Sure You Can Do It...But Should You?
Homeowners and condominium association Boards of Directors have extensive powers to act on behalf of the Association. The actions a Board can take are broad and encompass all areas of Association governance. However, with great power comes great responsibility. Boards often take some or all of the following actions, but they need to do so with full consideration of the potential ramifications. Sure, you can do it...but should you?
1. Make decisions. The Board acts on behalf of the Association. Part of this is the obligation to make decisions regarding covenant enforcement, collections, contracts, governance, and day-to-day business.
Under the Colorado Common Interest Ownership Act, Boards are obligated to permit owners or their representatives to speak regarding issues under discussion before placing the issue up for a vote. The Board can make decisions…but it shouldn’t make them without allowing owner input.
2. Don’t make decisions. Sometimes, not making a decision on a matter is in effect, a decision. This is particularly evident in the case of covenant enforcement. By choosing to not enforce a covenant, a Board indicates to the community that the covenant is no longer really a covenant. This can lead to widespread violation of the covenant, and the Board’s failure to enforce can be a breach of its fiduciary duty. The Board can decide to not do something…but it shouldn’t do this without making an affirmative decision.
3. Keep your assessments unchanged. Dues are assessed for the purpose of creating a stronger community, maintaining common areas and providing needed services – but no one likes paying dues. With this in mind, many Boards hesitate to increase assessments even when necessary to continue to provide the community’s services or to stop the deterioration of common areas.
After years of unchanged assessments, the Board is forced to make a large assessment increase which almost always results in more complaints than smaller, more regular increases. The Board can keep assessments level and unchanged…but it should recognize that the cost of services increases regardless of assessment levels, and it will have to pay these costs eventually.
4. Increase your assessments. Boards can increase assessments, as discussed above, and they should increase assessments as necessary. They should not increase assessments to fund projects not permitted by the Association’s governing documents, pay Board members, or allow the Board Treasurer to speculate with the reserve fund in a wild weekend in Blackhawk. In addition, if the Association’s governing documents provide a procedure for assessment increases, follow it. The Board can increase assessments…but it should make sure the increase is for a proper purpose, and is adopted in accordance with the Association’s governing documents.
5. Sign contracts. The Board President often signs contracts on behalf of the Association, even without any explicit authority. This can cause problems down the line when a party questions the validity of a contract. While most of the time these contracts create no problems, there is potential liability when a contract is executed without authority. A Board member can execute a contract and it probably won’t cause any problems…but the more prudent course is to make sure the Board adopts a Resolution granting that Board member the authority to execute contracts.
6. Don’t sign contracts. As attorneys, we often come across disputes between Associations and vendors where there isn’t even a contract outline the terms of the proposed work. The Board and the vendor agree on terms, but never quite set those terms to a formal agreement. When the vendor and the Association are happy with the work performed, there is no problem with this informal procedure.
When there is a dispute, general principals of contract law will create a “contract” even in the absence of one – however, proving the terms of that “contract” is a costly and unpredictable endeavor. The Board can conduct business without formal agreements, and might not ever have a dispute…but it’s not likely.