April 10, 2008
Are California HOA Managers Immune From Liability?
In California, there are at least two well-known industry groups that serve and train homeowner association managers. In this training, managers are presented with "model" management contracts to offer clients. This makes sense. Managers want as much protection as they can get from Boards who do not follow their advice and from the membership or other outsiders that decide that the manager is the cause of whatever grief they suffer. Being an HOA manager is not an easy job. They are often expected to provide advice on a myraid of subjects for which they are not fully trained, such as construction matters, legal matters, insurance matters, etc.
So, back to the contracts. As with other vendor proposals, these contracts are designed to specify what the manager is paid to do, and to protect the manager legally, for mistakes or errors that lead to legal culpability.
These contracts, unless they contain "mutual protections", are geared to favor the managing agent, not the other party to the contract (the HOA). By "mutual protections", I mean things like indemnification and insurance coverage.
Most of these contracts specify the insurance the HOA must carry, but not anything about insurance the manager must carry. For instance, the Association would be required to carry commercial liability (for accidents on premises, etc.) and directors and officers liability coverage for lawsuits that allege Board misbehavior or negligence. The contacts require that the manager be named as "an additional insured" on these insurance policies.
Most of these contracts specify that the manager shall be protected (held harmless and indemnified) by the Association for any claims against the manager because of something that happens HOA related. This is a somewhat complicated legal concept but simply put, it is intended to make sure that the manager is covered by the Association if there is any legal claim against the manager made ... by anyone.
"Mutual Protections" would mean there were provisions that both parties be insured for their mistakes, and each indemnifies the other for liability that arises because of the misconduct or negligence of the other.
It is fair that managers get some protection from claims against the HOA, as managers can become a target, even for acts of board members, disgruntled owners, contractors, employees etc. Sometimes the manager did nothing to invite the wrath, or legal claim. Sometimes they are the sole cause. Sometimes the problem is a combination of poor management and an inattentive board. There are very many reasons why a legal complaint can be brought, some justified, some not. The point is that managers tend to have a lot of protection, sometimes more than deserved.
The California courts have recently spoken to this problem. In two cases, managers have been found to have to account for their roles in (1) choosing vendors and signing contracts for the HOA and (2) violating the HOA contract.
I will be addressing both of these cases in E-Newsletters in April and May. If you want to receive these free newsletters via email, you need to sign up for the list. Go to my website at http://www.californiacondoguru.com, "enter", and you will find the option to sign up for the newsletter. Please do not send me your email address and asked to be added. You need to do this through the website.
I plan to put some focus on these subjects in the coming weeks. It is my belief that the parties who act irresponsibly or with disregard for the rights of others ought to be the ones who make it right. One of the courts in a manager contract case agreed with me in this statement:
"On top of all of this, there is the reductio ad absurdum of the property management company's position vis-à-vis the association's contract claims (as distinct from negligence claims). Under the property management company's interpretation, it could just outright plain fail to do any work at all for the association, such as hiring a gardening company or arranging for insurance or the typical things that property managers do, and the clause would protect it even from a breach of contract action by the association for having paid for services never performed." Queen Villas Homeowners Association v. TCB Property Management - February 2007.
Perhaps you want to "get on board" and read more on this subject. Join the E-News team. Sign up now. http://www.californiacondoguru.com.
Posted by Beth Grimm at 9:34 AM
January 9, 2008
The Perils of the Uneducated Manager
Sorry, I have been away the last week in Hawaii. I needed to get out of the raging California weather (relatives in the midwest, ignore this!).
A reader asked me if I would write about the perils of the uneducated homeowner as manager. This person noted that the association needs a competent manager who can help the Board!
Not necessarily as easily said as done, at least for the small associations. I do not know how large an association this person was writing about, but imagine that it probably is a smaller association. The thing that is harder for the smaller associations is twofold (1) harder to bear the expense and (2) harder to find willing managers to serve the smaller associations. But nothing is impossible, so keep looking until you find the right people. If you cannot afford full service management, look for companies that offer "menu" services, or people that are willing to "train on the job". Just beware that someone who does not know what they are doing can create legal liability and put large sums of money at risk so make sure to ask the right questions. I believe that CAI (Community Associations Institute) - the National organization in Alexandria, Virginia, offers a publication that assists HOAs in asking the right questions of a management applicant. I am in the process of putting together a publication as well. Watch my publications page at http://www.californiacondoguru.com
Any HOA can run into considerable problems if operating with an uneducated board or manager. By uneducated, I mean in the ways of running an HOA, not seeking higher education such as Phd or Masters material. Although it's not rocket science, it involves running a non-profit business that is taking people's money and investing it in their future. A home in California is the number one investment for many people. One can only hope (or take a more assertive step and make sure) it is being invested wisely. An HOA is also like a city, with elected officials making decisions for spending the HOA members' money to get important services. So some expertise in these areas is helpful, of course. Anyone who has served (successfully) in a leadership position in a volunteer organization will also have something to bring to the table. If you find volunteers, or paid managers, with all of the above qualities and experience, give yoursel a pat on the back. If you don't, seek out the right kind of person to run your "ranch".
I could say the same for managers and boards. Training in the area of HOA management and operations is critical. Homeowner associations are a different "animal" than apartments or other forms of property managed real estate. There are a host of legal requirements and a lot of "fiduciary" responsibility involved in doing things properly. And having some "people skills" (such as mastering active listening) all help to form good leadership.
Those wishing to manage HOAs in California can take classes through CACM (go to cacm.org) and CAI (go to caionline.org), and through providers like myself (a handful maybe, in the State). There are no state sponsored classes at this time that I know of, although there probably should be. In order to call themselves a "Certified Common Interest Development Manager" in California, there are educational requirements and some of the management designations are "grandfathered" in the law.
To be an educated board, there are more options. In addition to the above, there is ECHO - EXECUTIVE COUNCIL OF HOMEOWNERS (go to echo-ca.org or call information in San Jose if you want to speak with someone about offerings). there are attorney firms that put on classes and some management companies have board orientation programs.
Above all, whomever is chosen to lead or manage the association must stay abreast of the changing legal requirements for disclosures, owner rights, board obligations and everything else in the Davis Stirling Act. One does not need to know the law inside and out (that is for the attorneys who serve HOAs) but it is important to understand that laws exist in many areas and seek out help in setting up association rules, policies, procedures, accounting and finances from those who understand what is required.
Don't put an ad in the local newspaper if you are looking for a manager. Go to the organizations that can help you find trained people. And if you are using local resources, send them to the industry classes that are offered and get them the education they need. By 2009, there may be legal requirements for board training. Get the jump on it. Check with the above and also watch my website at http://www.californiacondoguru.com) and get on my newsletter and class email lists to keep up with offerings.
Posted by Beth Grimm at 1:56 PM