27th Apr 2016
An effective Board of Directors in a homeowners association is one that understands its duties under the governing documents and statutes and works as a team to effectively and efficiently provide the required services to its members.
Directors need to know the history of the association, be well-informed as to its current financial and physical status and have in mind what needs to be accomplished in both the short- and long-term. Each director has a fiduciary duty to its members to both care for the finances and assets of the association, as well as enforce the governing documents. The board of directors must ensure that the association fulfills its responsibilities by statute and the requirements of the governing documents.
A homeowners association provides the governance for a planned residential community. The Association preserves the architectural integrity of the neighborhood and maintains the common elements. An association should develop and promote a sense of community and protect the neighborhood’s property values. In some cases, the association provides recreational and other facilities that might not otherwise be affordable to its members.
Generally, membership in an association is mandatory and the property is subject to the governing documents as a condition of title. As a member, the owner is responsible to pay assessments and other monetary obligations specified in the governing documents, as well as agrees to abide by use restrictions and other rules of the association. To a certain extent, an owner gives up some say over his or her property in exchange for the association’s promise to enforce certain rules and restrictions governing all property owners in the association.
An association’s responsibilities may be limited to basic maintenance functions or may include extensive upkeep of the property and provision services to individual homes or to the community as a whole. Officers and directors must enforce the provisions of the governing documents in a uniform and fair manner over all members of the community.
Board of Directors
The association has responsibility for maintaining the common property and facilities, as well as the management and operation of the association’s business affairs in accord with the governing documents created when the community was first developed. To the extent that an association (typically a non-profit corporation) has such authority and control, it is its board of directors that carries out these duties and responsibilities.
The board of directors serves without compensation, unless the bylaws of the association provide to the contrary. The board’s authority includes all of the powers and duties enumerated in general law, as long as the powers are consistent with the governing documents.
Officers of the Association
The President has all the powers generally given to the chief executive officer of a corporation. While specific by-law provisions may vary the president’s duties, generally, the President presides over all meetings of the board and the membership. The President executes contracts, orders and other documents in the name of the association as its agent. The President should always indicate the capacity in which he or she is signing in order to avoid any personal liability since the President’s signature, under most circumstances, will bind the association under a doctrine of inherent powers.
Additionally, the President is in charge of the day-to-day administration of the association and has the authority to order specific actions in furtherance of the board’s policies. The President is the Board’s spokesman in most matters relating to general association business. Like all officers of the association, the President has a duty to carry out the responsibilities of the office in the best interests of the association. Unless otherwise specified in governing documents, the President serves at the will of the board of directors and can be removed with or without cause at any time by a majority of the full board. A director who is removed from office remains on the board as a director; directors can only be removed from the Board by a vote of the members.
The Vice President has those powers which are required to perform the duties of the association President in his or her absence. The Vice President does not automatically possess inherent powers to act in the capacity of the chief executive officer, and may act for the President only when her or she is absent or otherwise unable to act. The Vice President may assume such additional duties as directed by the board of directors. Often, the Vice President serves as President-Elect and succeeds the President at the expiration of his or her term as President.
The Secretary is responsible maintaining a record of all meetings of the board and the membership and is the custodian for most of the official records of the association. The Secretary need not actually keep the minutes of the meetings, but will be responsible for obtaining someone who will do so as a recorder or assistant secretary. As the custodian for the minutes and other official records of the association, the Secretary is responsible for insuring that members and their authorized representatives have access to the official records as specified by statute and the governing documents.
The Treasurer is the custodian of the funds, securities and financial records of the association. When the association has a manager or management company that actually handles the funds on a daily basis, the Treasurer is charged with overseeing managers, bookkeepers or others to insure that the financial records and reports are properly kept and maintained. Unless the by-laws otherwise specify, the Treasurer prepares the proposed annual budget and the annual financial report on the financial status of the association.
The Treasurer does not have the authority to bind the association unless the board has provided express authority to do so. As with the association’s Secretary, the Treasurer does not have to perform the day-to-day record keeping functions of the association when this responsibility is transferred to a management company, but the Treasurer is ultimately responsible for insuring that the financial records of the association have been maintained properly in accordance with sound accounting practices.
Fiduciary Relationship and Responsibility
Officers and agents carry out the policies and administrative functions for the community. Some of the officers are clerical, while others carry out substantive functions. Officers have an affirmative obligation to act in good faith towards the association and to avoid conflicts of interest or self-dealing.
The board of directors and each officer of the association have a fiduciary relationship to the members of the association. This fiduciary relationship imposes obligations of trust and confidence in favor of the corporation and its members. It requires directors to act in good faith and in the best interests of the association. Directors must exercise due care and diligence when acting for the community, and act within the scope of their authority.
Directors are not relieved from the strict fiduciary relationship to the members of the association simply because they are volunteers and unpaid. A director is presumed to have knowledge of the duties and responsibilities of a board member. Board members are not excused from improper action on the grounds of ignorance or inexperience. Directors may be personally liable for their gross negligence to the association and its members.
The board’s duties must be performed with the care and responsibility that an ordinary prudent person would exercise under similar circumstances, and the ultimate responsibilities of these unique positions cannot be delegated to a manager, a management company or other third party.
Operating a homeowner association carries the same duties and responsibilities as overseeing any other business. While it may sometimes be a thankless task, an association simply cannot operate without the hard work and dedication of the members of the board of directors.