This in an anxious time in which to sit on the board of directors. With defaults and foreclosures accounting for some 20 percent or more of the units at some condominiums, frustration among association members is off the charts.
“It is really difficult to be a homeowner in the community paying your share,” observes attorney Kenneth Direktor of the West Palm Beach law office of Becker & Poliakoff, “when you’re also paying the share of the other guy who lives there, using all the amenities but hasn’t paid his assessment for two years. And the bank is taking its sweet time in foreclosing.”
With less income coming in, boards are often forced to raise monthly maintenance fees and levy special assessments. “It is a bad situation,” observes attorney Lisa A. Magill, a shareholder in the Fort Lauderdale office of Becker & Poliakoff. “Some people can’t afford to increase their maintenance and the statutes here allow communities associations to waive reserve funding.” It could lead to safety issues. Should the reserve run dry, if a major repair or renovation is required, says McGill, “you not only do not have the money to do the repairs—you may be jeopardizing other people in the building.”
In some states in the Northeast, notes attorney David Hartwell of Penland & Hartwell, LLC, a real estate law firm based in Chicago, “transparency has become a big issue. When everything’s good, nobody seems to care. But when things go bad, suddenly, they ask, ‘why aren’t you telling us what’s going on? Who’s running the joint?’”
But in Florida, which has some of the strongest condominium and homeowner protection laws in the country, “the crying out from association members,” observes Direktor, “is not necessarily an issue of transparency; it is an issue of frustration.”
According to attorney Donna DiMaggio Berger, a managing partner at the Fort Lauderdale-based law firm of Katzman Garfinkel & Berger, “Transparency has become perhaps more of an issue of allaying fears.”
While it is next to impossible to alleviate fear and anxiety within the community entirely or, indeed, to completely forestall accusations of lack of transparency, board members and management can make the bitter pill of cost increases easier to swallow by paying scrupulous attention to the way they communicate with owners.
The Letter of the Law
For starters, they need to adhere to the letter of the laws prescribing the records boards must keep and the rules on their disclosure.
“In Florida, we have a lot of consumer protections built into the statute,” says Magill. “Both the Condominium Act, statue 718, and the Homeowners’ Association Act, chapter 720 of the Florida statutes, say that associations must maintain certain records, called ‘official records,’ and must make them available for inspection by owners. Owners are entitled to see practically every financial record of the association.”
In addition to the declaration and bylaws of the condominium, “official records” include: minutes of all association, board and unit owner meetings, which must be kept for at least seven years; the current roster of all unit owners and their mailing addresses and telephone numbers; accounting records, including itemized records of all receipts and expenditures, a current statement of account for each unit owner, all audits, reviews, accounting statements and financials; all bids and contracts for work to be performed, which must be maintained for one year; ballots, sign-in sheets, voting proxies and all other papers relating to voting by unit owners, which must be kept for one year; invoices for purchases made by the association—and the list goes on.
The Condominium and HOA Acts—and the Cooperatives Act as well—require that every board must issue an annual financial report, the depth of which is determined by the size of the association, ranging from a report of cash receipts and expenditures for associations with 50 units or less, to a full independent audit by a CPA for associations with revenues of more than $400,000. Condos and HOAs have 120 days after the fiscal year to let members know the report is available free of charge. Cooperatives have 90 days.
The list of records that are not accessible to unit owners is much smaller, including records regarding litigation, information about the approval of the sale or lease of a unit, personnel records and medical records and discreet information pertaining to unit owners, like social security and credit card numbers.
Custodian of the Records
As to the storage of the association documents, “typically the management company will be the custodian of the records,” says Magill. “If the association employs on-site managers or on-site staff, the records will be kept in an office or somewhere on-site.” Some self-managed properties have a room to store association records, but, adds Magill, “every now and then you have communities where some of the records are in the president’s house, some in the treasurer’s house, some with the accountant. That makes it more difficult for them to comply. There are short time frames on responding to record inspection requests.”
Indeed, cautions Berger, “The association can be fined if they don’t disclose the documents within 10 working days.” That should be reason enough for condo boards to keep close tabs on how good a job their manager is doing in storing the property’s documents. But there is another important reason: some records could be essential for an association’s defense in a lawsuit.
Lost in Transition
“There’s a litigation matter I’m consulting on where it is important to have old records concerning monthly charges, rental agreements and the like,” says New York real estate attorney C. Jaye Berger, “and they seem to have gotten lost in the transition from one management company to another. The loss may cause a real weakness in the case [which is pending]."
“Boards might assume when they say, ‘please transfer the files,’ that everything will be transferred in an orderly fashion,” says Berger. “But sometimes when there is a transition, like when the board fires a management company and hires a new one, documents are lost in the process. That is a scary thought.”
Open Board Meetings
Board members in other states would be astonished to learn of the level of transparency surrounding board meeting at Florida associations. According to a 2011 amendment to the Condominium Act, notification of a board meeting must be posted conspicuously on the property, identifying agenda items so association members can study and be prepared to speak on those topics. If the meeting will discuss special assessments, the notice must be no less than 14 business days prior to the meeting. Members are not only invited to participate, “they can also tape-record or videotape board meetings,” says Magill.
Meetings which will propose changes to rules of the associations—say, for example, says Magill, “if they allow dogs right now and they want to amend the rule to say no more pets”— those meeting also require extended notice, “to enable off-site owners to have a little bit more warning of certain types of actions before they happen.”
While the Condominium Act requires the board to record and hold the meetings’ minutes, it has little to say about their contents. It simply states that the minutes include whether there was a quorum, who made motions and how each director voted on those motions. “Every community association does their minutes differently,” says Magill. “They are highly stylistic.”
“As a general rule,” suggests Hartwell, “they should be prepared in such a way that somebody reading the minutes who did not attend the meeting can reasonably ascertain what business was performed by the board of directors at that meeting.”
In practice, the minutes of meetings are less revelatory than most of the other records of the association. “In a lot of places you won’t get a full picture of what’s going on just by looking at the minutes,” says McGill. “Members really need to do a little bit more work than that as an owner.”
Go the Extra Mile
For that matter, members sometimes have to go the extra mile to inform themselves on any of the operations and records of the association. “Having the right and getting it are two different things,” says KGB’s Berger. She encourages owners to persist in their requests to examine corporation documents should they meet resistance. Lamentably, says Magill, “while the laws are really designed to have that transparency, unfortunately some people don’t take advantage of all the information that could be available to them.
As an example of a member who did know his rights and went after them, recalls Berger, “We recently took on a client in Boca who had been asking to see association documents for years and was constantly shut down by the board. He had his suspicions that the board was not doing things entirely correctly. And it turns out he was right: they were not getting competitive bids on contracts. He was tenacious and he finally prevailed.” Ultimately, she adds, “he got on the board and made some changes.”
Step into Your Role
That Boca board could have avoided years of hard feeling, not to mention the legal fees, explains Berger, “by just putting their role in the proper frame. They are the custodians of the association, but is not their property except to the extent that they are a member. They’ve got to understand that the documents belong to the membership and not to the board.”
The Condominium and Homeowners’Acts have another built-in protection for associations against less-than-cooperative boards. “Members can recall their board members at any time with a vote of the majority of the entire membership,” explains Magill. The most common claim in such cases is breach of fiduciary duty.
There is a downside to having a vast collection of statutes and protocols surrounding the disclosure of information to association members, especially when members know their rights and press for them. “We have more of these smaller disputes that wind up escalating when you have all these consumer protections built into the laws,” observes Magill. “When you’re doing renovation projects or repair projects, all the contractors bids are available to the owners for inspection for up to one year,” putting the board’s efforts and business acumen right out there for the community to judge.
Also, says Magill, “with all the procedural requirements on record requests, you get into a lot of nitpicky arguments: ‘Did the letter come in that day or this day?’ ‘Did you give me every record I wanted?’ ‘Did the person show up for the required appointment on time?’—all kinds of little picayune disputes.”
What is best policy in the face of this heightened level of enforced transparency? According to Direktor, “The best run associations are the ones that err on the side of putting more information out there than the vast majority of owners would ever want to read.”
The more communication to members, the better, echoes KGB’s Berger: “You have boards doing things that are correct but they are just not communicating it so the members don’t know why they’re taking the steps they are taking. You want to give your members enough information to let them know the things you’re doing on their behalf—even the tough choices you have to make.”
True, she says, “it’s not something the board members can walk around with a megaphone broadcasting,” but there are other ways, including effective new media tools, like a password-protected association website where documents can be downloaded and alerts of upcoming meetings and other community events can be posted. Many associations take Facebook pages to display documents and policies and get owner feedback on pertinent issues.
“Educated boards are starting to learn,” says Berger, “that the more transparency they have in their operations, the more people will feel they are keeping them in the loop and that they are doing a good job. They are more likely to be voted in again and to enjoy being on the board.”
Steven Cutler is a New York City-based freelance writer and a frequent contributor to The South Florida Cooperator.