Question: We have recently taken over as new board members in an HOA community. We have been collecting a reserve for roof replacement for over 15 years, but neither our bylaws nor any other community documents stated that the HOA would replace roofs. We have over $700,000 in reserve. My question is whether we can vote to make a one-time exception to replace the roofs, since most homeowners want this done. Do we need a majority of homeowners to approve this decision, or can the board make the decision on its own? — J.B.
Answer: Having an extra $700,000 is a good problem to have, even if the money may have been collected by mistake.
It’s worth pointing out first that reserves in an HOA work differently than in a condominium. In a condominium, reserves are mandatory, and they must be collected in order to fund certain deferred maintenance items. In an HOA, however, there are no mandatory reserves. Instead, reserves may be established by the board, in which event the funds may be used for any purpose; or reserves may be established by the developer or the membership, in which event using the funds for a nonreserve purpose requires a membership vote. However, in the situation you describe, you have been collecting reserves for a specific purpose, and you intend to use the funds for that purpose — and so you would not have an issue with respect to approving the use of the funds, themselves.
The bigger issue is that the association does not have a mandate to replace the roofs in the first instance, and so the use of the funds for that purpose is not a proper common expense. And, you can’t simply start tearing apart people’s private property because many of the owners think it’s a good idea. Without a mandate in the declaration, you would need the permission of individual owners, and you would end up with a patchwork community where some roofs were replaced using association funds, and some were not — and that’s a recipe for conflict. Also, once you replace the roofs you are likely to have owners who argue that certain future repairs should be covered under a warranty, or, that in the event of damage due to a casualty event (such as a hurricane), the damage was due to a defect in installation or materials. Without some backup in the governing documents to support the board’s decision, replacing private roofs with common funds is likely to create far more problems than it solves.
Instead, I would recommend that you amend your declaration of covenants to specifically provide that the association will be responsible for a one-time roof replacement of every home, but also that, other than warranty repairs, each individual owner will be responsible for both insuring their roof against damage and for maintaining the roof in perpetuity. This kind of amendment is fairly common, and it would apply to all owners, whether or not they individually approve of the amendment. A well-drafted amendment would both give you the authority to repair the roofs, as well as provide the association some cover against future expenses.
Of course, you could always decide that the association should take over roof repair and maintenance entirely, which would be a legal amendment as well. You should talk to your attorney about your goals so that he or she can draft an appropriate amendment.
Q: What is the legal and/or ethical responsibility of a board member pertaining to information they obtain from condo management? Are they allowed to discuss or write about these issues to others that are owners in the building?
Many of us in the building feel that there is a confidentiality issue if a board member can tell all. If legal and/or ethical rules have been broken, what can we do about this situation? — J.B.
A: On the one hand, directors and officers are expected to protect confidential information, and they could be guilty of a breach of their fiduciary duty if they were to breach that trust.
On the other hand, very little information in a community association is truly confidential — remember that the vast majority of records are inspectable. Still, there are many times that it is in the association’s best interest for the board to keep certain information confidential, whether permanently (such as attorney-client communications) or temporarily (such as with contractor bidding or loan applications). I often draft standard operating procedures for my clients that outline director and officer responsibilities and that address issues like confidentiality.
Enforcement, however, is always a challenge — the likelihood that a director would be held personally liable for a breach is small. Still, it would at least provide a framework for the board members to follow, and allow the board to censure the director or officer in the event of a breach (and possibly provide an additional legal argument in the event of a breach of fiduciary duty claim).
Ryan Poliakoff is a co-author of “New Neighborhoods — The Consumer’s Guide to Condominium, Co-Op and HOA Living” and a partner at Backer Aboud Poliakoff & Foelster, LLP. Email questions to firstname.lastname@example.org. Please include your hometown.