Condo talk: Board’s fiduciary responsibility is to assemble a professional team
Members of an association board are caretakers of others’ property, and are considered fiduciaries of the owners. The highest standard of care is owed by a fiduciary. In order to meet the high standards of a fiduciary, the board has to take adequate steps to maintain, repair and replace the property within the association and to administer and manage the affairs of the association.
While board members are responsible for property that may be valued in the millions of dollars, many board members do not come from or have a business background. To assist in making decisions and to administer the affairs of the association, the board should assemble a solid team of professionals to provide guidance and input on a broad array of matters.
This professional team generally includes a property manager, attorney, accountant, banker, insurance agent and engineer.
Property manager: For associations that are professionally managed, a property manager is the “quarterback” of the team. The role of professional management is multidimensional. In general, management handles the day-to-day operation of the association. This includes creating and carrying out maintenance programs and soliciting bids and recommending contractors for maintenance projects, and having a good “stable” of qualified and reliable contractors for consideration by the board.
Management also assists in preparing the annual budget and the annual accounting, invoicing for and collecting assessments from owners, and maintaining the association books and records.
Boards rely on a professional management company to provide quality and timely information that enables the board to make informed decisions pertaining to the maintenance, preservation and care of the property and assets of the association, and the welfare, safety and lifestyle of the residents. Once the board has made a decision, the management company is entrusted with the responsibility of implementing that decision in an expeditious and efficient fashion. Importantly, the property manager is the liaison between the board and unit owners and the board and contractors.
Attorney: Many matters that come before, and decisions made by, the board have significant legal ramifications. It is important for a board to include legal counsel, well versed in association law, on its team of professional advisers. Seeking legal counsel early in a matter can prevent problems, or prevent relatively small problems from turning into expensive and time-consuming lawsuits.
The attorney provides a full range of services to the association. This includes handling transition from the developer to the unit owners; dealing with construction problems; commercial litigation; contract preparation and review; interpretation of statutory and case law; interpretation, amendment and enforcement of association governing documents like the declaration, bylaws and rules; handling disputes with unit owners; rules preparation and review and oversight of rules-enforcement hearings; employment and discrimination claims; loan transactions; real estate tax assessed valuation reduction; and assessment collections from delinquent owners.
Accountant: The association’s accountant prepares tax returns, advises the board as to alternative tax forms, and prepares audits.
Banker: The association’s banker provides operating checking accounts; reserve accounts; investment advice; lockbox services; and loans for maintenance, repair, or replacement of the property for which the association is responsible.
Insurance agent or broker: The association’s insurance representative assists the board in procuring and maintaining appropriate types and amounts of coverage, so that the insurance conforms with the requirements of the law and the association’s governing documents. Example of the types of coverage to be maintained by associations is property, general liability, directors and officers, workers’ compensation and fidelity insurance.
Engineer, architect: Whenever the association is considering a substantial maintenance, repair or replacement project, the board should engage the services of an engineer or architect as appropriate. Before the work begins, this professional will inspect the property and prepare plans and specification for work, issue requests to contractors to submit bids, and will review bids and make recommendations to the board as to a contractor. Once the work begins, the engineer will perform periodic inspections of the project to ensure it complies with the plans and specifications, and will review and approve requests for payments and lien waiver from the contractor.
A board that assembles and relies on the advice of the appropriate team of professionals will find the business affairs of the association run more smoothly, that property values are better protected, and the board’s exposure to liability for poor business decisions is reduced.
Ÿ David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.