By: David M. Peters, Esq.
It is often said, that the sole duty of a Board of Directors is to protect, maintain and enhance the value of the project. The vast majority of the Homeowners Associations contract and delegate authority to a management company. The Board of Directors typically meet monthly, bimonthly or sometimes even quarterly. What are the authority and contractual duty of management to take action in between Board meetings? Obviously, most ordinary decisions as well as emergencies usually do not fall within the time frame of the Board of Directors meetings.
The first place to start is the management contract. Most management contracts provide language giving the manager limited authority to make decisions and expend a limited amount of Association funds in between Board meetings. What most Boards do not realize is that irrespective of what limitations are in the contract, the manager probably has a duty, depending on the circumstance, to expend Association funds, sometimes a very significant amount of funds. If, for example, a water line breaks which left unfixed may cause substantial damage, the manager has a duty to get it fixed – period. The problem comes when a Board of Directors attempts to impose 20/20 hind sight. “If you would have done this or used this contractor it would have been performed at less expense.” “We were meaning to replace the gate, but you should have left the gate open until the next Board meeting.” This reasoning is flawed.
A principal is bound by the actions of its agents. I have recently witnessed several situations in which the Board of Directors attempted to take the position that the manager was liable for an expenditure that the manager authorized on behalf of the Association. While managers should, if possible, consult with the President or the Board on particularly expensive or pervasive issues, the reality is that a manager will necessarily make many significant emergency decisions in between Board meetings without consulting the Board. Attempting to claim that the manager is responsible for the expenditure is rarely, if ever appropriate, even if the decision turns out incorrect, unnecessary or is legally unsupportable or ill-advised.
Exactly to the contrary, the manager could potentially be in breach of their contract and their duties as a manager if they did not take action to “abate” the certain issues or conditions. It is also the manager’s job to make many little decisions in between Board meetings. (Please note that I am not referring to the kind of situation in which a management company clearly sent a meeting notice which contained the wrong date and consequentially pays for the second mailing).
If a Board is not willing to abide by these precepts and wishes, and the manager acts as a mere “secretary” then the Board and each individual member necessarily needs to make the commitment to: (1) educate itself as to how to manage a project; and (2) devote the time and effort, and be available to make the day to day decisions. In other words, learn to be a manager and manage the project. Be careful for what you ask, you may get it.