not go quietly into the good night. There are legal issues involved with firing employees, particularly older employees so this is yet another area where expert guidance is absolutely crucial prior to taking action.

3.      Amend the governing documents. Far too many boards get this one wrong. They either use the retired personal injury attorney from out of state to draft changes to their documents or they task their reluctant manager with doing so.

Granted, if you are looking at an amendment as simple as changing the date of the annual meeting, it can seem like overkill to have your attorney draft a one-sentence change. However, some boards attempt to draft amendments with significant changes such as implementing age and occupancy restrictions which can subject the community to liability if they get it wrong. It is also important to remember that amendments should not be drafted in a vacuum-they must be crafted with an eye towards eliminating any conflict amongst similar provisions in each of the association's governing documents as well as written to ensure statutory compliance.

4.      Threaten Legal Action before doing your due diligence.  If you are going to threaten legal action, it would be prudent to determine beforehand if you actually have the legal authority to do what you wish to do. Threatening and losing often does more harm than not pursuing an action at all. Not only will you lose face, you will also likely wind up paying your opponent's attorney's fees and costs. Check with your attorney first to ensure that your contract, your governing documents or the law allows you to safely take the stance you wish to take.

5.      File an insurance claim for property damage without assistance. The process of becoming whole after a covered loss seems simple enough,doesn't it? Your association paid a (likely hefty) insurance premium and when you are damaged, you would think filing a claim is the only action needed. You would, of course, be wrong and perhaps a tad naive. In order to level the playing field, boards must acknowledge that the playing field isn't level to begin with and must enlist the assistance of experienced professionals (namely, your association attorney) to file and shepherd  their claim through an often artificially complicated process.

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