The board has a ruling-class attitude

Question: In my association, we have three classes of homeowners: board members, their friends and then the rest of the homeowners. A “friend of the board” has the association-paid gardener work in his private patio while the gardener is on the clock. The gardener is paid in cash and tipped heavily.

Another friend of the board has total access to the management company, yet other homeowners don’t get calls returned. This friend of the board can view all books and records whenever he wants, but no other homeowners can do so.

Are these actions against the law and do the gardener’s cash income and tips have to be reported to the IRS?

Answer: Each vendor is obligated to provide services to the association in accordance with its contract. A gardener contracting to perform services for an association cannot simultaneously “volunteer” to service a private homeowner’s patio for a fee or tips. It is the board’s obligation to supervise each vendor’s activities, and failure to do so is a breach of its fiduciary duty.

Services to individual owners may constitute misuse of a corporate opportunity or benefit, requiring the ones benefiting to reimburse the association for the value received. For questions regarding the reporting of tips or possible unreported income and collecting rewards, contact the Internal Revenue Service.

In encouraging or condoning unequal treatment among owners, the board likely violated its governing documents and, depending on the nature of the discrimination, possibly violated federal and state laws. Those discriminated against may sue to enforce their rights against that discrimination, potentially subjecting the association to huge damage awards and exposing responsible board members to individual damage awards.

An association cannot discriminate in the way it enforces its governing documents or grants, or withhold the right to examine books and records. It must deal fairly with all members. To do otherwise places the association and its board members at risk.

Solving your association’s problems begins with titleholders insisting on upholding their rights and electing a board that stops thinking of itself as the ruling class. Detecting and stopping abuse is up to every owner -- board member or not.

Stephen Glassman is a writer and an attorney in private practice specializing in corporate and business law. Donie Vanitzian, J.D., is a writer and arbitrator. Both live in common-interest developments and have served on association boards. Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mind spring.com.