Keeping Your Directors Safe & Innocent – Best Practices

Risk AheadA board position in your homeowner’s association affords owners the ability to provide a great service to their neighbors and community. However, such service comes with certain responsibilities that are often overlooked. This includes protecting the association from unintended liability. While no amount of preparation or planning can immunize an association from being sued, there is certain conduct that, if the board makes a habit of doing, may minimize the association’s risk.

Most often a board member finds himself embroiled in litigation pertaining to a subject or board decision he knows very little about. Board members must stay involved and up to date with association business. Understandably, most board members have commitments other than the association; however, being prudent about information relevant to the Association is critically important. Attend regular meetings, read memos and emails about association business and review board packets carefully. All too often lengthy emails are sent about a seemingly innocuous subject and deleted before given the review needed. Staying informed, reviewing documents, attending meetings, and asking questions provide directors with understanding and when necessary, a voice and opinion as to decisions on behalf of the association. 

It is also wise to educate yourself frequently about issues occurring outside the meeting room by walking the property, talking to members, talking to the manager, and participating in meetings. This gives the board an opportunity to see, hear, and discover issues within the community before they become a problem.

Once an issue is discovered, board members should relay this information to the rest of the directors and the board should investigate. These issues may include personal grievances, maintenance problems, or visible defects on association property, which require attention. Such investigation should head off an issue before it flourishes into a more concrete problem.

In addition, it is the responsibility of the board to remain knowledgeable of all aspects of association finances, including reserves, expenditures, assets, and budgets. Reserves should be checked to ensure that adequate funds exist for the association’s needs and adjusted when necessary to ensure financial stability.

Often overlooked is the association’s financial protection afforded by its insurance policies and the responsibility of the board to ensure adequate protection. Each new board should confirm the association is sufficiently insured in accordance with all requirements of its governing documents, the law, and any additional recommendations made by insurance agents and legal counsel. It is good practice to review these policies with counsel to adequately address any pitfalls or gaps in insurance coverage.

When action is required by the board of directors it is important that the directors have a complete understanding of the rules that govern their decisions. Each member of the board has the responsibility to review and understand the authority provided to him in the Associations governing documents and relevant statutes. Acting outside of this authority will almost always lead to controversy and rarely lends itself to a favorable outcome for the association and board members.

It is incumbent upon each board member to understand the origin of his authority, its limitations, and permissible conduct. A review of the Association’s declaration, bylaws, policies and procedures should be the first order of business prior to making any decisions affecting the community. In addition, State Laws provides statutory guidance for many associations with restrictions on governance that must be taken into consideration by acting board members. Simply following the rules outlined in the governing documents and state law will help avoid a majority of unintended problems and consequences for the board of directors and the association.

Failure to act can be as bad as making a poor decision. The board should manage issues and requests in a timely fashion. When it is appropriate the association should hire professionals such as attorneys, contractors, accountants and engineers to provide professional opinions.  Basing decisions on the advice of experts helps insulate directors and associations from liability.

Document, Document, Document. Failure to document is an association’s Achilles’ heel. While the association may have acted promptly, prudently, and in accordance with the governing documents, failure to produce documentation to that effect is difficult to explain and usually results in trouble for the association. Any documentation received by the association, especially opinions of experts (attorneys, contractors, accountants etc.) should be retained and filed where easily accessible. The board is entitled to rely on the opinion of experts in its decision-making and therefore should retain the opinion as evidence of good faith.

It is a rewarding responsibility to represent the association as a member of the board. The information provided, while not an exhaustive list of preventative measures, will certainly aid in reducing the risk of association liability. For a more in-depth discussion on ways to safeguard your community please contact our office.