Throughout most of our country, the states have laws requiring community associations like condominiums, HOA’s and cooperatives to keep certain official records of the entity and make them available to stakeholder owners, members or shareholders upon request. Some laws provide a list of the types of official records and others don’t. Some require stakeholders to jump through hoops (like stating a good faith reason for the review) before records will be provided for review and others don’t Some states like Florida have realized that owners own their condominium associations and have a right to review certain records whenever and wherever they want and just passed a law requiring condominiums with 150 or more units to have specific web access for owners that is compliant with the Florida law. Florida even made it a potential crime for condominiums of all sizes not to provide access to official records within a short period of time to inquiring owners. If those official records are not provided in just 10 working days of the request, there is a presumption of willfulness and a right of the owner to recover damages including legal fees incurred, along with a possible criminal charge against the offender. Indeed, Florida provides that “[a] unit owner who is denied access to official records is entitled to the actual damages or minimum damages for the association’s willful failure to comply. Minimum damages are $50 per calendar day for up to 10 days, beginning on the 11th working day after receipt of the written request. The failure to permit inspection entitles any person prevailing in an enforcement action to recover reasonable attorney’s fees from the person in control of the records who, directly or indirectly, knowingly denied access to the records.”
New York has just joined the states amending the Not-For-Profit Corporation law, Section 621, adding a list of official records that HOA’s must let their member owners review. In addition to the existing “annual balance sheet and profit and loss statement or a financial statement performing a similar function for the preceding fiscal year, and, if any interim balance sheet or profit and loss or similar financial statement has been distributed to its members or otherwise made available to the public, the most recent such interim balance sheet or profit and loss or similar financial statement,” there is now a list of official records that must be maintained and available in a “reasonable” time for review.
New York HOA member owners are now entitled to review “invoices, ledgers, bank accounts, reconciliations, contracts, and any documents related to the expenditure of Homeowner Association dues.” The amendment was passed unanimously by the Senate and signed by the Governor. That means the entire State of New York is in favor of this new transparency requirement that is sweeping the nation. When Florida passed its new condo laws, the change was unanimous in the Legislature as well. We will wait to see if New York expands requirements for other community associations like condominiums and cooperatives, defines the “reasonable” time period for responding to the request like Florida and Illinois and others, and imposes a civil or criminal sanction like Florida. Irrespective, New York HOA’s and community associations in states like Florida, Illinois and others, must take steps now to comply with the new legal requirements. Office of the Board is an easy and cost-effective way to start complying instantly (www.officeoftheboard.com).
Board Members who misspend is one thing. This Palm Beach, Florida group of Board Members used their association’s money as their own personal piggy bank and now have to face the music in criminal court. The Whitehall Condominium’s owners now have to figure out how to make up the $500,000 plus that the Board Members dissipated.
It is alleged that an estimated $357,200 was spent by the Board Members on their own personal expenses. The members sat idle while the Board Members spent association money on themselves. Records weren’t kept so its hard for the owners to piece it all together. This happens a lot in community associations. A small group of owners run the Board and everyone else sits back and hopes that Board Members are doing the right thing. This association bet on a loser of a Board and now has to pay the price.
The condominium owners should have been demanding regular financial reports and reviewing association records that they are entitled to review under the bylaws and state law. They didn’t demand that the Board have official records which satisfy legal requirements and now they will all pay the price. An Office of the Board would have kept the Board Members honest or exposed their scheme and fraud long before $500,000 was spent and now long gone.
Read More
This time a treasurer of a Florida homeowners’ association decided to use her association’s bank account as a personal piggy bank. From 2003 when she became treasurer till 2015 she and her son took $123,000. Once again we see these situations throughout the country where volunteer Board members do not have unfettered access to association records and are not satisfying their fiduciary obligation as Board members.
Board members should make sure they have such access and regularly review the records. Thefts like this could be prevented or at least discovered early and minimized. There is just no excuse for Board members to sit idle and not satisfy their fiduciary obligations. This time for 12 years cost this HOA $123,000.
Read the story here.
There is increasing pressure towards Board transparency and member entitlement to records. This is yet another example. A New York City Appeal Court’s recent decision addressed in the article requiring greater access to Board records and the right to make paper and electronic copies of records subject to a confidentiality agreement is a huge transparency shift that Boards have to be prepared to deal with.
Read this Article from Habitat Magazine.
This time it happened in a 72-unit condominium in Massachusetts. The Board Member Treasurer did things like writing checks to her contractor son for made up work and none of the other Board Members or owners were reviewing condo records like bank statements. When other Board Members stumbled upon the records years later, the fraud was revealed but it was too late; the money was gone, there was no insurance available and the owners were left without $183,000.
It really is important for organizations to have framework, policies and procedures in place for their Boards. Board Members need to oversee their organization’s business but also their fellow Board Members. They are fiduciaries who are charged with looking out for the best interest of their members. There is no excuse for a Board Member of any type or size organization not to have unconditional and ready access to organization records and not to regularly review those records (like bank statements) and allow such a fraud to happen. This case also highlights what happens when volunteer organizations skimp on insurance that may have covered some of the damage for this inexcusable loss.
If you’re a volunteer Board Member you should ask yourself where are my organization’s records? How do I access them? When was the last time I looked at them? I may be responsible for the actions of my fellow Board Members and others running my organization so I’d better start overseeing them before its too late.
In buildings that are not smoke free, smoke-odor complaints are commonplace. Someone in an apartment smokes and the smoke finds its way in vents, through walls or floors, into adjacent apartments. In cooperatives, there is a warranty of habitability issue and in condominiums, a nuisance issue. The obligation of the cooperative corporation or the condominium association to deal with the complaint is a difficult one. Assuming they are responsible for stopping the odor condition, how do they do it? Very difficult. Maybe create a rule deeming a coop shareholder’s conduct (smoking and allowing secondhand smoke to eminate out of the apartment) objectionable or maybe a condo rule making a unit owner’s like conduct a nuisance. Trying to stop the odor from emanating can be quite a task and almost impossible. Sometimes convincing the offender to use an air purifier or other device to “eat” the smoke may help; particularly if the offender is ultimately responsible and may suffer exposure.
This situation manifested itself in a NYC cooperative called Connaught Tower over the last several years and a Supreme Court Judge in Manhattan decided to punish the cooperative Board for not doing much of anything to cure the condition. The punishment being disgorgement of maintenance back to 2007, amounting to $120,000 plus interest and attorneys’ fees. It appears that the cooperative’s general liability carrier was defending the case but it is not clear whether there was a reservation of rights in place by the insurance carrier so that the cooperative is on its own in paying the damage.
The Connaught Tower’s Board’s big mistake was not taking any reasonable action to try to intervene and abate the odor condition that a unit owner, Mrs. Reinhard was living with for years. The Supreme Court Justice on the case was a former law assistant to a Judge and was disturbed by the Board’s lack of action to the tune of over $120,000. The key for a Board faced with a second-hand smoke complaint is, at the very least, some action to try to intervene and stop the odor condition. We often intervene as negotiators or mediators to try to avoid these types of odor complaints from escalating as it did at Connaught Tower.
Whether you’re a community association trying to collect arrears, a business trying to force a vendor to comply with a contract, or anyone else trying to enforce their rights, good record keeping is essential. Waiting until a dispute arises or suit is necessary or ends up served on you, is too late in many instances to pay attention to record keeping.
The time to focus is the present. It is best to proactively manage what you keep and how you keep it so when its time to prosecute or defend a matter, you’re ready. Consider a well thought out record retention schedule. Which emails should you keep and how long. What documents, electronic or paper, should be kept or purged. Consulting with counsel to make sure your business and personal record keeping complies with the law and protects you is a question your attorney should be able to answer. Remember that being protective in keeping good records will not only protect you and your business, it will end up saving you a lot of aggravation and money in the long run.
