Letterhead used for lobbying efforts

Question: I’ve lived in at least three associations around Rancho Mirage. The association boards have said similar things when eliciting support for their agendas, such as: “There’s a bill in legislation that is bad for us.”

We owners want the board to concentrate on issues at home. I constantly complain about this to my son, who is an attorney, and he told me to get the bill numbers so he could obtain the bill packages from Sacramento.

When I got the packages, I was shocked. Two different management companies of two different associations where I owned units wrote several letters to the Assembly and Senate supporting bills that make my life as a deed-restricted homeowner oppressive and have resulted in diminished owner rights. The letters were written on association letterhead and signed by the management company owners or managers. The letters did not state that the board instructed them to write, nor did they reflect that they were written on behalf of the association.

I showed owners and board members copies and they were mad. Those letters give the impression that the management company speaks for our association. It doesn’t.

It also gave the impression that the board and owners asked them to write. We didn’t.

My son says that this is a liability to the association and owners and that management should be fired. Is he right?

Answer: A management company contract should detail limitations of its involvement. Depending on the terms, the company may or may not be an “agent” for your association. If it is determined that the company is an agent for your association, the company and all its employees must act only for the association’s benefit, meaning with board consent. An agent acting without actual consent or proper legal authority may subject his company and himself to liability.

The association’s name and letterhead are assets and property belonging to the titleholders. An agent cannot help himself to association property or convert it to his own use. Boards are subject to the same limitation in that they may not use association property for personal benefit and would also be subject to the same liability.

If the letter expresses an opinion adverse to titleholder interests, it may be indicative of a conflict of interest between board members and the association or that the management company is acting in its own interests while claiming to represent the association and its members. Any adverse outcome from the communication of an agent may be actionable.

Many agents claim their contract gives them the right to act, but no agent has the right to interfere with or misrepresent association interests.

Some boards do not read the management contract before signing it, instead taking the company’s word that it’s a standard contract all their clients sign. There is no such thing. Boards should never sign a management contract they question or do not understand. To do so is a breach of fiduciary duty.

The management company contract cannot unilaterally appoint itself “association agent.” The board must agree to that designation, and agreement usually means the board agrees to that specific contract term.

If the contract appoints the management company the association’s agent, the association as principal is responsible for that agent’s acts. Nothing should allow the agent to act without the consent of the principal or on behalf of its principal if such actions are adverse to the association or titleholders.

The management company cannot speak for the association unless the board has specifically requested in writing that it do so. Be forewarned of management contracts that include clauses requiring the association to defend the firm and its employees from any liability incurred while acting as association agent.

Also look for clauses requiring indemnification and insertions as an additional party on association insurance policies -- all paid for by the association. Unless the association strikes these clauses from the contract before it is signed, or specifically and in writing instructs the agent not to act on a particular matter, the agent may have free rein, without consulting the board. The board will also be responsible for those acts.

Your board now has this information and must act on it. If they ignore it, they breach their duties and could inadvertently ratify the agent’s acts. This is not a good position for your association and its titleholders.

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Questions can be sent to P.O. Box 11843, Marina del Rey, CA 90295 or e-mailed to noexit@mindspring.com.