Condo association and HOA living represents a unique social arrangement; it’s a paid-for membership club and a home at the same time. Many people enter into this arrangement without a complete understanding of the responsibilities of membership. Others, fully aware of their community responsibility, volunteer to help guide, shepherd and monitor the health and welfare of the community by serving on association or corporation boards.
A typical single-family homeowner employs the skills of various professionals over the course of years to maintain and manage their home; attorneys, accountants, contractors and others as needs arise. The management of a large residential complex, one that may contain hundreds of units, often requires more complex skills. A single-family homeowner might require an attorney to close the purchase or sale of their property; an accountant to do their annual personal income tax; and a contractor to repave a driveway or fix a roof; In large residential complexes, legal, accounting and other skills often come into play more frequently, and in more complex ways.
Those association members who volunteer their own time to serve on a board may not themselves have the skills, education, experience and time to provide the expertise for these functions. That’s why condo associations and HOAs have managing agents. But sometimes, unfortunately, things can still go awry. As much as we don’t want to think about it – and rare as it may be – what is a board to do to keep everything on the up and up?
Your Fiduciary Responsibility
Tana Bucca, an attorney who represents community and condo associations, and a shareholder with Stark & Stark, a law firm with several offices in New Jersey, suggests the following as a rule of thumb for boards and board members in protecting themselves: “While an association board certainly has oversight responsibilities with regard to its management, they should be careful not to micromanage the manager. This is totally unproductive, and will create delay or even liability for the association or individual board members. We suggest that boards work together with management to create policies that clearly delineate the role of the manager and staff versus the role of the board itself. Perhaps the board, together with management, can work together to create a responsibility chart. The board should strive to meet regularly with the manager to discuss responsibilities, goals and expectations. Beyond this, the board can set a protocol for vetting vendors.”
Arlen Lasinsky is a director in the Advisory Services Group of Marcum LLP, an international accounting and advisory firm based in New York City. He and his firm offer forensic accounting services, and he says a condo association’s board “Is ultimately responsible for whatever happens. They have the fiduciary duty to do what’s proper. They have to do their due diligence.” But, he continues, “The board should rely on their management company to refer vendors. The management company and the manager have the connections and the expertise to locate the best vendors for a job. There should be two levels of vetting; first by the management, and then by the board.” Perhaps most importantly, Lasinsky points out that like all vendors, “The management company is a not a substitute for the board. They are a contractor the board hires as well.”