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Going by the Book The Importance of Following the Rules

Going by the Book

It happens in business, government, and industry every day: employees learn the rules of a new job, and very shortly thereafter, they start taking shortcuts to circumvent them. Rarely is this done with malicious intent. More often, it is simply a matter of achieving such a familiarity or shorthand with the rules that their specificities fade into the background and solving the problem at hand as quickly as possible becomes the priority.

The same can happen with co-op and condo boards, which may find themselves straying from the letter and spirit of the rules that govern the entity over which they have been given authority.

In other instances, the lapse in governing 'by the book' could come from the fact that new members may or may not have fully familiarized themselves with those all-important documents. In these cases, ignorance rarely—if ever—leads to long-term bliss. Sooner or later, boards that fail to lead according to their co-op, condo or homeowner’s association governing documents will find themselves in a bind—the kind that may end up involving litigation.

Letter of the Law

For co-ops, condominiums and homeowner’s associations, there are documents and guidelines available to help a board efficiently, effectively, and legally lead its community.

"A board must conduct the business of its association in accordance with the governing documents of that association—the declaration, amendments, bylaws, article, rules & regulations—in addition to Florida statute," says Candice Gundel, a senior associate attorney with the Business Law Group, P.A. in Tampa. "In addition, a board should consider Robert's Rules of Order when conducting meetings, as well as any relevant case law and arbitration decisions."

Echoing Gundel's latter point, Marita Butzbach, vice president of Association Management Services at Lang Management Company in Boca Raton, notes that many associations are unaware that something such as Robert's Rules, which iron out protocol by which meetings should adhere—even exists. "Boards have to let owners know specifically what their protocol is, and many fail to do so unintentionally, as they don't have a proper adviser on hand to tell them that they're going about things inappropriately."

To this end, a board should rely on the opinions of trusted professionals when making decisions that fall outside its realm of expertise. Accountants, lawyers, property managers, engineers, and a variety of other consultants all fit this bill. Also, as Gundel states, a board should make its decisions based on the "reasonable person" standard, as well as the business judgment rule. "The 'reasonable person' standard' is a term of art in the law that serves to guide officers and directors, with the 'reasonable person' being a hypothetical entity who exercises average care, skill and judgment in making decisions," she says. "The key for associations in both the 'reasonable person' standard and business judgment rule is to make sure that the board is taking action uniformly and is treating all like situations in a similar or identical manner—i.e. no selective enforcement."

Should incumbent board members worry that they may be getting in over their heads given the responsibility inherent in the job, help is available. Jacqueline Marzan, a senior attorney with Levine Law Group, which has several offices throughout the state, recommends a board certification class for greener types looking to brush up on their duties. These classes are usually offered for free by legal or management firms (Levine’s Marzan teaches one herself) and are aimed at newly elected board members in the first 90 days of their terms. They are required under Florida law to be certified.

Florida law specifically states: “Within 90 days after being elected or appointed to the board, each newly elected or appointed director shall certify in writing to the secretary of the association that he or she has read the association’s declaration of condominium, articles of incorporation, bylaws, and current written policies; that he or she will work to uphold such documents and policies to the best of his or her ability; and that he or she will faithfully discharge his or her fiduciary responsibility to the association’s members.”

However, in lieu of this written certification, the newly elected or appointed director or board member may submit a certificate of satisfactory completion of the education curriculum administered by a division-approved condominium education provider. A director or board member who fails to timely file the written certification or educational certificate is suspended from service on the board until he or she complies with this directive. The board may temporarily fill the vacancy during the period of suspension.

"We always tell our boards to be very familiar with their collection practices, so they can make sure that the business of their association can continue because, even though they are typically not-for-profits, boards do need to bring in revenue to administer and operate their communities," says Marzan. "It's also important that boards understand use restrictions. All communities have them, and they're primarily embedded in an association's restrictive covenants—or the bylaws/rules for cooperatives—and they are rules and regulations that address behavior—essentially what one can and cannot do. Knowing those will allow a board to understand whether or not something happening in the community is appropriate, or if they're following proper collection practices."

Relax, Don’t Stress Out

Boards operate on a volunteer basis, and though most of them have the best intentions, having your heart in the right place doesn't excuse negligence or ignorance of the law. It's not uncommon for boards to go about doing the right thing the wrong way. A board may find itself deviating from its bylaws and/or protocols, rarely (although there are exceptions) out of malicious intent, but more likely out of ignorance.

"I think that the biggest reason why a board may fail to uphold its documents is that its members just get too comfortable," says Butzbach. "They get used to the routine, they realize that they've been voted in consistently for X number of years, and they want to be friends with their neighbors. So they start to stray from the motivation and the reasons why they were originally appointed, at which point a board may get lax on an issue, and fall into selective enforcement."

If a board does realizes that it's grown too loose regarding the enforcement of a certain rule, but is unsure as to how it can right the ship, Marzan points out that it can issue what is called a "Chattel Shipping Letter," based on a case by the same name. This notification acts as a line drawn in the sand, stating clearly to owners that a previously waived or simply dormant rule, from that point forth, will be enforced with vigilance. But, as Marzan observes, this type of scenario could have been avoided entirely had a board enforced that rule consistently from the get-go.

Truth and Consequence

Should a board continuously fail to uphold one of its tenets, there are consequences in both the short and long terms that it stands to face. These range from simple inconveniences in the day-to-day management of the association, to legitimate fines and legal action.

According to Gundel, the short-term risks of informality, corner-cutting and the like tend to be more geared toward inefficiencies in the day-to-day operation of the association, which can include the allocation of funds. "Inefficiencies can snowball and cause significant additional work and money to an association over the years," she says.

"In addition, an association that does not follow correct protocol is exposing itself to the risk of litigation. An extreme example can be found in HOAs. The Marketable Record Title Act requires that an HOA renew its governing documents within 30 years. If this renewal goes ignored or is done improperly, the association's declaration will no longer be enforceable, virtually extinguishing the association. The process to renew the governing documents is relatively simple and inexpensive on its face, but were the document to expire, the cost and process to reform would increase ten-fold in both difficulty and expense—should it even be a possibility at all to do so."

Owners are urged to do some homework on their own; to read up on documents and speak up should they see that their board is heading in a bad direction. "It's rarely a cloak-and-dagger situation, should a board get on the wrong track," says Marzan.

"Sometimes a board is just inexperienced, or is following the lead of a prior board that had itself been going about business inappropriately. All owners should be reading their documents and appreciating their communities and how said communities are supposed to work. This way, they will neither cry foul prematurely or remain mum if something egregious is happening."

And should the well-being of a community not be enough inspiration for a board to behave with both diligence and ethical consideration, the financial consequences that loom over both the collective and individual members as penance for violations should suffice. "If a board is really pushing the boundaries of fiduciary responsibility in enforcing those documents, you have directors and officers coverage that protects a board member when he or she is sued," says Butzbach. "But if that member is clearly going outside of the rules, then they may well have an issue retaining that coverage. Often this type of problem can be preempted via manager intervention. I've said to boards that, in my professional opinion, what they're doing is not appropriate. That ropes most people in, because they genuinely are unaware of their failings and do not want to be operating outside of their D&O policies."

Neighborhood Watch

If owners are concerned that their respective boards are losing their way, there are actions that they can take without evoking a complicated legal resolution. Butzbach recommends they simply make a phone call, or engage the board face-to-face in a friendly but pointed manner. "Also, make sure that the board provides a website, or any other type of collateral that owners can read, which irons out rules and meeting protocol," she says. "This way, owners can consistently check up and make sure that things are running as they should be. It's always more prudent to over-communicate, rather than the alternative."

And Marzan points out that, when in doubt, both board members and owners can refer to the Florida Department of Business & Professional Regulation (DBPR) website, a state-run entity that will review complaints that a condominium association is failing to conduct business as it should be.

Finally, Gundel voices the tried-and-true mantra that can remedy most association-based conflicts: get involved. "Attend board meetings, voice concerns in a respectful manner, vote in elections, encourage other owners to get—and to stay—involved. And if that doesn't improve a situation, run for the board. I always recommend that litigation be a last resort."

Michael Odenthal is a staff writer at The South Florida Cooperator. Freelance writer Liz Lent contributed to this article.

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