Board Responsibilities and Liabilities

This is an outline of a presentation by Steve Sowell and John Stevens at one of the CAI-Michigan Annual Conferences

 

A board member or officer of a community association is a fiduciary; a person holding a special relationship of trust and owing a duty of good faith and candor to the association.

I.    Board Responsibilities

      A.   Physical

            1.   Inspect

                  a.   Appoint a person o r committee

                  b.   Establish a schedule or routine

            2.   Maintain and perform recommended maintenance at proper intervals

            3.   Repair/replace

                  a.   Repair/replace with comparable materials

                  b.   Know the age and useful life of the project

      B.   Financial

            1.   Establish a proper budget

                  a.   Fixed costs

                        1)   Insurance

                        2)   Utilities

                        3)   Salaries

                  b.   anticipated repairs and maintenance

                        1)   Snow removal

                        2)   Grounds maintenance

                        3)   replacements

                  c.   estimated items

                        1)   legal fees

                        2)   accounting fees

                        3)   contingencies

                  d.   Reserves

                       1)   Minimum 10% of budget

                       2)   Minimum probably not enough

      C.   Legal

            1.   Read and understand the documents

            2.   Enforce the documents uniformly

                  a.   Establish uniform policies

                  b.   Communicate the policies

                  c.   Make few exceptions

            3.   Review documents periodically for necessary updates

                  a.   Changes in the community

                  b.   Changes in the law

            4.   Comply with the law

            5.   Enter into contracts on behalf of the association

II.   Board Liabilities

      A.   Grounds for Personal Liability:

            1.   Self Dealing

                  a.   Kickbacks

                  b.   Sweetheart deals for board members

            2.   Not acting in good faith

                  a.   Concealment

                  b.   Dishonesty

            3.   Failing to account for association funds

            4.   Slander/Libel

                  a.   Slander - spoken falsehoods

                  b.   Libel - written falsehoods

      B.   Avoiding Personal Liability:

            1.   The business judgment rule: what would a reasonably prudent person exercising ordinary care do in the circumstances?

                  a.   Investigate thoroughly

                  b.   Consider the consequences of each course of conduct

                  c.   Determine the most efficient or cost-effective or safest course of action

                  d.   Follow through

            2.   A director who follows the rule is not liable even if, in hindsight, the decision was wrong.

      C.   Indemnification

            1.   Sources:

                  a.   Non-Profit Corporation Act

                  b.   Michigan Condominium Act

                  c.   Condominium Documents

                  d.   Common-law indemnification

            2.   You can be indemnified if:

                  a.   Acted in good faith

                  b.   Acted in or not opposed to best interest of Association

            3.   Indemnification includes both damages incurred and costs and attorney fees

© Steve Sowell 2017