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Property Management Tips

HOA Board of Directors Do’s and Don’ts

Do’s and Don’ts for Board Members

According to Building Owners and Managers Association (BOMA), 90% of new communities built in California in the last 10 years were incorporated into a Condominium or Planned Unit Development. The 1970 CAI Statistical Review indicates there were only 10,000 HOA communities in U.S. but by 2015 that number ballooned to 388,000. In the years to come, more Common Interest Development (CID) communities are expected to be built in California and nationwide.

CIDs attract homeowners for a number of reasons – recreational facilities, well-maintained common grounds, and architectural-standards enforcement are among the few reasons that help retain and increase the property values overtime. The Board of Directors, consisting of volunteer homeowners, is responsible for setting the policies and overseeing the operation and maintenance of the association. If you are planning to buy into or already live in a CID, you should consider becoming involved with your community.

There are a couple of things that potential and current Board members should keep in mind when serving on the association board. The Board, as a group, is empowered to make decisions on behalf of the association. With this power comes great responsibility, meaning that the Board has a duty to enforce the governing documents and community regulations. The Board is not only responsible for the oversight of the day-to-day operations, but also entrusted to interview and select the vendors to perform maintenance and repair of the common areas. The Board must review monthly financial statements, prepare the operating budget and update the reserve study on an annual basis. According to the Open Meeting Act, the Board may not take action outside of the properly announced meeting, and all business decisions must be disclosed to the association membership in the minutes. The Board members are strictly prohibited from conducting any business outside of the meeting or without quorum present, with an exception of when a health or safety related emergency occurs. In these cases, the situation should be addressed in a timely manner. Last, but not least, it is imperative for Board members to refrain from discussing any business matters between the meetings, and always keep information confidential.

All new Board members are encouraged to attend an orientation-training course, which may be offered by the association’s legal counsel, or professional organizations such as California Association of Community Managers (CACM) or CAI. Most importantly, Board members should exercise good judgment and prudency when voting on business decisions. Individual Board members should recuse themselves when the matter of personal conflict, actual or perceived, is in question. Following the above guidelines will protect the volunteer homeowners from personal liability and guarantee the protection of the D&O insurance coverage at all times.

Each homeowner should volunteer to serve on the association Board at least for one term, in order to gain the insight and understanding of the inner workings of the community. Serving on the Board of Directors can be a challenging task, and may require a considerable time commitment, but it also provides an opportunity for neighbors to get to know each other, and work together to make their community a better place to live!

 

-by Vlady Dmytrenko
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Property Management Tips

FB Live Summary: Vendor Contracts with Joel Kriger

Vendor Contracts: How HOA’s Can Protect Themselves

 Summary from our Facebook Live conversation with Joel Kriger

The easiest way that HOA’s can protect themselves from the issues with vendor contracts is to start by examining the contract during its formation. Before entering into a contract with a vendor, whether it is for a one-time project or a long-term service, boards should make sure the following points are covered:

 

  1. License – HOA boards should verify that the contractor is licensed with the state licensing board.
  2. Insurance – HOA boards should make sure the contractor is fully insured and that their insurance coverage does not contain a multi-family or condo exclusion. Insurance should include workers’ compensation if there is more than one contractor on site and liability insurance for injury or fire. HOA is held responsible for damage or injury if contractor does not hold proper insurance.
  3. Governing Documents – HOA boards should consult their CC&R’s and other governing documents to make sure that contracts do not violate any limitations. Often, limitations include limits of one year and a dollar amount threshold before needing board approval. Check the governing documents for a description of what is considered capital improvements as these expenses often need board approval.
  4. Legal Review – Always have legal counsel review all contracts, regardless of size, with attention to particular contract clauses.

 

Contract Clauses for Review

 

Parties – The contract should never name any of the board members as a party. Instead you HOA boards should use the HOA corporate name as the contracting party. This protects the directors from being named in any litigation that might result from a breach in contract.

 

Scope of Work – The scope of work must be clearly defined and outlined. Any ambiguity or incomplete description of the project gives rise to disagreements and makes it difficult to hold the vendor accountable for his work. This also saves the HOA from costly change orders to the contract.

 

Payment Schedule – Define the payment schedule. Generally, payments should be phased so that contractors are paid as work is completed. Lump sums are not advisable because up front payment exposes the HOA to risk or loss if the contractor does not complete work. Normally a percentage is paid up front so the contractor can purchase materials and begin work. A percentage, usually 10%, is retained by the association at the conclusion until work is completed and everything is signed off/inspected.

 

Insurance – Define the types of insurance and minimum limits the vendor must carry and whether the association is named as additionally insured on their policy.

 

Indemnity Provision – HOA is not liable if the vendor get sued due to some act of negligence or omission by the vendor/contractor.

 

Completion Date – If performance dates and times are important, they should be put in the contract. Additionally, it may be good practice to place penalties on vendor if not done on due date.

 

Permits and Licenses – Vendors must be licensed and pull permits whenever appropriate and provide the association with copies of both. Contracts should clearly outline who will be responsible for the cost of permits. If the cost of permits are not included in the cost given by the vendor the association will be responsible for the cost.

 

Warranties – This should be a two step process as labor warranties and manufacturer warranties are in play. If the vendor promises to stand behind his/her work, be sure to put it in the contract. For manufacturer warranties make sure you get work signed off by the manufacturer as properly installed so that the warranty becomes valid.

 

Mechanics Liens Releases – Mechanics lien release provisions should protect the association in the event the vendor fails to pay his subcontractors or material suppliers. The mechanics liens release will allow you to know that the subcontractor has been taken care of.

 

Termination – A termination clause is a good point to include as they allow the HOA to terminate the agreement if the job being performed is not satisfactory. Although, these will release you from the agreement monies for work already completed should be paid.

 

Evergreen – These contracts are lifetime agreements; evergreen contracts automatically renew if notice is not given to the vendor of the association’s intentions to not renew the agreement. Be careful with these clauses; if they are in your contract, make sure the duration for the automatic renewal is not more than a year maximum.

 

Escalator – The association’s payments to the vendor automatically increase in a given time, usually annually. The increase in payments may be predetermined or may be linked to the CPI.

 

Alternative Dispute Resolution – An ADR provision is often included in contracts so as to keep litigation costs to a minimum and to speed resolution of any disputes.

 

Attorney’s Fees – Without an attorney’s fee provision, typically each side bears their own fees and costs.

 

RECOMMENDATION: Boards of HOAs should have the association’s legal counsel review all contracts before they are signed by the board. Contact us for assistance in preparing and enforcing contracts.