Question: We live in a condominium with 20 units. There are only four or five of us owners who serve on the board, and we've been doing it for more than 15 years because absolutely nobody else wants to help with anything. Owners keep telling us to hire a management company but they don't understand that even with a company there still has to be a board. The other problem is that we will be paying a lot for the services, and the dues will increase substantially. Presently, those of us who have been doing this for 15 years are really tired of it and don't think it's fair. What now?
Answer: The law requires your common-interest development to have a homeowners association and a duly elected board of directors; vendors such as a management company are optional, as the law vests the board with the duty of association "management."
There are delegable responsibilities of the board and there are nondelegable board obligations. Even with a management company the board must still conduct meetings and assume the responsibility of oversight as its fiduciary duties can never be transferred to a vendor. You and the other directors may have to explain that concept to owners. It is important for titleholders to understand their role as owners, and the board's role as it relates to a management company and third-party vendors.
Not all consulting services are bad or expensive. The board reserves its rights to enter into and execute contracts, and it can negotiate its contracts paying only for those services it needs. In fact, acting in the best interest of the titleholders who ultimately pay for these services requires the board to get the best deal it can and not to overspend on things that are unnecessary (Corporations Code section 7231).
Directors should also be responsible for reviewing and then signing checks for accounts payable. But the bids for vendor contracts and the drawing up of the checks to pay its bills may, for example, be delegated to a certified public accountant, who then provides the checks to the board for signatures. A CPA can also provide a month-to-month accounting of all checks signed by the board, saving directors time. This way directors do not abdicate their duties to a third party because they still supervise the transaction while overseeing association operations.
There are advisors and consultants who can help you accomplish what you want for a reasonable fee, and some don't charge at all. Before seeking an advisor or consultant, the board must first decide what tasks it is having difficulty performing. For example, divide the tasks into categories: legal (fee collection, late pays, liens, foreclosures, payment plans, IRS filings, contracts), operational (notices to titleholders; production of documents, books and records; hiring vendors; permits; inspections; safety; obtaining bids; election ballots and proxies; responding to owners; troubleshooting problems) and fiduciary (repairing, maintaining and replacing common property; responding to all queries in a timely manner; supervising association operations; reviewing financials; hiring and firing vendors; conducting board meetings and elections).
Before hiring such companies or any vendors, take into consideration the collective experience of the companies' principals. Each company will have its own personality; make sure you can work with the company and the manager assigned to your association. If a company had a bad reputation before you hired it, that is unlikely to change. Cut your losses quickly by looking elsewhere. Ensure that you can directly contact company employees when problems arise and, more important, that the company's employees are responsive, competent and polite. The association is, after all, that company's employer and should be treated respectfully.
Such third-party companies are typically paid out of each household's discretionary income, meaning fees might have to be raised to accommodate additional expenditures. That's not always a bad thing if hiring such a company does not prove to be a liability and does not add to the association's problems. Or, if there is a problem, the company resolves it competently and with a sense of urgency with costs for such activities listed in advance. Some companies can be useful and prove a benefit to the association when they are affordable and perform a bona fide service. The key is that the board has to choose wisely, know exactly what it wants and supervise the company's actions.
Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or email@example.com.